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This past week, 44 out of 55 countries of the African Union signed a trade pact, allowing countries to be able to trade with each other with less worry over duties and tariffs (IOL). If this trade agreement goes through and is successful, this will be the largest trade agreement made since the formation of the World Trade Organization (CNN). This trade agreement is set to be an important milestone for the development of the African economy and may provide some great opportunities for its citizens.
Free trade agreements are trade agreements in which countries are able to exchange goods and services across borders without having to worry about duties, tariffs, or taxes on the goods being exchanged between two countries. The intent of these agreements is to spur the economy by providing more incentive for two countries to trade with each other, causing both of the countries to develop stronger private economies. The African Union estimates that this agreement will bring on a 52.3% increase in trade between African countries by 2020. This hopes to also reduce poverty levels by providing more job opportunities to its citizens. It also allows current companies to expand into new countries because there is less of a tax barrier. That way, countries can also diversify their economies—a country does not have to rely on a single resource such as oil or minerals to grow its economy (European Commission). Free trade agreements also tend to attract investors from foreign countries to try to expand local industries that are trying to grow outside of their boarders (Balance). Currently, India has been interested in investing in intra-African trade already.
This agreement has not come without some obstacles and fears. For instance, two large African players, Nigeria and South Africa, have not signed the agreement. South Africa has reported that it is currently trying to get its domestic rules organized before moving forward on a trading agreement. However, for Nigeria, while the Nigerian cabinet endorsed the agreement before, according to a statement, large investors in Nigeria had some concerns about the trade agreement. The Labor Party of Nigeria also called the agreement a “death knell for the Nigerian economy” if it were to be successfully implemented in the country (IOL). This may be because Nigeria is currently experiencing a recession because of the falling price of oil (Nigeria is currently the largest oil producer in Africa). There has also been concerns about Northern African countries joining this free trade agreement (Daily O). These Northern countries are more efficient and have more investment money from France and the rest of the EU. The problem, however, is that these countries’ industries will dominate and overshadow any other emerging market in a larger economy.
In all, the new African Free Trade agreement may provide a lot of economic growth and trade. Without tariff barriers, local companies have the ability to grow way beyond their countries’ borders and into new horizons. It will also serve to attract foreign investors to help develop these countries’ economies further. While there has been some anxiety over the lack of support from countries such as Nigeria and the presence of larger economies such as Morocco crowding out growing industries, there has been come excitement over the possibility of large trade growth in Africa.