As the African Continental Free Trade Agreement (AfCFTA) approaches full implementation, African and global partners alike are set to unlock a three-trillion-dollar free trade opportunity and witness a transformative shift in foreign investment flows. The AfCFTA unites 1.3 billion people across 54 African countries, establishing a single, liberalized market for goods, capital and services and representing the largest trade bloc since the formation of the World Trade Organization. The Agreement eliminates key tariff and non-tariff restrictions on intra-continental trade, as well as contains annexes on trade facilitation, customs cooperation and transit, which are anticipated to enable cross-border trade, raise regional income by seven percent and lift 30 million Africans out of extreme poverty by 2035. The AfCFTA will also play a significant role in developing African small- and medium-sized enterprises. By eliminating red tape and streamlining customs procedures, the establishment of a free trade area will enable smaller enterprises to scale-up through increased efficiencies, innovation, productivity and digitalization.
U.S. Emerges as Premier Trading Partner
The operationalization of the AfCFTA will facilitate the expansion of U.S. private investment and commercial activities across the continent, enabling the U.S. to position itself as the trading partner of choice. Under the U.S. Government-led Prosper Africa initiative – which serves to increase two-way trade and investment between the U.S. and Africa – the U.S. Agency for International Development is launching an up to $500 million trade and investment program to facilitate deal-making between American and African businesses and eliminate barriers to trade and investment. In addition, the newly-operational, $60-billion International Development Finance Corporation streamlines American support of large-scale infrastructure projects in emerging markets, which will be critical to the expansion of intra-African trade routes. By catalyzing U.S. support for the AfCFTA, the Biden administration can align itself with this agenda and give rise to long-term negotiations of a U.S.-AfCFTA free trade agreement.
In addition to creating a centralized market for U.S. exports to Africa, the AfCFTA paves the way for Africa to supply goods and services to the U.S, a global economy with a $13-trillion purchasing power. This is complemented by the African Growth and Opportunity Act (AGOA), which allows duty-free exports of almost 7,000 products from Africa to the U.S. and facilitated approximately $3.72 billion in African exports in 2020. As manufacturing represents one of the largest growth opportunities on the continent, the renewal of the AGOA – and its successful integration with the AfCFTA – will be a key determinant of future global trade, and is set to expire in 2025.
FTA with Kenya
At the same time, the U.S. is in the process of negotiating its first bilateral Free Trade Agreement (FTA) in sub-Saharan Africa. Although currently on a six-month hiatus following the election of President Joe Biden – which placed a temporary hold on foreign trade negotiations – an FTA with Kenya has been in the works since February 2020 under the administration of former President Donald Trump. With bilateral trade between the two countries reaching $1.1 billion pre-COVID-19 (2019), the FTA implements a broad range of pro-trade measures across energy, health, infrastructure, manufacturing and agriculture sectors. If signed, the Agreement would lay the foundation for U.S.-Africa trade deals across the continent, piloting a unilateral trade model in a relatively stable country with limited geopolitical risk.
The proposed FTA with Kenya will also compel the Biden administration to choose between prioritizing bilateral over multilateral trade deals, the latter of which has been the crux of its approach to foreign policy. As a result, the formalization of a U.S.-Kenya trade deal could either complement the AfCFTA by strengthening regional integration within the East African Community, or undermine efforts to create a unified market by pursuing bilateral trade deals with third parties and granting preference to specific countries. Either way, the outcome of negotiations will bear a significant impact on the future of intra-African and global trade, as the Biden administration renews its focus on U.S.-Africa relations and seeks to maximize the benefits of the AfCFTA toward future growth and expansion.
Energy Capital & Power (ECP) – in partnership with the Africa Energy Chamber’s U.S.-Africa Committee – invites U.S. companies, investors and organizations to participate in the first-ever U.S.-Africa Energy Forum (10 July, Washington D.C. and October 4-5, 2021, Houston, Texas), which will introduce American companies to African opportunities. To learn more about how U.S. firms can advance the agenda of sustainable, long-term investment in African energy, please visit www.energycapitalpower.com. To sponsor, speak or attend the U.S.-Africa Energy Forum, please contact Senior Direct James Chester at [email protected]