African Agriculture: AfCFTA’s unfulfilled promises (so far)

Africa’s single market for agriculture holds the promise of fostering a favorable and competitive business environment for agriculture which in turn, can attract additional investments and lead to a modern, dynamic, productive, inclusive, resilient, and sustainable agricultural sector capable of lifting millions of Africans out of poverty.

africa agriculture AfCFTA
Despite the challenges that remain, the benefits of the AfCFTA for Africa and global agricultural trade are expected to expand as the agreement is fully implemented. Ultimately, while all trading partners stand to gain from Africa’s sustained economic and population growth, the region is poised to significantly influence global agricultural markets. But when? © Oxfam East Africa

Africa is poised to emerge as a global powerhouse in the near future. The continent is experiencing significant transformations, highlighted by the establishment of the African Continental Free Trade Area (AfCFTA). This initiative seeks to remove trade barriers and enhance intra-African trade, aiming to form a unified market of 1.7 billion people with $6.7 trillion in consumer and business spending by 2030. AfCFTA is viewed as a crucial milestone in realizing the African Union’s Agenda 2063, which envisions a prosperous Africa characterized by inclusive growth and sustainable development. The agenda includes specific objectives such as ensuring a high standard of living for all citizens, promoting a healthy and well-nourished population, and fostering modern agriculture to boost productivity and production.

The following outline briefly summarizes the points which this article will cover as we delve into the positive and negative aspects of free trade on African agriculture:

  • Agenda 2063 – the African Union’s vision for the continent’s development and transformation by 2063 which encompasses 20 goals and 7 priority areas, covering social, economic, political, cultural, and environmental aspects.
  • AfCFTA (African Continental Free Trade Area) aims to remove trade barriers within Africa. It plays a crucial role in achieving the Agenda 2063 goals.
  • Five focus areas to enhance Africa’s agriculture and food production under AfCFTA: 1/ Agricultural Productivity and Production: Leveraging modern techniques to increase productivity 2 / Marine Resources and Energy: Exploring the blue/ocean economy for accelerated growth. 3/ Sustainable Natural Resource Management: Ensuring environmentally friendly practices. 4/ Infrastructure Connectivity: Developing world-class infrastructure across the continent. 5/Cultural Renaissance: Strengthening Africa’s cultural identity and values.
Background story

The AfCFTA is the world’s largest free trade area, bringing together 55 countries of the African Union (AU) and eight Regional Economic Communities (RECs). Its primary goal is to create a single continental market with a population of approximately 1.3 billion people and a combined GDP of around US$ 3.4 trillion. By eliminating barriers to trade within Africa, the AfCFTA aims to significantly boost intra-Africa trade, particularly in value-added production across all sectors of the continent’s economy.

The agreement establishing the AfCFTA was brokered by the AU and signed by 44 member states in Kigali, Rwanda, on March 21, 2018. After ratification by 22 signatory states, the agreement came into force on May 30, 2019. The operational phase officially commenced on January 1, 2021. The AfCFTA’s negotiations and implementation are overseen by a permanent secretariat based in Accra, Ghana.

Under the AfCFTA, member countries commit to gradually eliminating tariffs on most goods and services over 5, 10, or 13 years, depending on their level of development or the nature of the products. The long-term objectives include creating a liberalized market, reducing barriers to capital and labor, developing regional infrastructure, and establishing a continental customs union. Overall, the AfCFTA aims to enhance socioeconomic development, reduce poverty, and enhance Africa’s competitiveness in the global economy.

Despite the potential for growth in Africa’s agricultural trade resulting from the African Continental Free Trade Area (AfCFTA), several challenges persist. Neighboring countries continue to face poor connectivity due to inadequate infrastructure, weak economic institutions, limited service provisions, public policies, and language barriers. Since much of Africa’s existing trade infrastructure was established during the colonial era with the primary goal of extracting the continent’s abundant natural resources. Consequently, Africa contends with some of the highest transportation, storage, and transaction costs globally.

These obstacles hinder agricultural development that could otherwise arise from the free trade zone. Furthermore, since the global food price crises in 2008 and 2010, African governments have increasingly implemented domestic policies aimed at promoting local agricultural production and food security.

However, these policies, such as import tariffs to encourage self-sufficiency or export bans, may inadvertently distort and destabilize markets. Additionally, substantial portions of agricultural budgets (exceeding $1 billion annually) are allocated to input subsidy programs targeting yield enhancement or other producer price support initiatives.

Unfortunately, these programs often lead to unintended inefficiencies in marketing and production, potentially crowding out sustainable intensification practices. The impact of these domestic policies on the trade-creating effects of AfCFTA within the free trade area remains uncertain without further empirical investigation. The AfCFTA represents a significant milestone aligned with the African Union’s Agenda 2063, which outlines the vision for “the Africa we want”. But how can it work?

Agenda 2063

The Comprehensive African Agricultural Development Program (CAADP), part of the Agenda 2063 continental initiative, aims to address hunger and poverty in African countries by promoting economic growth through agriculture-led development. Under CAADP, African governments have committed to allocating at least 10% of their national budgets to agriculture and rural development. Additionally, they strive to achieve agricultural growth rates of at least 6% per annum.

These investment commitments are tied to specific targets, including reducing poverty and malnutrition, increasing productivity, enhancing farm incomes, and ensuring sustainable agricultural practices that utilize natural resources effectively.

CAADP also plays a crucial role in building resilience to climate variability. It supports countries in developing disaster preparedness policies, implementing early warning response systems, and establishing social safety nets.

The program focuses on four priority areas:

  • Sustainable land management and reliable water control systems: Extending the area under sustainable land practices and improving water management.
  • Rural infrastructure and trade-related capacities: Enhancing infrastructure to facilitate market access for agricultural products.
  • Food supply and hunger reduction: Increasing food availability and improving responses during food emergencies.
  • Agriculture research, technology dissemination, and adoption: Promoting innovation and knowledge-sharing in the agricultural sector.
Market potential

Global agricultural trade, encompassing exports and imports (including intra-regional trade), is largely dominated by Europe and Central Asia, followed by East Asia and the Pacific, and North America. In stark contrast, Africa’s share in global agricultural trade remains modest, accounting for only about 3%. This pattern has persisted over the past two decades.

Among the world’s major regional trade agreements (RTAs), the volume of agricultural trade activities is significantly higher in wealthier regions such as Europe and North America. When combined, the European Union and the United States/Mexico/Canada (USMCA) regions contribute nearly half of the global GDP and the value of commodity exports, despite representing only 12.6% of the world’s population.
However, the African continent faces considerable disparities. While Africa’s population constitutes 18.1% of the global population, its per capita income remains among the lowest worldwide.

The EU, the Regional Comprehensive Economic Partnership (RCEP), and USMCA collectively account for approximately 75% of the value of total global exports from countries participating in these agreements. Meanwhile, Asian countries, particularly the Association of Southeast Asian Nations (ASEAN), have witnessed robust economic growth (8% annually since 2000) and trade expansion (5.5% annual growth in exports). The RCEP region, fueled primarily by China’s performance, has also experienced significant export growth.

As for the African Continental Free Trade Area (AfCFTA) region, it contributes a mere 2.9% to total world exports. Its earnings predominantly stem from extractive industries, including mineral fuels, precious metals, and cultured pearls. Mineral fuels alone account for 44% to 63% of Africa’s total exports during the same period.

However, this heavy reliance on commodities exposes many African countries — such as Angola, Nigeria, and Zambia — to constant risks associated with volatile global commodity markets. Trends in the total value of African exports to the rest of the world closely mirror fluctuations in global primary commodity prices.

One more challenge AfCFTA is facing is the deficit of political will. While African leaders have set up several regional economic communities (RECs) with the aim of advancing regional and continental economic integration, they have hesitated to grant these institutions greater authority due to concerns about relinquishing national control.

Although the RECs have not yet fully realized their potential, there is a growing acknowledgment that food markets in numerous African countries are too small to capitalize on economies of scale. Empowering the RECs could position them as crucial catalysts for harnessing the advantages of larger food markets and driving growth.

Implementing Challenges

Over the years, numerous studies have explored potential reasons for the limited trade integration within Africa. One such explanation lies in the historical colonial connections between African and European nations. Barnekow and Kulkarni (2017) highlighted how low levels of intraregional trade in Africa can be linked to dependency theory, where African economies heavily rely on primary commodity exports to industries associated with their former colonial rulers.

Another contributing factor is the inadequate transportation infrastructure, communication networks, and border controls that hinder trade (or increase trade distances) between neighboring countries. Olney’s study in 2020 revealed that increased geographical distance correlates with more significant reductions in intra-Africa trade compared to trade with non-African countries. Additionally, other research has pointed out similarities among Free Trade Area (FTA) countries in terms of resource endowments and tradable goods, as well as cases where a dominant economic power influences trade dynamics (as discussed by Trebilcock and Howse in 2005).

Despite several studies simulating the potential impacts of the African Continental Free Trade Area (AfCFTA), it remains premature to assess its trade gains fully. While predictions generally suggest that AfCFTA has the potential to enhance trade, the distribution of gains among countries is likely to be uneven. Factors such as market sizes, infrastructure, tariff revenue losses, and export diversification contribute to these disparities.

Looking Ahead

Africa continues to encounter several challenges related to agricultural trade and investment that may hinder the full achievement of the AfCFTA’s objectives, which aim to enhance economic integration and boost intraregional trade and investments across the continent.
Elevated agricultural production costs compared to other global regions, is a case in point of one of the major challenges. While the AfCFTA provides an opportunity to mitigate these costs by reducing various trade barriers among countries within the region, including those that lower tariffs, addressing non-tariff barriers, harmonizing regulatory systems, and investing in market institutions and infrastructure, it needs cooperation among African countries and political capital.

Certain African nations heavily rely on natural resources for export revenue and foreign exchange, driving economic growth. However, this dependence on natural resource exports exposes countries to macroeconomic shocks that impact commodity prices and, consequently, agricultural trade.

A recent study by the ERS highlighted how reliance on oil exports affected trade and consumption in sub-Saharan Africa during the COVID-19 pandemic.

Thirdly, maintaining growth in agricultural productivity is crucial to meet the rising demand for food in Africa. Enhanced productivity enables farmers to produce goods using fewer resources, leading to reduced unit costs and, consequently, lower agricultural prices. A decline in agricultural productivity growth could perpetuate Africa’s reliance on food imports. A study by the ERS showed a slowdown in agricultural productivity growth across sub-Saharan Africa during the 2010s, indicating that output growth primarily stemmed from expanding inputs, such as increased land cultivation.

Despite the challenges that remain, the benefits of the AfCFTA for Africa and global agricultural trade are expected to expand as the agreement is fully implemented. Ultimately, while all trading partners stand to gain from Africa’s sustained economic and population growth, the region is poised to significantly influence global agricultural markets.