How Trade Within the African Continental Free Trade Area Is Evolving

ACCRA — The African Continental Free Trade Area entered into force in 2019 and began trading under its tariff reduction schedule in 2021, representing the most ambitious attempt to integrate African markets since the post-independence era of pan-African regionalism. The agreement, which has been signed by all but a small number of African Union member states, aims to create a single continental market of over 1.4 billion people, eliminate tariffs on the majority of goods traded between member states, reduce non-tariff barriers, and progressively liberalize trade in services and investment — a scope of ambition that, if realized, would make AfCFTA the world’s largest free trade area by the number of participating countries. Four years into its operational existence, the honest assessment of progress is more nuanced than either the enthusiastic projections of AfCFTA’s advocates or the skeptical dismissals of its critics: real structural foundations are being built, but the gap between the agreement’s text and the trade realities on the ground remains large and will require sustained, multi-year institutional effort to close.

The tariff liberalization schedule at the core of AfCFTA has been ratified by a majority of member states, committing them to eliminating tariffs on a specified share of traded goods over defined timelines, with sensitive products receiving longer phase-in periods and a smaller group of excluded products retained outside the liberalization commitment entirely. Progress on tariff schedule implementation has been real, with customs authorities across several major trading corridors beginning to apply preferential AfCFTA rates on eligible goods traded between member states that have exchanged tariff offers. However, the practical utilization of AfCFTA preferences by traders on the ground has been limited by several factors beyond the formal tariff structure: the rules of origin requirements that define which goods qualify as sufficiently African in content to benefit from preferential treatment have proven complex for small traders to document and certify; customs authority familiarity with AfCFTA procedures has been uneven; and the monitoring and dispute resolution mechanisms needed to give traders confidence that preferences will be reliably applied and disputes resolved quickly are still developing.

Non-tariff barriers — the diverse set of regulatory, administrative and physical impediments to cross-border trade that typically matter more than formal tariffs in determining the actual friction of African cross-border commerce — are in many respects a more significant constraint on intra-African trade than the tariff levels that have been the formal focus of trade negotiation. A truck carrying goods between Nigeria and Côte d’Ivoire may encounter dozens of police and customs checkpoints, each representing a combination of legitimate regulatory function and informal rent extraction that collectively adds days to transit time and significant cost to the delivered price of goods. A food exporter seeking to sell across East African borders encounters different sanitary and phytosanitary inspection requirements, different product labeling regulations and different certification processes in each destination country, each requiring compliance effort that increases the effective cost of market entry relative to the formal tariff. AfCFTA’s non-tariff barrier reporting and elimination mechanism, which allows traders to log specific barriers through an online portal and creates a process for addressing the most significant across member states, is conceptually well-designed but operationally at an early stage, with the political will to actually eliminate identified barriers — particularly those that serve rent-extraction functions for specific government agencies — still to be fully tested.

The services trade dimension of AfCFTA has been in negotiation while goods trade implementation has proceeded, reflecting the inherently more complex political economy of services liberalization where professional licensing bodies, telecommunications regulators and financial sector supervisors each have interests in and jurisdiction over different components of the services market. Financial services, professional services, transportation and digital services have each been identified as priority sectors for AfCFTA services negotiation, with the potential economic gains from opening these sectors to continental competition potentially exceeding those from goods liberalization alone. A financial group headquartered in Lagos being able to establish banking operations across other AfCFTA member states on the basis of its Nigerian regulatory approval — a passport arrangement analogous to EU financial services passporting — would have far-reaching implications for the breadth and depth of financial services available in smaller African markets, though achieving the regulatory harmonization that such a passport would require is a significant undertaking.

South Africa’s trade relationship with the rest of the continent has been one of the more closely watched bilateral AfCFTA dynamics, given the country’s position as the continent’s most industrialized economy and the source of significant cross-border goods and investment flows to neighboring states. South Africa’s manufacturers and retailers have maintained dominant positions in several Southern African and broader regional markets and have approached AfCFTA with a mix of opportunity orientation — expanded continental market access for South African goods — and defensive concern about competitive goods from lower-cost African producers gaining improved access to the domestic market. The balance between these perspectives has shaped South Africa’s engagement with specific AfCFTA annexes and sensitive product lists in ways that reflect domestic industrial interests alongside the broader pan-African integration agenda.

Nigeria’s AfCFTA ratification, which came after initial hesitation driven by concerns from domestic manufacturers and informal traders about competitive threats from cheaper imports, has been significant for the agreement’s political credibility given Nigeria’s position as the continent’s largest economy. The practical activation of Nigerian AfCFTA participation — ensuring that Nigerian businesses can both benefit from preferential access to other member state markets and that the domestic market operates within AfCFTA rules as applied — has required substantial administrative preparation and inter-agency coordination that is still ongoing.

The Guided Trade Initiative, a pilot program designed to generate early AfCFTA trade using a small number of willing companies across a limited set of participating countries, has provided the first concrete evidence of AfCFTA-qualifying trade actually flowing under the agreement’s preferential regime. The companies participating in pilot trades have generated useful operational learning about the documentation requirements, certification processes and customs interactions needed to make AfCFTA trade work in practice, and the lessons from the pilot have been fed back into implementation guidance for broader rollout. The scale of pilot trade, while modest, has demonstrated that the agreement’s preferential provisions are technically operational and that trade under them is possible, an important threshold that the agreement needed to cross to maintain credibility.

Payment and settlement infrastructure for intra-African trade is a frequently underestimated constraint on AfCFTA implementation. The Pan-African Payment and Settlement System, designed to allow cross-border transactions to be settled in African local currencies without dollar intermediation, has been progressively expanding its participation across central banks and commercial banks. If PAPSS achieves broad adoption, it would address one of the structural cost drivers of intra-African trade — the dollar intermediation requirement that makes even neighboring country transactions more expensive than comparable transactions in other regions with direct payment settlement infrastructure. The alignment between PAPSS expansion and AfCFTA implementation has been explicitly recognized in the AfCFTA secretariat’s priorities, though achieving the connectivity between the two systems that would allow AfCFTA trade flows to be settled efficiently through PAPSS infrastructure requires coordination among multiple institutions across many countries.

Looking at the medium-term trajectory of AfCFTA, the most realistic assessment is that the agreement’s full potential — the substantial GDP gains that economic modeling has projected for a successfully implemented continental free trade area — will take considerably longer to materialize than the original timelines anticipated. The institutional work needed to implement AfCFTA across the full range of goods, services and investment dimensions, while simultaneously addressing non-tariff barriers, harmonizing standards and building the customs and regulatory capacity needed to implement the agreement consistently across all member states, is a generational project rather than a diplomatic achievement that delivers benefits on a political cycle timeline. The agreement’s genuine importance for Africa’s long-term economic integration is not in question; the pace of progress toward that vision is, and maintaining political commitment and institutional momentum across changes in government across multiple African states over an extended implementation period is itself a major governance challenge that AfCFTA’s architects have rightly identified as central to the agreement’s success.