Trading forward with the African Continental Free Trade Area (AfCFTA) despite COVID-19
Implementing the African Continental Free Trade Area (AfCFTA) – the continent’s most ambitious integration initiative – on 1 July 2020 could be the key to supporting business and market recovery and boosting investment in the continent in the harsh economic aftermath of the COVID-19 pandemic.
Rapid and ambitious implementation of the AfCFTA to establish an intra-African market could accelerate member states’ recovery from the impact of the COVID-19 pandemic, the United Nations Economic Commission for Africa stated recently. Limiting dependence on external partners, especially in the pharmaceuticals and basic foods sectors, could also mitigate its negative effects.
Due to Africa’s openness to international trade, it is not immune to the immediate damaging effects of COVID-19, which has seen more than 2 549 632 cases recorded worldwide by 24 April, and over 175 825 lives claimed by the pandemic. Resulting in mass shutdowns, travel bans and supply chain disruptions, the global ripple effects stemming from the pandemic have undoubtedly been felt across all economic sectors, in what could arguably be called a ‘black swan event’ – one that is beyond what is normally expected of a situation, that would be extremely difficult to predict, and has severe consequences.
The African Development Bank’s 2020 African Economic Outlook projected a steady 3.9% growth for the continent in 2020, and a 4.1% growth in 2021 — confirmation of Africa’s rise as a destination for growth and investment.
However, the negative impact of COVID-19 on key economic sectors makes it extremely difficult to predict buyer and seller merger & acquisition (M&A) activity in Africa over the next few years.
The COVID-19 pandemic is likely to inject a degree of uncertainty and raise unprecedented challenges in the deal-making process. By successfully implementing the AfCFTA on 1 July 2020, Africa could gear up to benefit from new global and regional trade arrangements, pointing to a potential recovery in capital markets in the next few years and ultimately providing an additional boost to investment and M&A deal activity in Africa.
South Africa signed the AfCFTA agreement in July 2018, paving the way for the country to benefit from inter-regional trade within the African continent.
The significance of the AfCFTA cannot be overstated – it will be the world's largest economic trading bloc and free trade area, measured by the number of participating countries, since establishment of the World Trade Organisation in 1995. The agreement is anticipated to economically integrate 55 countries and cover a market of approximately 1.2 billion people with a combined GDP of more than US$3-trillion.
It is undoubtedly Africa's most ambitious integration initiative, especially on a continent where intra-African trade is languishing at approximately 18% of total trade. Implementation of the AfCFTA on 1 July 2020 would come at a critical moment in time and provide much needed support to businesses across the continent following the harsh economic aftermath of COVID-19.
Envisioned to spur business growth, boost intra-continental trade and spark industrialisation, the AfCFTA could provide a platform for the removal of trade barriers and tariff structures which inhibit intra-African trade by encouraging, among other things, enhanced efficiency of customs procedures, elimination of tariffs, uninhibited movement of persons, establishment of residence and business, mutual recognition of academic, professional and technical qualifications, and the removal of visa requirements.
Contact our Corporate Commercial team to gain greater understanding of how the AfCFTA can be legislatively integrated in your next M&A transaction:
Jeff Buckland Director & Chairman of the Management Board
Riëtte Engels-van Zyl Director
Zaakira Haffejee Associate Designate
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