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The African Continental Free Trade Area is the African Union\u2019s attempt to create a single continental market for goods and services. Signed in 2018 and operational for trading purposes from January 2021, the agreement now covers a prospective market of 1.4 billion people and about $3.4 trillion in combined gross domestic product. To date, 50 African countries have ratified the agreement, leaving only Eritrea outside the agreement.<\/p>\n
Yet the quixotic nature of African commerce haunts this grand ambition with an awkward question: Who exactly is being integrated? Formal manufacturers, exporters, and large distributors can use tariff preferences, banking channels, and customs procedures designed for registered businesses. Millions of smaller traders operate differently, carrying relatively small consignments across borders where the value of paperwork, delays, and official uncertainty dwarf the value of the transaction itself.<\/p>\n
Such a disconnect is not a secret. Informal activity accounts for more than 80 percent of employment in parts of Africa, while informal cross-border trade is estimated at roughly $176 billion annually. Such transactions equal around 7-16 percent of formal intra-African trade flows, and as much as 30-72 percent of formal trade between neighboring countries.<\/p>\n
The agreement\u2019s success will, therefore, depend on more than how efficiently multinational companies move goods under preferential tariffs. Its biggest test yet is whether governments can bring an existing, enormous trading network into the formal system through incentives that make compliance commercially sensible.<\/p>\n
\nInformal activity accounts for more than 80% of employment in parts of Africa.<\/p>\n
Hafed Al-Ghwell<\/p>\n<\/blockquote>\n
Granted, the African Continental Free Trade Area agreement deserves credit for the speed of its institutional development. The initial agenda centered on tariff reductions and services, followed by protocols covering investment, intellectual property, and competition. Digital trade, alongside a dedicated protocol on women and youth in trade, has subsequently expanded the agreement\u2019s reach into the systems governing modern commerce.<\/p>\n
Naturally, the economic expectations are correspondingly large. International Monetary Fund and World Bank estimates project that full implementation could increase intra-African trade by more than 52 percent, raise continental income by about $450 billion, and lift 30 million people out of extreme poverty by 2035. Cutting non-tariff barriers and improving trade facilitation would further increase intra-African trade, while real GDP gains could reach 7-10 percent.<\/p>\n
Pilot programs have begun testing preferential trading in practice, although implementation remains uneven. The agreement has assembled much of the institutional machinery required to integrate African markets. However, a crucial missing piece is an equally practical pathway for traders already operating beyond its formal machinery.<\/p>\n
Unfortunately, informality is often treated as evidence of weak institutions when Africa\u2019s cross-border economies suggest something far more complicated. Informal trade survives because it performs functions that formal systems often make expensive, such as moving food quickly, matching small buyers and sellers, using family networks to manage risk, and keeping transactions viable at low margins. To date, informal activity contributes more than 50 percent of GDP in countries including Cameroon, Zimbabwe, Nigeria, and Tanzania, while informal cross-border trade reaches an estimated $17.6 billion in southern Africa alone, equivalent to roughly 30-40 percent of intra-regional trade. Women account for about 70 percent of informal cross-border traders continent-wide, rising to around 80 percent in the Great Lakes region.<\/p>\n
Moreover, individual corridors reveal how much commercial activity exists beneath official statistics. Agricultural trade between Morocco and Mauritania is estimated at $2.5 billion annually; Tunisia-Libya movements of fuel and foodstuffs at $1-2 billion; Kinshasa-Brazzaville trade at about $2.5 billion; and the Nigeria-Cameroon-Niger-Chad border area at roughly $3.5 billion.<\/p>\n
Given these flows, it can be deduced that informality is itself a form of market infrastructure. Traders have created networks that governments subsequently struggle to measure, tax, and regulate. Ambitious as it is, the African Continental Free Trade Area agreement risks becoming disconnected from this major source of actual continental integration unless formalization begins with the economics of the transaction \u2014 how much a trader carries, how long clearance takes, how many documents are required, and whether entering the system produces enough benefit to justify the cost.<\/p>\n
Once the incentive problem is recognized, the agreement\u2019s existing architecture starts to look less incomplete than disconnected. The agreement already has mechanisms capable of addressing payments, inclusion, and digital identification. However, the challenge is getting those mechanisms to meet the same trader at the same border.<\/p>\n
Take the Pan-African Payment and Settlement System, for example. This is designed to allow cross-border transactions in African currencies, reducing dependence on intermediary currencies such as the dollar or euro. While its growth has been rapid, the payment system still favors users already connected to banks. Cash-based micro-traders remain outside the system because of compliance requirements, account access, and the absence of seamless mobile-money interoperability. Thus, while brilliant, the system\u2019s current iteration does not replicate the immediacy with which informal traders conduct business. Worse yet, currency conversion costs alone already drain roughly $5 billion annually from African trade.<\/p>\n
Policy opportunities abound, but the key is making systems such as the Pan-African Payment and Settlement System interoperable at the street level. A digital identity without affordable payments remains incomplete, and a payment system without access to finance leaves the smallest trader constrained. What is more, a formal market without simplified customs still leaves the border expensive. Africa already has a practical test case for solving the problem. The Common Market for Eastern and Southern Africa Simplified Trade Regime, introduced in 2010, was built around the basic proposition that small-scale cross-border commerce requires a different administrative pathway from large commercial shipments.<\/p>\n
There is a lesson here. Continental integration does not always require another grand institutional innovation. Sometimes it requires adapting a proven regional mechanism to the scale at which ordinary commerce occurs. A trader confronted with one predictable form, a transparent fee, and a functioning information desk has a tangible reason to declare goods. The African Continental Free Trade Area agreement can simply build from there, without imposing a single operational template on economies that trade across borders in radically different ways.<\/p>\n
A workable agreement, therefore, needs a common legal framework with room for regional adaptation. The Common Market for Eastern and Southern Africa\u2019s simplified regime already provides the architecture: Neighboring countries can tailor eligible product lists to actual trading patterns rather than forcing every border into an identical mold. Since the African Continental Free Trade Area agreement has the institutional machinery to do it, the objective is fairly straightforward: Make formalization cheaper and more predictable than evasion. The remaining question is whether governments will redesign the border around the trader who actually uses it.<\/p>\n<\/div>\n