PMRC BLOG - The African Continental Free Trade Area and Infrastructure Demand Creation
By Chisengele Chibuta - PMRC Researcher
The African Continental Free Trade Area (AfCFTA) is a flagship project of the African Union’s Agenda 2063, which is a blueprint for attaining inclusive and sustainable development across the continent over the next 50 years. The Agreement creates a single market for goods and services among African countries, with the goal of increasing intra-African trade and boosting economic growth. However, for the AfCFTA to reach its full potential, significant investments in infrastructure are needed.
Infrastructure is a critical ingredient for economic development, and Africa faces significant infrastructure deficits. The African Development Bank estimates that Africa needs to invest $130-170 billion per year in infrastructure to meet its needs against its annual investment of $60-70 billion per year. The AfCFTA can play a significant role in addressing this infrastructure deficit by providing a framework for regional cooperation and investment.
Infrastructure investments are needed in several key areas to support the AfCFTA. First, transportation infrastructure is essential to connect African countries and enable the movement of goods and people. This includes investments in roads, railways, ports, and airports. Improved transportation infrastructure will reduce transportation costs, making it easier and cheaper for businesses to trade across borders. It will also increase access to markets, opening up new opportunities for businesses in remote areas.
Second, energy infrastructure is crucial for economic growth and development. Energy infrastructure, including power generation and transmission networks, is critical to the success of the AfCFTA as it enables businesses to operate efficiently and effectively, particularly in sectors that are energy-intensive such as manufacturing and agriculture. Reliable and affordable access to electricity is essential for businesses to operate and for households to improve their quality of life. Investments in renewable energy, such as solar and wind power, can help Africa meet its energy needs sustainably and reduce reliance on fossil fuels.
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Another important enabler of the AfCFTA which is becoming increasingly important for economic growth is digital infrastructure. The COVID-19 pandemic has highlighted the importance of digital connectivity for remote work, education, and commerce. Investments in broadband and mobile networks can help connect people and businesses across Africa, creating new opportunities for trade and economic growth. Digital connectivity can also help businesses access new markets and customers, reducing barriers to entry and promoting competitive intra-regional trade across African countries.
Finally, investments in social infrastructure will be essential for building human capital and ensuring that people can participate fully in economies. Social infrastructure refers to facilities and services that support the well-being of individuals and communities, such as healthcare, education and housing. Investing in social infrastructure is necessary to ensure that the benefits of increased trade and economic growth are shared widely and that no one is left behind. For instance, providing accessible and affordable healthcare services can improve workforce productivity, while investing in education can equip young people with the skills needed to compete in the job market. Thus, social infrastructure investments will be critical in ensuring that the AfCFTA contributes to sustainable and inclusive economic growth across the African continent.
The AfCFTA can help create demand and mobilize investments in infrastructure by providing a framework for regional cooperation and investment. The Agreement includes provisions for trade in services, which can provide opportunities for businesses in the infrastructure sector to participate in cross-border trade. The AfCFTA also establishes a framework for investment, including the establishment of an AfCFTA Investment Forum to promote investment in the region.
However, significant challenges remain. Financing infrastructure investments is a major obstacle, and many African countries face significant debt burdens. Corruption and lack of transparency can also hinder investment and make infrastructure projects more costly. Addressing these challenges will require strong political leadership, sound governance, and effective institutions. In conclusion, infrastructure investments are critical for realizing the full potential of the AfCFTA because it plays a key role in enabling trade. By investing in infrastructure, Africa can unlock its potential and create a more prosperous future for its people.