The African Continental Free Trade Area (AfCFTA), established in 2018, is the world’s largest free trade area by number of member states, second only to the World Trade Organisation. As of October 2023 all countries on the African continent – with the exception of Eritrea – had signed the AfCFTA agreement, and 47 out of 54 countries had ratified it.
Amid trade tensions between the US and China that began in January 2018, coupled with the disruptions caused by the Covid-19 pandemic, the global economy has witnessed increased protectionism and heightened uncertainty. Simultaneously, the trend of globalisation – prevalent since the mid-20th century – has shifted towards regionalisation. Against this backdrop, the AfCFTA’s establishment of a unified market with a combined GDP of $3.4bn, along with a gradual 90% reduction of trade barriers among member states, is set to capitalise on the prevailing trend of regionalisation and cultivate previously untapped intra-regional trade connections. This initiative could potentially elevate income across the continent by 7%, amounting to $450bn by 2035, according to a 2020 World Bank report.
Being among the early signatories and the first member state to ratify the agreement, Ghana plays a pivotal role. The country hosts the bloc’s secretariat in its capital, Accra, positioning itself as the geopolitical and policy centre for decision-making within the bloc. Furthermore, Ghana enjoys a favourable reputation across Africa due to its political and economic stability, making it an attractive destination for business activity both within and outside the continent.
Local Policies
The government has developed an implementation strategy to facilitate the integration of the AfCFTA across various sectors. Accordingly, The National AfCFTA Policy Framework and Action Plan was adopted in August 2022 and was created by the AfCFTA Inter-Ministerial Committee, the National AfCFTA Steering Committee and collaborative working groups comprising academia, and the public and private sectors.
The plan outlines the key developmental goals Ghana aims to pursue following the AfCFTA’s implementation. These include trade facilitation, trade policy, infrastructure development, productivity enhancement of Ghanaian businesses, provision of trade-related information, market integration and financial considerations.
To complement macroeconomic policies related to the AfCFTA with microeconomic initiatives, in August 2022 the country’s Ministry of Communication and Digitalisation created the AfCFTA Hub to advance digital trading, electronic commerce and marketplace services. This initiative aims to propel digital trading, electronic commerce and marketplace services, enhancing the digital capabilities of Ghanaian companies and expanding trade prospects for both services and exports. The AfCFTA Hub is expected to streamline access to African markets for technology start-ups, small and medium-sized enterprises, and other ICT service providers. This has the potential to revitalise the business process outsourcing segment in Ghana, positioning it as a location for call centres, data processing, data science and various digital services across the continent.
Free Zones
As the AfCFTA gains prominence in continental trade and investment, free zones are set to play a pivotal role, bolstering intra-African value chains by facilitating trade flows, attracting investment and creating jobs in high-value industries. A key authority facilitating this expansion is the Ghana Free Zones Authority (GFZA), which was created in 1995 to expand the scope of free zones in the country by offering financial incentives to attract domestic, regional and global firms. The authority manages four export processing zones across the country, and focuses on strategic export industries such as agro-processing, oil and gas, pharmaceuticals and light industry, among others. The GFZA’s target sectors are those with potential to grow as a result of the AfCFTA’s tariff removal.
The GFZA has been working with regulators across Africa to develop new regulations for special economic zones to facilitate and enhance the trade of goods among AfCFTA members. An example of a free zone emerging in the wake of the ratification of the AfCFTA is the Shama exclave for exports in Ghana’s Western Region. In November 2022 the GFZA signed a memorandum of understanding (MoU) for a proposed investment of up to $300m in Shama to help bolster Ghana’s value-added exports across various sectors, with a particular focus on exports to other African markets.
Challenges
Although Ghana is strategically positioned to leverage the AfCFTA’s numerous benefits, the country’s economic trade dynamics are still geared towards its main export markets outside of Africa (see overview). In 2018, the last year for which data was available, the proportion of Ghana’s exports to other countries in Africa stood at 18% and the proportion of its imports from other African nations was 8%. In comparison, the average EU country exported 50-75% to other EU member states in 2022. This shows the challenge in ramping up trade with other markets in the bloc, and the potential for trade that exists for key stakeholders in Ghana’s economy following closer economic integration across the continent.
Persistent obstacles to realising the AfCFTA’s free trade potential include pervasive border checks and red tape at import and export border posts throughout the continent. To help ease any delays following ratification, in October 2022 the AfCFTA Secretariat launched a 12-month trial called the Guided Trade Initiative (GTI), with Ghana, Egypt, Kenya, Tanzania, Rwanda, Mauritius, Cameroon and Tunisia among participating countries. The GTI aims to facilitate trans-border shipments, initially focusing on these eight markets and covering 96 categories of goods. The initiative began with the export of tea from Kenya to Ghana in October 2022.
After the first 12 months of the GTI, stakeholders concluded that red tape and border checks in Africa can be equal to or even more significant barriers to trade than intra-African transport and logistics capacity. This is despite the latter being cited as a barrier to greater intra-continental trade, given that export channels are often more oriented towards the region’s key export markets of China, India, the UAE and the US.
A potential solution to ease bureaucracy at border posts, proposed by multilateral lender African Export-Import Bank (Afreximbank) is developing quality assurance centres in key markets across the continent to ensure that African products comply with the relevant standards and regulations to ease trade both within and outside the continent. The first such centre opened in Nigeria in December 2022, and more facilities are expected to launch in the coming years.
Another facilitating mechanism developed by Afreximbank is the African Collaborative Transit Guarantee Scheme (AATGS). The initial $10m AATGS acts as a trans-border transit bond, where the lender provides the initial bond for the shipment of goods. This scheme, which launched in Zambia in October 2023, was developed in partnership with the AfCFTA Secretariat and other regional economic organisations. Its broader implementation across the bloc could help facilitate the trade of goods between member states.
New Markets
With fewer than 20% of Ghana’s exports destined for other markets within Africa, there is potential to expand exports across more than 50 markets on the continent. One key destination is South Africa, which is set to temporarily overtake Nigeria as the continent’s largest economy by 2024. Although both countries are major mining producers, there is room for growth in trade and collaboration, promising increased overall economic output.
In December 2021 Ghana and South Africa signed an MoU to boost cooperation in agriculture and trade. The agreement aims to increase the import and export of value-added goods between the two countries, emphasising roads and railway infrastructure, mining, energy, manufacturing and agro-processing. The signing of a visa waiver agreement in October 2023 further solidifies their collaboration, enabling citizens of both countries to travel visa-free for up to 90 days. Addressing visa restrictions, a long-standing impediment in Africa, is anticipated to play a crucial role in fostering economic connectivity between nations.
Kenya in East Africa is another important market that is positioned for growth in bilateral trade following the implementation of the AfCFTA. Ghana and Kenya were the first two member states to ratify the AfCFTA agreement in May 2018, and they remain committed to the liberalisation of trade on the continent. A key part of Ghana’s strategy has been the establishment of an export trade house in Nairobi in May 2023 to serve the country’s interests in both Kenya and East Africa.
Kenya exports numerous products to Ghana, such as tea, confectionery, batteries and avocados, while Ghanaian-made products exported to Kenya include cocoa powder, rubber and live plants. However, there is optimism that the free trade agreement can open the door to more value-added goods to be exported from Ghana to Kenya, in particular cosmetics, textiles and clothing, leather and agro-processed goods.
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