The African Continental Free Trade Agreement (AfCFTA) officially begins in early 2021, when participating member countries establish a common market that includes both trade and investment with a total GDP is 3.4 trillion US dollars.
Overview of the African Continental Free Trade Agreement
The AfCFTA aims to eliminate tariffs on 90% of intra-African trade in goods, reduce non-tariff barriers, liberalize trade in services, develop mutual recognition of standards, promote inclusive and sustainable development, and facilitate the movement of capital and people between countries. The AfCFTA is structured in phases, allowing it to evolve over time.
Specifically, many other negotiations are planned in areas such as competition policy, investment, intellectual property rights and e-commerce. AfCFTA is built on the Agreements and principles of the World Trade Organization (WTO), which is important because 11 members of the African Union are not yet WTO members. According to the United Nations Economic Commission for Africa (UNECA), once fully implemented, AfCFTA has the potential to increase intra-bloc trade by 52.3% compared to the time before the signing of the Agreement.
According to information on the official website of AfCFTA, as of March 2023, 54 out of 55 member states of the African Union have signed the AfCFTA (Eritrea has not signed yet). As of April 2023, 46 out of 54 signatories (81.5%) have completed the ratification procedure of the Agreement and deposited the documents. Africa expects that thanks to the positive impact of AfCFTA, 30 million people will have the opportunity to escape extreme poverty. In addition, income before 2035 is expected to increase by 7% compared to the present, equivalent to 450 billion USD.
Opportunities for Vietnam – Africa trade
Over the past decade, Vietnam-Africa trade has more than doubled, from only 2.52 billion USD in 2010 to 5.5 billion USD in 2022. Of which, Vietnam’s export turnover to Africa reached 2.8 billion USD, Vietnam’s import turnover from Africa reached 2.6 billion USD, with a trade surplus of 226.3 million USD. The main export groups include: Rice (reaching 568.6 million USD); Phones of all kinds and components (reaching 355.6 million USD); Computers, electronic products and components (reaching 210.4 million USD); Footwear of all kinds (reaching 141.8 million USD); Coffee (reaching 131 million USD); Textiles and garments (reaching 129 million USD); Seafood (reached 60.3 million USD)… The main import groups include: Cashew nuts (reached 1.1 billion USD); Other base metals (reached 484.1 million USD); Wood and wood products (reached 114.3 million USD); Fruits and vegetables (reached 64.1 million USD); Cotton of all kinds (reached 54.2 million USD)… In general, the export potential to Africa is still very large because Vietnam only accounts for 0.6% of Africa’s import market share of 600 billion USD each year.
With the advent of AfCFTA, Vietnam’s trade with the African market area can enjoy many new opportunities, specifically:
Firstly, exported goods can reach new markets: To facilitate the movement of goods between intra-regional countries, African countries will certainly have to increase investment in development in the near future. Development of transport, communications and energy infrastructure – roads, ports, airports, telecommunications, electric power, etc. Infrastructure projects in Africa are funded by grants Chinese borrowing and US funding over the past decade will continue to increase in the near future. Accordingly, the ability for imported goods to penetrate inland areas will be more favorable, especially into the 15 landlocked African countries. This opens up opportunities for Vietnamese goods to access more markets, in the context that Vietnam’s main export markets in Africa are still countries with large economies and seaports. Convenient for trade such as: South Africa, Egypt, Nigeria.
Second, the cost of importing raw materials and agricultural products from Africa can be reduced: As presented above, Vietnam currently mainly imports agricultural products and raw materials from Africa for production, creating added value. The fact that the world’s leading powers have been taking the economy as the “spearhead” in implementing strategies to compete for influence in Africa, especially since the region announced the birth of AfCFTA, has opened up opportunities for this continent to integrate into the global supply chain, expand the market, and transport goods more conveniently. Specifically, to protect its strategic and economic relationships in Africa, it is forecasted that in the coming time, China will support Africa in developing value chains, helping African businesses gain a foothold in the Chinese market. Due to its geographical proximity, Vietnam can benefit from this relationship, including the opportunity to reduce the cost of importing raw materials from Africa via China.
Third, the opportunity to increase export turnover through negotiating trade agreements with the entire continent: A promising trend that will take place in the near future is that countries around the world will research, negotiate and sign international trade agreements, especially Free Trade Agreements (FTAs) with the entire African continental free trade bloc. This will help countries save time negotiating with individual countries or small regions (Africa currently has 55 countries divided into 8 economic regions). In fact, African countries have quite similar production structures, mainly primary products such as crude oil, raw agricultural products, minerals, precious metals, etc. Therefore, even when AfCFTA takes effect throughout the region, the continent still cannot ensure the supply of many production materials (machinery, equipment) and important items in life such as rice, textiles, footwear, processed seafood, etc. and still has to depend on imports from non-bloc countries. Meanwhile, items such as rice, coffee, textiles, footwear, and seafood are Vietnam’s strong export items. For example, although Vietnam is currently one of the eight largest textile and garment exporting countries in the world, the export value of this group of products to Africa is still quite modest, reaching only 129 million USD in 2022, partly due to tariff barriers and competition from countries that have FTAs with some countries in the region.
Therefore, if Vietnam or ASEAN negotiates a trade agreement with the entire AfCFTA region, Vietnam can completely increase its textile, garment and footwear exports to Africa, promoting its competitive advantages such as lower labor costs compared to many Asian countries, good sewing techniques, and high-quality products.