The ‘informal economy’ has played a large and growing role in the distribution of imported manufactured goods across Africa sustaining the growth of the services sector but at tremendous costs in economic development, poverty, and macroeconomic instability. A long decline in manufacturing’s share of regional GDP in Africa has bottomed out and now stands at more than 12% of GDP, up from 10% a decade ago. The African Continental Free Trade Area (AfCFTA), which is set to fast-track the diversification of sources of growth and trade, will accelerate this trend and the expected boom in intra-African trade will lead to more sophisticated exports. Africa has been a net importer of food, but agriculture and agribusiness are major growth industries with tremendous potential for job creation and structural transformation. Global fertilizer use averaged 137 kilograms per hectare in 2018, the average across Africa was less than 20 kilograms per hectare. Raising the yields of African farmers and boosting agricultural productivity is central to the continent’s strategy for achieving self-sufficiency in food production and strengthening national security. The Pan-African Payment and Settlement System (PAPPS) has been set up to facilitate trade and tackle the constraint of access to international liquidity causing a large trade financing gap. The PAPSS, is jointly supported by the Afreximbank, the AfCFTA Secretariat, the African Union Commission, and African central banks.

The African Continental Free Trade Agreement (AfCFTA) has been touted as an economic and globalisation game changer because it has the potential to transform African economies and significantly raise Africa’s share of global trade to position the region as an increasingly dynamic force in the international arena. However, to realise this potential African countries must actively carry out complementary structural and policy reforms to foster long-term peace and security, address supply-side constraints and mitigate AfCFTA’s short-term fiscal adjustment costs to set the project on a successful implementation path for a win–win continental trade-integration outcome. This article reviews the potential development impact the AfCFTA and provides a comprehensive analysis of reforms and programmes required to ensure the agreement’s successful implementation.

By July 2018 the African Continental Free Trade Area had been signed by 49 African governments, accounting for over 86% of total African trade and 77% of combined GDP, and a total population of 1.2 billion. The Agreement has the potential to accelerate the process of diversification of sources of growth and trade, but it is a necessary, not a sufficient condition for transforming African economies. The transformational power and development impact of the Agreement depend on the capacity of African governments to leverage the African private sector to address supply-side constraints. Success also depends on regional cooperation and symbiotic nature of public-private partnerships in a region where adverse global shocks and market fragmentation have undermined economic integration and weakened the trade bargaining power of countries.

African economies are back on a path of economic expansion which has been broad-based driven by both commodity-dependent and non-resource-rich economies. The region is forecast to achieve an average economic growth rate of 4 per cent in 2018 and grow by as much again the following year. A challenging global economic environment with the escalation of trade tensions and an accelerating pace of normalization of monetary policy pose major medium-term risks to African and global growth. The African Continental Free Trade Area will deepen the ongoing process of economic integration and will mitigate the exposure of the region to recurrent adverse external shocks.

Adopting global corporate governance standards remains a challenge for most corporates in developed and developing economies, but shareholder capitalism is probably set on an irreversible growth path. The growing number of African corporate entities abiding by global corporate governance standards, despite the regulatory costs associated with compliance, is a positive development. The short-term costs in trade finance, financial intermediation and banks’ balance sheets are outweighed by the long-term benefits of adopting global corporate governance standards. Improving compliance requires better data and in Africa an initiative led by the African Export-Import Bank aims to provide centralised single sources of the primary data required to conduct customer due diligence checks on African counterparties.

In Africa, a persistent rise in illicit financial outflows has compounded macroeconomic management challenges and heightened the risks of recurrent balance of payments crises. It has undermined the build-up of fiscal buffers that could have mitigated the macroeconomic impact of adverse external shocks helping to sustain investment. A cross-section analysis suggests that wherever the management of foreign reserves has been undermined in the region, whether by illicit financial outflows in a context of poor governance or by macroeconomic policy malpractices, countries have tended to be more vulnerable to global volatility and commodity terms of trade shocks. Differences across the region’s natural resource-dependent economies in the severity of macroeconomic shocks emanating from global demand contraction and the collapse in commodity prices, suggest that such shocks are probably amplified by illicit financial outflows. Still, sustained illicit financial outflows are also vectors of lopsided growth and unequal distribution of income in both source and destination countries.

Although the Paris Agreement lacks a binding mechanism for capping carbon emissions, and a legally binding financial commitment to support climate change adaptation and mitigation in the developing world, it establishes a legal framework to accelerate the transition towards a low-carbon economy at the global level. The rise of the green economy under the proposed Agreement offers tremendous opportunities for growth and economic development, especially for Africa, which has abundant endowments of renewable energy and resources. African countries’ ability to seize these opportunities and accomplish the transition to the low-carbon development economy articulated in the Agreement will depend on their capacity to increase their access to carbon-free technologies and to draw consistently on these technologies to expand the scope of green investments in support of structural transformation and trade diversification.

African oil exporters have been hard hit by the sustained decline in international oil prices. African oil importers are seeing dramatically lower oil import bills, but most have economies that are not energy-intensive enough to benefit greatly from the oil price change. For the continent as a whole, growth forecasts have been revised downwards, as the benefits of cheaper oil are being offset by costs associated with reduced demand for African exports of other primary commodities, especially metals and minerals. These developments highlight the continuing vulnerability of African countries to adverse terms-of-trade shocks and to the costs associated with lack of progress in structural transformation and trade diversification away from primary commodities, oil included. The poor growth outlook for Africa clearly shows that success in diversifying trade partners, though it has been highly beneficial and growth-enhancing, does not eliminate the risks associated with commodity-dependent development models.

An overview of the distributional impact of global warming shows that the negative externalities of carbon-intensive development models are already significant in Africa. The most compelling reasons for promoting green investments in Africa is the direct economic returns in terms of savings and employment opportunities. Most renewable energy jobs created over the last few years have occurred outside Africa possibly another missed opportunity after the information and communication technology (ICT) revolution. Carbon-free technologies must not be used to sustain income inequality and macroeconomic imbalances between industrialized and developing countries, but to uniformly boost green investments.