Trade, the current account, and AfCFTA

Trade is the macro variable that links every African economy to the global cycle. Imports of fuel, food, and machinery are largely dollar-denominated; exports are commodity-concentrated and dollar-priced. The current account — the difference between what a country exports and what it imports — sits at the heart of every external-balance crisis. AfCFTA, the African Continental Free Trade Area, is the most ambitious continental policy attempt to change the structure that produces those crises.

The current account identity

  Current account  =  ( X  −  M )  +  Net income from abroad  +  Net transfers

where:
  X            =  exports of goods and services, in the reporting currency
                   — for Kenya, dominated by tea, horticulture, tourism, services
  M            =  imports of goods and services
                   — fuel typically 15-25% of total imports; capital goods
                     20-30%; food a meaningful share for net food importers
  X − M        =  the trade balance — the most-watched current-account component
  Net income   =  remittances received minus interest/dividends paid to non-residents
   from abroad   — for Kenya remittances run USD 4-5bn annually, larger than FDI
  Net transfers =  development assistance, NGO inflows, smaller cash transfers

A persistent current-account deficit means the country is consuming more than it produces and financing the gap through external borrowing or asset sales. Persistent surpluses (Germany, China) accumulate reserves and external claims. Most African economies run structural current-account deficits financed by FDI, eurobonds, multilateral lending, and remittances. When financing dries up — as in the 2022-24 sudden stop — the current-account deficit must close abruptly through currency depreciation, import compression, and recession.

Commodity dependence — the terms-of-trade channel

Most African economies are commodity-export-concentrated. Oil for Angola and Nigeria, copper for Zambia and DRC, cocoa for Ghana and Côte d'Ivoire, gold for South Africa and Tanzania, tea and horticulture for Kenya. Commodity prices are set in global dollar markets and swing dramatically. When prices rise, fiscal revenues, FX reserves, and growth all improve in sync — the 'commodity boom' macro. When prices fall, the same channels reverse, producing the 'commodity bust' macro: fiscal deficits widen, reserves drain, currencies weaken, growth slows.

AfCFTA — the structural ambition

The African Continental Free Trade Area, agreed in 2018 and operationally in force from 2021, aims to eliminate tariffs on 90% of intra-African goods trade over the long term, harmonise rules-of-origin and customs procedures, and ultimately deepen continental services and capital integration. The scale of the ambition: 1.4 billion people, USD 3.4 trillion combined GDP, 54 of 55 African Union members signed (Eritrea outside).

The starting point is striking: intra-African trade is only about 15% of total African trade, compared with roughly 60% in Europe and 50% in Asia. Africa exports raw commodities to the rest of the world and imports manufactured goods. AfCFTA's deep premise is that lowering intra-African trade barriers can catalyse manufacturing and services trade within the continent, building the value-added economic activity that ultimately drives productivity and income growth.

Implementation realities

• Tariff phasing: 5 years for most goods, 10 years for sensitive products, 13 years for LDCs. Implementation has been uneven — by mid-2025 actual tariff-line reductions are running well behind the original schedule.
• Non-tariff barriers (border procedures, certification, logistics) often matter more than tariffs in practice. AfCFTA Phase II on services and Phase III on investment, IP, and competition are still being negotiated.
• Pan-African Payment and Settlement System (PAPSS), launched 2022 by Afreximbank, allows direct payment in local currencies between African counterparties without USD intermediation. The infrastructure is in place; volumes are growing but small.
• Origin verification is the single hardest operational issue — without robust rules of origin, the agreement's preferences leak to non-African content routed through one signatory.