Business opportunities in the Africa Continental Free Trade Area

5th February 2021

When the world economy is expected to have shrunk by 3.5% in 2020, six of the ten fastest-growing economies come from Africa. There is an opportunity for local companies to look beyond national boundaries for new markets as Covid continues to limit local demand.

As projected by the IMF in October last year, the top ten (by GDP growth) are Guyana (an oil-fuelled outlier at 26,2%), South Sudan (4.1%), Bangladesh (3.8%), Egypt (3.5%), Rwanda (2%), Myanmar (2%), Benin (2%), China (1.9%), Tanzania (1.9%) and Ethiopia (1.9%).

This should make the Africa Continental Free Trade Area (AfCFTA) all the more interesting to local businesses. From 1 January this year, it became possible for signatory countries whose customs procedures are ready to trade under the AfCFTA. But I wonder how many local businesses are aware of it.

It is still early, but the AfCFTA has the potential to transform Africa. According to the World Bank, implementing the AfCFTA would lift 30 million Africans out of extreme poverty and boost the incomes of nearly 68 million others who live on less than $5.50 a day; boost Africa’s income by $450 billion by 2035 while also adding $76 billion to the income of the rest of the world; and increase Africa’s exports by $560 billion, mostly in manufacturing.

It is the world’s largest free trade area in terms of the number of countries signed up. Of the 55 eligible countries in Africa, all but Eritrea have signed and 34 countries have ratified the treaty. With 1.3 billion people and a combined GDP of over US$ 3 trillion, it gives African manufacturers and international investors an interesting market.

The intention is to eliminate tariffs on 90 percent of goods, with services following. This should help to correct the anomaly that Africa trades more with the rest of the world than with the neighbours.

And apparently, even greater gains can be achieved by trade facilitation. This has already begun in areas like payment settlement and trade finance.  According to the World Bank, “Adding trade facilitation to the mix—including measures to reduce red tape, simplify customs procedures, and make it easier for African businesses to integrate into global supply chains—would boost the income gains by $292 billion.”

But there is still plenty to do in addition to implementing the various tariffs and other policies. For example, poor infrastructure limits trade even when the doors are open.

Free movement of people is not part of the current agreement and will present major political challenges. Among existing African trade blocs, East Africa has probably gone furthest in terms of trade facilitation and mobility and provides experience for AfCFTA to build on.

What can local businesses do?  The first is to get to know our continent better, build networks among potential suppliers and customers, and monitor opportunities created by the AfCFTA.

The second would be to put pressure on governments to implement the agreement. So far progress has been quite quick, but the real work of making actual changes lies ahead. According to the World Bank: “Creating a continent-wide market will require a determined effort to reduce all trade costs. In general, this will require legislation and regulations to enable the free flow of goods, capital, and information across borders; create competitive business environments that can boost productivity and investment; and promote increased foreign competition and foreign direct investment that can raise productivity and innovation by domestic firms. ”

The third would be to gear up our businesses creatively to take advantage of this opportunity – something that requires the humility to learn how others do business. As part of a pan-African company I have the privilege of seeing the talent and capacity in other places, and it is inspiring.

Jonathan Cook is a counselling psychologist and chairman of the African Management Institute. He is also the host of AMI’s weekly Rise reflection series focused on supporting you in your business and your personal wellness.

This article was originally published on BusinessLive on 1 February 2021 and is republished with permission.

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