In Business

African Business through the African Continental Free Trade Area

There are many opportunities for business through the African Continental Free Trade Area (AfCFTA) that small businesses in African countries can take advantage of. The AfCFTA can help to boost industries, create jobs and increase investment, starting with small businesses, as it has for large businesses.

One example is the recent Chinese-backed New Economic Partnership for Africa's Development (NEPAD) which is aiming to create a second 'industrial revolution' in Africa, with a target of building manufacturing capacity in the region's economies by up to $400bn.

The AfCFTA connects an estimated 1.2 billion people across 34 countries on the continent and provides opportunities for those who want to trade goods as well as services with other African nations which will ultimately benefit African economies. That is the largest market in developing economies world over. There is great potential for growth of businesses that move through the value and supply chains created through this agreement on the continent. 

The African Continental Free Trade Area is a free trade area founded in 2018, with trade commencing as of 1 January 2021. It was created by the African Continental Free Trade Agreement among 54 of the 55 African Union nations. The fifty-five member states of the Africa Union (AU) are establishing the African Continental Free Trade Area (AfCFTA) to create a single continent-wide market for goods and services and to promote the movement of capital and natural persons. 

The agreement aims to reduce all trade costs and enable Africa to integrate further into global supply chains – it will eliminate 90% of tariffs, focus on outstanding non-tariff barriers, and create a single market with free movement of goods and services. The AfCFTA is intended to provide flexibility, so that individual countries can adapt their trade policies to suit the needs of their local trading partners. The new agreement will promote investment and contribute to the drive for a single Africa. The agreement is a project of development policy and as such it will be integrated into the new Single Economic Space aimed at creating a single market in Africa; this will help create shared development benefits for all member states.

According to Freight News, on 11 March the South African Revenue Service (SARS) informed stakeholders of its African Continental Free Trade Area (AfCFTA) Registration Process. In the instance of an application process via a Customs Branch Office, it requires a process where as a registered business in South Africa, you can visit a SARS Customs Branch Office, you request the Branch Front End (BFE) agent for assistance; the BFE agent checks if the required docs (DA185 - Application form: Registration/licensing of Customs and Excise Clients) is present; and then the BFE agent checks if all required documents are submitted.

This is just one example of a country putting into action regulations that benefit its local businesses desiring to tap into this agreement. 

The World Economic Forum considers the African Continental Free Trade Area (AfCFTA) a global game changer on many levels in all industries of the global economy.

Currently, Africa accounts for just 2% of global trade. And only 17% of African exports are intra-continental, compared with 59% for Asia and 68% for Europe. The potential for transformation across Africa is therefore significant. The pact will create the largest free trade area in the world measured by the number of countries participating. Connecting 1.3 billion people across 55 countries with a combined gross domestic product (GDP) valued at $3.4 trillion, the pact comes at a time when much of the world is turning away from cooperation and free trade.

The agreement aims to reduce all trade costs and enable Africa to integrate further into global supply chains – it will eliminate 90% of tariffs, focus on outstanding non-tariff barriers, and create a single market with free movement of goods and services. Cutting red tape and simplifying customs procedures will bring significant income gains. Beyond trade, the pact also addresses the movement of persons and labour, competition, investment and intellectual property.

The World Economic Forum reported that the AfCFTA will significantly reduce poverty. According to a recent report by the World Bank, the pact will boost regional income by 7% or $450 billion, speed up wage growth for women, and lift 30 million people out of extreme poverty by 2035. Wages for both skilled and unskilled workers will also be boosted by 10.3% for unskilled workers, and 9.8% for skilled workers.

WEF also states that a positive economic outcome will be many and varied. Diversifying exports, accelerating growth, competitively integrating into the global economy, increasing foreign direct investment, increasing employment opportunities and incomes, and broadening economic inclusion are just a few of the positive economic outcomes AfCFTA can bring. It is estimated that the agreement will increase Africa’s exports by $560 billion, mostly in manufacturing. Intra-continental exports would also increase by 81%, while the increase to non-African countries would be 19%. According to Mo Ibrahim Foundation, if successfully implemented, AfCFTA could generate a combined consumer and business spending of $6.7 trillion by 2030. Furthermore, markets and economies across the region will be reshaped, leading to the creation of new industries and the expansion of key sectors. Significantly, it would make African countries more competitive globally.

The WEF believes the AfCFTA clearly focuses on improving the lives of women. There is a risk that some of the economic gains made by women through trade could be reversed by the COVID-19 crisis. According to the Economic Commission for Africa, women account for around 70% of informal cross- border traders in Africa. Through such work, women can be vulnerable to harassment, violence, confiscation of goods and even imprisonment. Tariff reductions under the AfCFTA will enable informal women traders to operate through formal channels, bringing better protection. Furthermore, a growing manufacturing sector would provide new job opportunities, especially for women.

The AfCFTA Secretary-General Wamkele Mene stated, “It [the AfCFTA] will be the opportunity to close the gender income gap, and the opportunity for SMEs to access new markets”. This is significant, since small and medium-sized enterprises account for 90% of jobs in Africa. The AfCFTA will increase the number of jobs, and enable informal businesses to operate through formal channels and become more productive.

However, the WEF highlights that the AfCFTA can only be successful if member states first fulfil their individual responsibilities. Appointing a single chief negotiator who is accountable for all negotiations, having a sufficiently large resource pool and prioritising time-bound implementation are some of the key success factors. The pact would be an excellent opportunity to address issues of regional integration, which have been longstanding barriers to economic cooperation in Africa. This topic was underlined by the Chairperson of the African Union at the press conference on April 30, 2018 in Kigali.

As long as small businesses are not made aware of the vast benefits of the AfCFTA, its implementation will be delayed, but this can be resolved by taking it to the grassroots of business - be it small tabletops in the street markets, or small passenger transport businesses, cross-border traders, and even online marketing related businesses, the AfCFTA must be presented to the person on the African Street. As an advocate of the AfCFTA, it is the wish of this author that the AfCFTA should come into force as soon as possible. 

Time is of the essence. We should capitalize on the momentum built by the African Union Summit in Kigali, and hold our heads high in confidence that it will be a new dawn for Africa and Africans.

With all due respect, I implore my fellow Africans to read and understand what is at stake here with AfCFTA. Our future generations will thank us for this smart move now - we can't wait any longer! The AfCFTA has been given a name - it's called a "Global Game Changer".

Sources: Freight News, AfCFTA

Cabanga Media Group publishes of thoughtful economic and business commentary magazines and online media, in several African markets, that include South Africa, Botswana, East Africa Community, Ethiopia, Egypt, Nigeria, and Zambia.