How India can help AfCFTA to become a truly unified market

South Asian behemoth has experience in what it takes to boost trade and propel economic growth

The first quarter of 2024 has brought some exciting developments for the African Continental Free Trade Area (AfCFTA), the trade agreement that spans 54 countries. In mid-February signatory countries adopted the Protocol on Digital Trade. The protocol will, among other things, support technologydriven innovation, commerce and intra-African digital trade. Separately, in late January, SA introduced preferential trade with the bloc, joining the other members of the Guided Trade Initiative (GTI), which includes Ghana, Rwanda, Egypt, Tunisia, Kenya, Mauritius, Tanzania and Cameroon.

Nonetheless, economic observers routinely question how long full AfCFTA implementation will take. Member states inaugurated the agreement’s operational phase in July 2019, yet only the GTI countries have actually begun trading among themselves. Though they have ratified the agreement, other large economies such as Nigeria and Ethiopia have not yet imported or exported any goods. This implementation delay probably frustrates business owners and consumers eager to benefit from the agreement.

Enter India — among the fastest-growing economies and a key player in Global South cooperation. India has robust trade relations with Africa and in recent years has deepened cooperation with the continent. Recent examples include enhancing bilateral defence and economic ties with Kenya, Mozambique and Tanzania.

Indian Prime Minister Narendra Modi has emphasised his objective to strengthen relations with Africa, visiting 11 countries on the continent since coming to power in 2014, as well as proposing and seeing through the AU’s full membership of the Group of 20. Modi’s expected re-election in May 2024 signals that Indian policy towards Africa is likely to remain in place.

India is well positioned to help African countries implement and enhance the AfCFTA, chiefly because the South Asian behemoth has dealt with many of the steps — and obstacles — inherent to boosting trade and propelling economic growth. Doing so would be a sound way for India to engage with Africa and benefit commercially from a fully implemented AfCFTA while deepening South-South co-operation.

Across the continent one of the biggest hindrances to a unified market is the lack of road, rail and air connections between cities. Existing transport networks tend to connect resource-rich areas directly to ports, culminating in better transport links between Africa and other continents than intra-African connectivity.

The lack of internal transport infrastructure prevents the efficient movement of goods and undermines internal trade. Specifically, the share of intra-African exports as a percentage of Africa’s total export is a mere 17%. India had similar issues with crumbling and underdeveloped road and rail networks. To correct this, it has invested billions of dollars in upgrading transport systems over the past two decades, with government spending on such infrastructure amounting to nearly 11% of GDP by 2023.

India and AfCFTA signatories could collaborate to increase investment in transport infrastructure. The AfCFTA secretariat could create a transport infrastructure fund to finance such projects. This could be part of the overall AfCFTA Adjustment Fund, which seeks to compensate states affected by economic disruptions due to trade liberalisation. Within the transport infrastructure fund there could be provisions for project financing by member states as well as external partners.

Such a fund would ensure there is consensus within AfCFTA states on priority projects to bring African markets closer. It also creates a common fund for external investment and discourages non-African nations from bilateral funding of individual transport projects that may not fit with integrated market requirements.

India has extended $12bn in credit funds from 2013 to 2023. As it seeks to extend its presence further, it should invest heavily in AfCFTA-related transport infrastructure. New Delhi could use the “lines of credit” tool to finance such projects, which would prevent adding to African nations’ debt burdens while generating goodwill. In return, India could bid for transport-related projects.

In both India and African nations problems related to building such infrastructure exist, including land acquisition, low-level corruption and bureaucratic red tape. India has experience in dealing with these issues, and New Delhi could offer to dispatch engineers, bureaucrats, technical experts and sociologists who have seen through complex projects such as various cities’ metro systems.

In addition to transportation, India has invested heavily in its digital public infrastructure, which has included creating a stack of digital public goods. These goods allow individuals and companies to store identity-related information, enabling faster payments and access to government services. Almost 97% of India ’ s population has access to such technology, which is expected to boost its GDP by about 3% by 2030.

New Delhi has repeatedly emphasised that its digital stack is not India-specific, with several countries adopting parts of the infrastructure. AfCFTA member states could co-operate with India to implement the DigiLocker application, a digitisation service allowing all users to store documents on one platform.

DIGILOCKER

For AfCFTA countries such an application can be used to upload trading documents such as originimport and export declaration forms required for all businesses trading under the agreement. Given that GTI countries are already trading 96 commodities, and that all 54 AfCFTA countries are looking to participate, tracking and producing such certificates will be cumbersome.

A DigiLocker-like application for businesses could smooth the process of storing documents. It would also reduce the interface between businesses and the bureaucracy, minimising potential instances of low-level corruption, which constitutes a major trade cost.

AfCFTA’s ratification in 2019 was a momentous occasion for African trade. However, there has since been sclerotic movement on the agreement’s implementation. India is a large, unified and growing market that will need additional resources to fuel its manufacturing. It has also invested heavily in resolving issues similar to those affecting AfCFTA’s implementation.

Both India and AfCFTA member states can therefore leverage this partnership to improve economic development, reduce poverty, and lessen reliance on Western nations through South-South co-operation. New Delhi and AfCFTA member states should work together to make this a reality.