Leveraging AfCFTA’s potential to drive business and economic growth

Successful economies, societies and regions have long opted for cooperation, consolidation and integration against division, separation and isolation. The ‘roads’ to sustainable economic development and prosperity are long with many stops, even some dead ends and yet seldom has a society reached this destination without bringing its neighbours along for the journey.

The African Continental Free Trade Area (AfCFTA) is a momentous milestone in the modern history of our continent. It’s a recipe for catalysing our centrality and bridging the chasms that separate us.

AfCFTA can solve the crippling impacts of dysfunctional supply chains that bleed our businesses and consumers. We’ve all heard of the three-week truck journeys for goods moving a mere 1000 kilometers from our ports to various cities – journeys that take 1-2 days elsewhere.

In today’s interconnected global economy, trade is the lifeblood of prosperity. It facilitates economic growth, fosters innovation, and creates opportunities for nations to prosper.

Trade has been the cornerstone of economic prosperity and power for nations and continents throughout history. The European Union (EU), the world’s largest trading bloc, witnessed increased income per citizen in large part due to trade liberalisation. This underscores the transformative power of intra-continental trade. For Africa, currently at just under 20% of intraAfrica trade compared to Europe’s over 60%, the potential for growth is vast. Done right, Africa stands to catapult towards prosperity.

The recently published Standard Chartered Future of Trade report emphasises the crucial role that the African Continental Free Trade Area (AfCFTA) will play in enhancing intraAfrica trade. It projects that Africa’s total exports will reach $952 billion by 2035 and suggests that once fully implemented, the AfCFTA has the potential to increase this figure by an additional 29%, leading to annual growth of 3% until 2035.

The Secretary-General of AfCFTA, H.E. Wamkele Mene has shared that the implementation of the AfCFTA will indeed transform our economies, as projected by the World Bank whereby Africa’s GDP will be increased by up to $450 billion, intra-Africa Trade will be boosted by 80% and the immediate beneficiaries will be SMEs led by women and young people.

Africa, the second largest by land area and the second-most populous continent, could therefore be on the verge of realising its economic potential. To unlock this potential, it is crucial to address two essential components: seamless transportation and cash flow.

While these factors may seem distinct, they are inextricably linked in shaping the future of intra-Africa trade.

Connecting Africa Physically

Africa, with its vast expanse and diverse landscapes, has historically grappled with the challenge of seamless transport. Research by the United States Agency for International Development (USAID) reveals stark disparities in the cost and efficiency of transporting goods between different regions. For example, moving goods from Tema Harbour to Ouagadougou is seven times more expensive than a similar distance from Newark to Chicago – both in the United States of America – with unpredictable duration of 13 to 22 days (about three weeks) within West Africa compared to just five days for the Newark-Chicago journey.

Road networks serve as the link between rural and urban regions, facilitating the transportation of goods from farms to markets and from factories to ports. Nevertheless, there are hurdles to overcome, including inactive railways and poor road conditions, which hinder the efficient and cost-effective movement of bulk goods. Enhancements and expansions in transportation infrastructure will significantly enhance the interconnectedness of African cities with the global community, resulting in swifter and more dependable transport of both cargo and passengers.

Connecting Africa Financially

The story of intra-Africa trade is not only about physical connectivity. It is equally, if not more, about the flow of capital. Africa’s potential as a vibrant trade hub hinge on the development of a robust financial infrastructure that allows the flow of goods and services across the continent with ease. Without it, the full benefits of the improved transportation networks may remain unrealised.

Building this financial infrastructure involves more than having banks and payment systems in place, but rests on fostering a culture of trust, transparency and financial inclusion. African governments, in partnership with the private sector, can develop policies and institutions that support secure, swift and cost-effective transactions within and across borders. Such initiatives should encourage investments and nurture entrepreneurship, thus igniting economic development and expanding opportunities for businesses of all sizes.

The AfCFTA agreement is a notable stride toward this vision. It aims to create a single continental market where goods, services and capital can flow seamlessly, removing trade barriers and enhancing economic integration. However, to realise the full potential of AfCFTA, the member nations must invest in the financial infrastructure necessary to support the dynamic and cross-border nature of trade.

Investment in digital banking, mobile money solutions, and other innovative financial technologies will empower small and medium-sized enterprises (SMEs), which are the backbone of most African economies. SMEs often struggle with limited access to traditional banking services and financing. A well-developed financial infrastructure, including digital payment systems, can provide them with the tools to thrive in the modern economy.

Standard Chartered’s and AfCFTA’s collaborative efforts aim to build a more efficient and interconnected trade environment in Africa, facilitating economic growth, reducing trade barriers, and promoting the development of higher-value supply chains, contributing to the achievement of Sustainable Development Goals.

So, whether moving goods or cash from Accra, Ghana to Ouagadougou, Burkina Faso, or even as far south as Maseru, Lesotho, we look forward to the day these can be completed without the bottlenecks that have plagued Africa’s emerging economies for decades. Now is the time for Africa’s entrepreneurs to position themselves to take full advantage of the benefits of this agreement. We anticipate an Africa where borders are broken down and trade among the people and businesses flourish unhindered.

With AfCFTA, this is more than just a dream. It’s an achievable aspiration within our power. Together, we can create the prosperous future we desire.