REAPING THE BENEFITS OF AFCFTA

In January, an online webinar co-hosted by Invest in Africa and the UK’s Department for International Trade looked at the progress made in implementing the AfCFTA. Omar Ben Yedder reports

In a webinar co-hosted by Invest in Africa and the UK Department for International Trade, a panel headed by H.E. Albert Muchanga, commissioner for Trade and Industry at the African Union, unpicked the fears and hopes for businesses and investors of the African Continental Free Trade Agreement (AfCFTA). Undoubtedly the AfCFTA is an immense opportunity. The World Bank estimates that the successful implementation of the AfCFTA has the potential to add $450bn to Africa’s GDP over the next 10 years. This is probably an underestimate.

When asked about enhancing the continent’s bargaining power, Muchanga agreed that the agreement places the continent in a stronger position to negotiate fair trade terms with other countries and blocs but stressed that this will only happen if countries’ national policies are aligned with the AfCFTA. The eventual aim, he said, is to have an African Customs Union with a single external tariff structure. Once this is achieved, the bloc can negotiate with one voice.

Giles Lewis, head of grains & oil seed at Export Trading Group (ETG), a commodities trading and agri-business conglomerate, pointed out that it is important that the AfCFTA provides a standardised framework for exporters and allows easier access to outside markets. He added that infrastructure development was necessary to support the trade framework and increased trade, and that transportation costs and costs linked to bureaucracy were much higher than that of other regions.

Here are some of the other key takeaways:

Post-crisis recovery: The AfCFTA will play an important role in accelerating economic growth in the longer term and offsetting some of the economic headwinds resulting from the Covid-19 crisis, preventing permanent scarring such as widespread business closures and job losses. Governments and businesses should seize the opportunity to recover in a greener, more sustainable way.

Significant progress already made on standardisation and rules of origin: intent to have a ‘Made in Africa’ initiative recognised across the continent in short term future.

Infrastructure is key to successful trade: The African infrastructure gap (estimated at between $130bn and $170bn per year) is a significant impediment to intra-African trade. Investment in infrastructure and transport linkages is much needed to support the trade framework.

Opportunities: Construction (to bridge the infrastructure gap), food/agribusiness, textiles and healthcare opportunities made real by AfCFTA.

Challenges: More work needs to be done to prepare and encourage SMEs. Surveys show that only 45% of African SMEs are ready to take advantage of the AfCFTA. In order for business of all sizes to reap the benefits of the free trade agreement, clarity, consistency and transparency are essential, as well as collaboration between both public and private sectors

AfCFTA creates economies of scale that make Africa a more attractive investment destination: Historically, investor appetite into Africa has been low, due in large part to market size as well as tariff and non-tariff barriers. The free trade area represents an incentive for the private sector to get involved in Africa by creating economies of scale and inspiring private capital flow. AfCFTA can turn the scale ‘on paper’ into a reality and make the opportunity worthwhile for larger investors.

“The rules of origin protect Africa from transshipments − imported goods that are not produced within the continent, but [whose manufacturers] want to take advantage of the larger addressable markets. This is done on a product-byproduct basis, and rules of origin and local content requirements for products in 85% of sectors have been finalised, allowing traders to immediately benefit from trading them within Africa” Albert Muchanga, Commissioner for Trade and Industry at the AU