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By Ms Nardos Bekele-Thomas, CEO of AUDA-NEPAD
As the global economy faces unprecedented challenges amid trade wars, disruptions in worldwide transport and logistics systems, shocks triggered by the COVID-19 pandemic, geo-political tensions on the continent, the ongoing Russia-Ukraine conflict and its impact on the price of oil and food security as well as the growing effects of climate change – the African Continental Free Trade Area (AfCFTA) is an essential beacon of hope, offering immense opportunities for businesses across the continent.
Against this backdrop, the recent AfCFTA Business Forum held in Cape Town, South Africa, attracted more than 1000 key stakeholders, policymakers, and business leaders eager to explore the potential of this ambitious initiative. This monumental gathering comes when confidence in the multilateral trading regime is waning, with growing concerns about the loss of sovereignty, unequal distribution of benefits and burdens, decision-making inefficiency, and politicization of global governance.
The current debate on the effectiveness of multilateralism, especially in the context of global economic shifts and geopolitical changes, has highlighted the need to look inwards and seek out homegrown solutions to national and continental challenges. This context, along with the school of thought which argues that multilateralism has failed to address the specific needs and challenges of African countries and that the best approach would be to focus on regional integration and cooperation – support the case for the implementation of the Pan-Africanist idea of one single African market. A continental market of 1.3 billion people, with a combined gross domestic product of $3.4 trillion, making it the world’s largest free trade area since the establishment of the World Trade Organization (African Development Bank).
Intra-African trade presents immense opportunities and challenges that warrant a critical analysis of its importance in the current economic climate. The importance of the AfCFTA, in light of the foregoing, can be illustrated through several statistics:
- According to the United Nations Economic Commission for Africa, Intra-African trade currently accounts for only 15% of the continent’s total trade, compared to 58% in Asia and 67% in Europe.
- Estimates from the United Nations Conference on Trade and Development have shown that the AfCFTA has the potential to boost intra-African trade by 52.3% by 2025.
- The AfCFTA has the potential to lift 30 million Africans out of extreme poverty and increase Africa’s income by up to $450 billion by 2035 (International Monetary Fund).
These statistics demonstrate the potential benefits of the AfCFTA in promoting economic growth, reducing poverty, and increasing regional integration and cooperation. The AfCFTA is designed to reduce trade barriers, harmonize regulations and standards, and improve cross-border investment. The AfCFTA thus represents a promising approach to address the specific needs of African countries and support their economic development in the face of global economic shifts and geopolitical changes.
Given this context, the discussions at the AfCFTA Business Forum highlighted the importance of unlocking the opportunities and investments presented by the shared goal of a single continental market.
Infrastructure
One of the key outcomes of the forum was the need to improve infrastructure across the continent. With regards to infrastructure, according to the African Development Bank, Africa’s infrastructure needs an investment of $130-170 billion per year, but the current funding gap is around $68-108 billion. Furthermore, only 34% of the African population has access to electricity, and 40% live more than 5km from the nearest all-season road. These challenges and the high logistics cost account for up to 40% of the cost of trading goods between African countries.
The critical question, therefore, in the “Year of AfCFTA: Acceleration of the African Continental Free Trade Area Implementation” and as AfCFTA celebrates its 2nd anniversary of commerce remains: How do we improve investments in critical infrastructure that facilitates the flow of information people, and goods?
AUDA-NEPAD and the Government of Senegal hosted the 2nd Dakar Financing Summit for Infrastructure (DFS-2) to drive the discussion on bridging the infrastructure gap. The critical learnings presented by the Summit emphasized building partnerships with the sector to bridge the infrastructure gap in Africa and the use of technology to modernize infrastructure. To this end, US$65 billion Investment interest was received for PIDA PAP 2 projects in the transport, energy, water, and ICT sectors. This includes developing transportation networks, building energy infrastructure, and improving internet connectivity.
Manufacturing Sector
Another critical discussion centered around leveraging opportunities for the manufacturing sector in Africa. Currently, the manufacturing sector represents about 10% of Africa’s GDP, compared to 20% in East Asia and the Pacific and 15% in Latin America and the Caribbean. The United Nations Industrial Development Organization (UNIDO) also estimates that Africa’s manufacturing output could increase from $500 billion today to $1.7 trillion by 2030, creating up to 14 million jobs. The forum recognized the vast opportunities for African manufacturers, including the continent’s large and growing consumer base, abundant natural resources, and the potential for innovation and technological advancements.
Promoting critical industrial launch pads to overcome the incumbent raw material-oriented production-related challenges is crucial. To this end, AUDA-NEPAD is working with stakeholders to develop multi-sectorial industries, including agro-processing, manufacturing (particularly pharmaceutical products), pathways to green transition, and minerals development. Additionally, Africa’s Development Agency is working towards advancing alternative pathways, so-called industries without smokestacks, such as Blue Economy industries, and tradable services, such as tourism and ICT, which have gained increasing momentum in Africa.
Productivity and Competitiveness
The forum called for increased investments in Africa to produce goods that meet international standards and are competitive in global markets. The platform acknowledged that eliminating trade barriers under the AfCFTA will enable participating countries to develop their comparative advantages, increase productivity, and improve the quality of their goods and services.
While tackling the hurdles and barriers affecting cross-border crossings of goods is paramount, it is equally important that producers are encouraged to improve the cost and quality of their offers through innovation and technological upgrading to build dynamic comparative advantages to perform better than the competition. This will assist in rewriting the narrative that only a small proportion of African firms (around 20%) can consistently produce high-quality products at scale[1].
Innovation and Technology
Digital trade in Africa is rapidly gaining traction, which was at the heart of the discussions at the Forum. The continent is experiencing an increase in the adoption of digital technologies across various industries, with growing interest in e-commerce platforms, fintech solutions, mobile money, and other digital tools that are transforming how business is done on the continent. This will unlock the potential of digital trade in Africa and enable businesses, especially small and medium-sized enterprises, to expand their reach and tap into new markets.
In this regard, AUDA-NEPAD is engaged in various stakeholder initiatives that promote private sector engagement and investment, innovation, technology development, collaboration, partnerships, and capacity building for AfCFTA. Additionally, AUDA-NEPAD is leveraging the potential of African MSMEs through initiatives such as Home-Grown Solutions Accelerator, African Kaizen Initiative, and 100K MSMEs. African MSMEs account for 80% of total production, two-thirds of investment, and three-quarters of credit, employing 90% of Africa’s working-age population.
Overall, the Forum recognised the pertinence of cooperation and collaboration as a pivotal enabler for the success of the AfCFTA Business Forum and subsequent interventions on the Agreement, the African Union and its Organs, Regional Economic Communities (RECs), governments, and the private sector will need to work together to exploit each other’s responsibilities, mandates, and capabilities. To this effect, it is pertinent to raise awareness of all relevant stakeholders and capacitate them to ensure they are all on the same page regarding the nature, scope, and channels of impact. The AUDA-NEPAD led AfCFTA impact assessment study will play a key role in singling out critical areas of sensitization and capacity building to be considered by all relevant stakeholders.
[1] African Development Bank (AfDB) 2019 report “Creating decent jobs: Strategies, policies and instruments”