Image Credit: Finance in Africa
Trade between humans, civilization, and nations has always existed for a long time even predating the invention of paper currency. Every economy around the world is driven by trade, whether localised or international, nations look to boost their economic activities through the exchange of products or services going even further to expand their reach through continental agreements with the hope of stabilizing economies within the continent while securing prosperity for respective nations.
In Africa, an ambitious plan was brought to fruition on March 21, 2018, in Kigali, Rwanda, from an earlier decision where the Assembly of Heads of State and Government during its 18th ordinary session which held earlier in January of 2012 in Addis Ababa, Ethiopia, set in motion efforts aimed at fostering intra-African trade to strengthen Africa’s trading position in the international market.
To achieve this the agreement establishing the African Continental Free Trade Area (AfCFTA) was signed in Kigali in 2018 and came into force on May 30, 2019. As noted on the African Union website, “The AfCFTA aims to significantly accelerate growth of Intra-Africa trade and use trade more effectively as an engine of growth and sustainable development by doubling intra-Africa trade, strengthening Africa’s common voice and policy space in global trade negotiations.”
Understanding its Objectives
The African Continental Free Trade Area (AfCFTA) was established to integrate all African state economies into one single trading hub by creating a single market for goods and services, liberalizing and facilitating the free movement of natural resources, investments, persons as well as products and services, and integrating the African continent into the shared objective of a prosperous and peaceful Africa.
Also, it aims at driving industrial development by fostering diversification among countries so that various value chain opportunities can exist with nations able to meet the growing need in the African market.
AfCFTA and the Opportunities it Provides for Africa
The African Continental Free Trade Area (AfCFTA ) is a game-changer for the continent. By providing an accessible market for its member states, it is poised to provide solutions to the growing needs of the African market.
Highlighting its importance, the Afrexim Bank in an article titled – AfCFTA – an historic Catalyst for Africa’s Economic Transformation and Caribbean Trade Integration notes that “By leveraging economies of scale and gains in competitiveness, the AfCFTA seeks to accelerate Africa’s industrialization and diversify its growth sources, ultimately raising living standards and delivering an economy able to support an African population which will represent, by 2050, more than 25% of the global population.”)
Repositioning SME’s to Compete in Africa’s Free Trade Market
Africa’s largest free trade agreement offers a great opportunity for small and medium-sized businesses within various countries in Africa to not only expand their business reach by scaling their products and services beyond respective borders, but also ensure visibility within the African digital space.
What this implies is that a business owner in Nairobi or Johannesburg who deals in Agricultural products or leather goods and footwear, with the right investment in digital technology that leverages e-commerce platforms, and digital payment systems along with the necessary policy support from government and finance institutions to meet standardization requirements, can operate within the African business space by exporting products through properly structured channels under the AfCFTA arrangement.
Although the agreement is continually being accessed by member states, countries like Cameroon, Egypt, Ghana, Kenya, Mauritius, Rwanda, Tanzania, and Tunisia are already key into it through the Guided Trade Initiative program where interested state parties that have met the minimum trade requirements under the agreement can initiate trade under the AfCFTA agreement.
Products earmarked under the initiative are ceramic tiles; batteries, tea, coffee, processed meat products, corn starch, sugar, pasta, glucose syrup, dried fruits, and sisal fibre. Success stories from Igire Coffee in Rwanda and Mazia Honey in Ghana provide a testament to the possibilities that exist in Africa’s biggest Free Trade Zone .
Sectors Likely To Benefit from AfCFTA
Perhaps the biggest beneficiaries of Africa’s largest free trade zone today are Africa’s Fintech and financial services companies whose already existing platforms can be leveraged to provide financial solutions and facilitate cross-border payments.
Another sector with a likely benefit is the agriculture and agro-processing industry. With the launch of the Guided Trade Initiative, the focus of the agreement is to fine-tune the operational, institutional, legal, and trade policy aspects of the AfCFTA and focuses on products that fall under the agriculture and agro-processing sector.
Other sectors likely to benefit and which African small businesses can exploit are digital services and e-commerce, transport and logistics especially as cross-border trade begins to expand, manufacturing, creative industry as increased regional collaboration begins to grow.
The creative and digital economy is perhaps one area set to provide opportunities beyond physical products for many African youths. Unchecked by boundaries, software developers, SEO/SEM experts, and digital marketers, can access larger markets to export their skills and provide cross-border service.
Rwanda Launches its Product into the Ghanaian Market
Keying into the Guided Trade Initiative, on October 29, 2024, the Rwanda authorities shipped agricultural products that included 400 kilograms of tea, 400 kilograms of coffee, 100 liters of edible avocado oil, and 50 liters of honey. Local companies like Igire Coffee Limited, Rwanda Mountain Tea, Silverback Tea, Boukhi Honey, Avocare Limited (avocado oil), and Igire Continental Trading Co. Ltd played a major role in facilitating the supply of those products which were exported under the AfCFTA agreement showcasing the importance of the agreement in opening opportunities in the African market.
The products that were on display during an exhibition titled “Taste Rwanda” which was held in Accra provided an opportunity for invitees to sample and purchase products from Rwanda. Attended by Ghana’s first lady and other distinguished dignitaries, the event showcased the commitment of African governments to bolster intra-African trade and future trade relations.
Tariff Reduction Under AfCFTA
Tariffs are simply concessions that are usually paid on goods imported. Any increase or decrease in tariffs of a product or service automatically affects the price changes of the specific goods. AfCFTA seeks to improve trade liberalization (reducing the restriction of movement of genuine goods and personnel) by applying trade concessions which would also entail a gradual removal of tariffs in stages.
As noted by F.A. Garrick & Co, a Nigerian-based Law firm, “ Article II and III of the AfCFTA require members to initially remove tariffs from 90% of goods per AfCFTA Tariff Modalities, eventually allowing free access to at least 97% of goods and most of services across the African continent.
The creation of a single market for goods, services, and the facilitation of movement of persons across borders, are fundamental but core benefits fostered by the implementation of the AFCFTA. The agreement also contributes to the movement of capital and natural resources and promotes local and foreign direct investments (FDIs) reflective in the industrial development and diversification around key industries such as agriculture, manufacturing, and services.”
Challenges Confronting Businesses
While Africa’s free trade agreement holds ample promise for businesses, challenges also exist that would limit its implementation especially for small and medium businesses. Lack of human capital, technological capability, and absence of support from government and finance institutions required to scale up can make it challenging for small businesses to compete in the market.
Poor infrastructure which exposes businesses to unreliable and poor electricity supply and logistics nightmares can also constrain participation in the intra-African trade market. Additionally, local industries face a likely threat from larger companies with the wherewithal to offset the balance by flooding the market with more of their products resulting in low patronage of local products.
Accessing AfCFTA Portals and Business Support Resources
Businesses looking to read up more and access info about Africa’s Free Trade Agreement can access their country’s Export Promotion Council, development banks, and other export support agencies. The links below could also provide more information and a guide for better understanding.
https://au.int/sites/default/files/treaties/36437-treaty-consolidated_text_on_cfta_-_en.pdf
https://www.macmap.org/en/learn/afcfta
Okechukwu Nzeribe works with the Onitsha Chamber of Commerce, in Anambra State, Nigeria, and loves unveiling the richness of African cultures. okechukwu.onicima@gmail.com
