January 15, 2021 - 5 minutes read

Private Sector Engagement in the Africa Continental Free Trade Area (AfCFTA)

By Magdalene Kariuki

The World’s largest Free Trade Area is finally here with us covering a market of 1.27bn people with a combined GDP of 3.4 trillion US dollars. The region does enter the agreement with great momentum around trade: Exports have grown by nearly a factor of four since 1995

According to the World Bank the AfCFTA, if implemented fully, could boost regional income by $450 billion, bring 30 million people out of extreme poverty, and raise the incomes of 68 million others who live on less than $5.50 a day.

With the implementation of AfCFTA, trade facilitation measures that cut red tape and simplify customs procedures would drive $292 billion of the $450 billion in potential income gains.

In summary, the AfCFTA aims to boost intra-regional trade levels and promote investment by establishing a single continental market for goods and services, and ease the free movement of business-people and investment across the continent. 

For this to be achieved, signatory countries will need to drop 90 per cent of their tariffs for imports from other African States; reduce regulatory measures such as sanitary standards and technical barriers to trade. However, in so doing various considerations are needed such as those pertaining infant industries excluded from the removal of tariff and non-tariff barriers per the schedule of tariff concessions, the standing and regulation of intellectual property and competition policy, public procurement lists being selectively opened to private operators and limited access to value chains, while defining a competition law that is business-enabling. There are also challenges with regards to infrastructural gaps, unreliable power supply across different countries, political instability in some pockets, fragmented economies, corruption- all of which impede the ease of doing business.  

diagram

Figure 1: Courtesy of Brookings Institution a nonprofit public policy organization

At a time when as a result of the Covid-19 pandemic, the Continent lost upwards of $80 billion in output losses in 2020 alone due to supply chain disruptions among others, it is crucial that everyone participates and actively engages towards ensuring the full implementation of the AfCFTA. Key among the stakeholders that need to be engaged are the African economic operators – namely, the Private Sector.  It should however not be assumed that the African Private Sector will automatically commit fully to trading and investing in the AfCFTA.
For the private Sector to fully engage, measures need to be put in place by the implementing countries that provide strategic information, properly packaged opportunities, access to financing, pooling of funds and scaling up. 

For instance, logistical and connectivity infrastructures and frameworks are needed to allow the free movement of goods. For such to be made possible investments will be needed in transport, internet connectivity, supply-chain traceability, investments in multimodal platforms; among others.  In addition, whereas the vastness of opportunities is undeniable, trade opportunity intelligence frameworks will be crucial. The purpose of this will be to link entrepreneurs, especially MSMEs, to trade opportunities across the region. 

There are great expectations from consumers that traders will be able to scale their business operations in order to satisfy the expanded market. For this to be achieved, financial institutions will be expected to develop facilitative products targeted at supporting the growth of small businesses so as to enable the achievement of the AfCFTA’s objectives. An example of this is the Pan-African Payments and Settlement System (PAPSS) by the AFREXIMBANK which is touted as one of the “greases that will oil the engines of the AfCFTA.

Ultimately, per information provided by the Global Justice Organization, operationalizing the AfCFTA is about: refocussing on the continent and scaling up investments. This is one of the most critical challenges to be addressed considering: 

  • up to $67 billion leaves the African continent via illicit flows each year
  • profits of foreign multinationals are repatriated out of the continent up to $32 billion every year
  • $500 billion is held outside the continent in welcoming tax jurisdictions

There can be no AfCFTA if we do not manage to re-direct more money – primarily more African money – to the continent, notably to support major infrastructure project financing and delivery.

Spread the love