SPECIAL FEATURE

African Continental Free Trade Area

The African Continental Free Trade Area (AfCFTA) aims to create the world’s largest free trade area for goods and services, bringing together the 55 AU members and eight regional economic communities.

“Trade between African countries is currently low, estimated at about 15%, compared with 67% in Europe, 61% in Asia and 47% in North America,” says Industrial Development Corp (IDC) CEO Tshokolo Nchocho.

With a mandate to create a single integrated market on a continent with a population of about 1.3-billion people and a combined GDP projected to exceed $3.5-trillion by 2025, the AfCFTA has the potential to create a global economic powerhouse.

“The AfCFTA symbolises the emergence of a more assertive continent that no longer largely exports raw materials and imports finished goods,” says Nchocho.

“Bolstering trade ties between countries will strengthen Africa’s industrial base and open opportunities for the continent to become more self-sufficient.”

Core sectors earmarked to benefit include agriculture and agro-processing, manufacturing, the automotive sector, metals and mineral mining and beneficiation.

Standard Bank head of trade for business and commercial banking Philip Myburgh believes that the true potential of the AfCFTA lies in upstream beneficiation of Africa’s rich mineral and agricultural resources, as well as its human capital.

“Africa is among the least diversified regions in the world with regard to exports. So diversifying supply chains and exports by beneficiating raw commodities to preprocessed and processed goods is essential.”

Myburgh highlights investment in the value addition of agri products and mined commodities as significant opportunities.

“For example, while nut exports are booming, the real margin lies in value-added derivatives such as nut oils that cater to global healthy eating trends and the skinand haircare industries.”

Similarly, Africa has numerous minerals required by the world’s burgeoning alternative energy industry. However, commodities account for more than 60% of total exports across 45 of Africa’s 54 countries.

“These minerals present prospects beyond primary extraction and global supply, with opportunities to process and beneficiate products for trade and export,” says Myburgh.

By removing tariff barriers through the AfCFTA, Africa could leverage different elements of these options in different markets. And higher levels of preprocessing in Africa will increase formal employment, while building manufacturing capacity.

But realising this potential and boosting economic growth will require targeted investment from governments and the private sector, with a focus on SMEs, says Robin van Puyenbroeck, executive director for business development at the World Trade Centers Association.

“While the AfCFTA shows there is finally the political will, the framework and the commitment to realise these goals, for this to work, businesses must grow, which requires access to finance.”

Institutions such as Standard Bank provide trade solutions that help with finance and market access, and the African Export-Import Bank and IDC also facilitate export trade and investment on the continent and globally.

“The IDC’s African investment portfolio is valued at R19.5bn across 17 countries, and spans several economic sectors,” says Nchocho.

With numerous funding lines available, Van Puyenbroeck explains that raising capital from investors is not a challenge. “The issue is that entrepreneurs need capital to grow and scale, but only 10% of small companies grow to medium size, as accessing finance remains a challenge.”

Van Puyenbroeck says Africa needs to deploy capital in areas that have the greatest impact. “It is less administratively onerous to allocate $100m in traditional finance to a large infrastructure project than [to invest] $2m in 50 small enterprises.”

And this is where the opportunity lies for investors, believes Van Puyenbroeck. “There are opportunities for commercial, public and private equity funds to support a new generation of entrepreneurs that can benefit from the AfCFTA through broader access to funding and expertise.”

Facilitating SME growth will create jobs for the large proportion of young people in Africa, while meeting the boom in demand for products and services on a continent where the population is predicted to double in the next 20 to 25 years.

“Africa needs to get funders and investors on to the ground to find the opportunities, but it remains challenging to get around [in] Africa. The AfCFTA needs to cut the red tape, lower the threshold for doing business and build the infrastructure that makes it easy for investors and entrepreneurs to travel and find opportunities to get capital flowing,” says Van Puyenbroeck.

“Moreover, African companies need to leverage platforms that enable them to find and connect with potential business partners across the continent to create the supply chains that deliver value.” ●