Four key value chains (automotive, agri-business, healthcare, and logistics) are leading the implementation of the African Continental Free Trade Agreement, with planning, lobbying and investment
Webber Wentzel (in partnership with Invest Africa) recently held an important discussion on why the African Continental Free Trade Agreement (AfCFTA) is a game changer for Africa. A team of renowned panellists discussed how making a success of the AfCFTA will not only require a focus on trade facilitation, but also investments by governments and the private sector to open up the vast continental market of approximately 1.4 billion (mostly young) people.
To date, about 44 countries have deposited their instruments of AfCFTA ratification. Significantly, in October this year, under the Guided Trade Initiative, commercially meaningful trade has also begun, and provides an opportunity for a number of countries to test trading under the AfCFTA. The participating countries (Cameroon, Kenya, Ghana, Egypt, Tanzania, Tunisia, Mauritius, and Rwanda) have submitted their tariff commitments and have met all the minimum requirements to begin trading.
Governments that have signed the agreement are turning their attention to making their countries more attractive to investors, introducing enabling legislation and incentives such as Special Economic Zones. Implementation depends, not on signing the agreement, but on action from relevant ministries, such as energy, transport, tax and telecommunications, to put it into effect. A number of issues need to be addressed to enable free movements of goods and people, such as full liberalisation of the skies (rather than merely bilateral agreements), opening up trade corridors and developing infrastructure.
Four key value chains are leading the charge, and will be supported by innovation, technology and sustainability. These value chains are:
- automotive and affordable mobility (two- and three-wheelers, buses and public transport in general, and with a focus on rare earth minerals);
- agri-business and agri-processing;
- healthcare, pharmaceutical, and medical devices; and
- transport and logistics.
Another value chain that is likely to bring countries together is renewable energy.
Leaders in the automotive industry have engaged with African governments such as in Ghana and Egypt to create a more conducive environment for manufacturing. It is particularly important in the automotive sector that minerals and components needed for manufacture should be sourced from Africa, which involves local partnerships and supplier development programmes to enable SMEs to grow.
By 2030, agribusiness is expected to be a USD 1 trillion market. Currently, about USD 35 billion of food products are imported into the continent every year, and this is expected to grow to USD 110 billion by 2025. This represents capital which could potentially be circulated within the continent instead and stimulate development. Large food companies in countries such as South Africa, Egypt, Tanzania and Cote d’Ivoire are considering opportunities presented by the AfCFTA.
Since the pandemic, and even more so since the Russia/Ukraine war began, logistics have become more expensive, which is encouraging global corporations such as Siemens to establish manufacturing hubs closer to their markets. Siemens has opened manufacturing hubs for switches and sockets in Lesotho and South Africa. South Africa remains an attractive country from the point of view of logistics infrastructure (both public and private), and technical and services skills, which can be shared with the rest of the continent.
Changing the narrative
Although some of the regional trade blocs, e.g., SACU and ECOWAS could have achieved more success, in the view of some of the panellists, the AfCFTA is different from a governance and regulatory standpoint. Importantly, there is a weight of capital behind the AfCFTA that was absent from regional trade blocs.
There is a recognition that non-tariff barriers still remain and need to be addressed. Harmonisation of standards, regulations and customs procedures, and a predictable regulatory environment will go a long way to facilitate cross-border trade. Bringing Africa’s large youthful population into the opportunities presented by AfCFTA will depend partly on input from educational institutions, which should be exposing young people from matric onwards to intra-African trade and opportunities. AfCFTA creates an opportunity for young people to work in different parts of the continent and new jobs are opening up for youth with skills, as companies seek to diversify their skills base. While the founding agreement of the AfCFTA requires meaningful commitment to assist foster economic inclusion, a strong youth lobby would also help to ensure that this group shares in the benefits.
Whatever industry they operate in, companies should be developing an African business plan which identifies the risks and the competition, as they would for expansion into any market. They should keep abreast of AfCFTA related developments to determine how to use the AfCFTA to expand their trading footprint across the continent.