Over the last decade, as nationalism has grown, there has been a significant decline in multilateral cooperation. Africa, on the other hand, appears to be defying the isolationist trend. While the rest of the world is moving in one direction, Africa is moving in the opposite direction, strengthening cross-border ties and promoting economic integration.
The continent’s most recent move to strengthen multilateralism can be seen with the launch of the African Continental Free Trade Area (AfCFTA) on 1 January 2021. Heralded as a ‘game-changer, the AfCFTA is a landmark agreement set to create the world’s largest free trade area since the establishment of the World Trade Organisation in 1995.
Connecting a market of 1.3 billion people across 55 countries, with a combined gross domestic product (GDP) of $3.4 trillion, the enormous excitement surrounding the AfCFTA is understandable. After all, the agreement holds the potential to increase intra-African trade by 50 per cent, thereby boosting Africa’s GDP by seven percent – almost $450 bn – by 2035.
Currently, Africa struggles to detach itself from its colonial past, remaining heavily reliant on external trading partners. Indeed, only 16 percent of Africa’s exports are intra-continental, compared with 68 per cent for Europe and 59 per cent for Asia.
This is where the AfCFTA comes in.
Enhancing competition, stimulating investment, and eliminating trade barriers, the AfCFTA will put African economies and their citizens on a much stronger economic footing. This is because the agreement works to integrate Africa further into global supply chains by eliminating tariffs on 90% of goods, cutting red tape, and creating a single common market.
Importantly, it is in agriculture that the AfCFTA’s ambitions can find the most fertile ground. In particular, the agreement will create inclusive, regional markets for the produce of small farmers. This means some of the AfCFTA’s benefits will be felt most keenly by rural smallholders.
Uplifting the living standards of small farmers is an issue of high importance to me, one that I have personally championed as Chairman of African Green Resources. Seeking to support successful, ground-up businesses, African Green Resources provides small farmers with access to vital agricultural inputs and technology. For example, we recently invested in a diversified agro-processing facility in Central Zambia that aims to improve on-farm productivity for almost 250,000 contracted farmers by providing technical capacity support, storage facilities and market access. With the implementation of the AfCFTA, I look forward to seeing rural smallholders move from strength to strength.
The AfCFTA is not only good news for small businesses but should also deliver notable benefits in how income is distributed, speeding up wage growth for women and reducing extreme poverty. As reflected by Wamkele Mene, the Secretary-General of the AfCFTA Secretariat, ‘This is not just a trade agreement, this is our hope for Africa to be lifted from poverty’.
The AfCFTA has huge promise. But for the agreement to realise its many benefits, Africa will need greater investment and support to overcome implementation challenges.
A principal obstacle relates to Africa’s underdeveloped infrastructure. To move up the value chain, greater capacity for the likes of processing, packaging, and transport are required. But facilitating this is incredibly expensive. According to the African Development Bank, Africa’s infrastructure requirements total $130-170 billion a year but face a $68-108 billion financing gap.
Failing to plug this gap will dramatically slow the pace of progress. As Wamkele Mene explains, ‘If you don’t have the roads, if you don’t have the right equipment for customs authorities at the border to facilitate the fast and efficient transit of goods… if you don’t have the infrastructure, both hard and soft, it reduces the meaningfulness of this agreement’.
To stimulate growth, Africa must prioritise attracting foreign investment. Only then will the necessary infrastructure be put in place to allow Africa to flourish. Recognising the huge importance of capital investment, I have worked with international private investors in the Gulf, particularly in the UAE, to match investors and financers with opportunities in Zambia. Drawing on my experience, I have found businesses with strong regional supply chains and export markets prove more attractive to investors. In light of the newly implemented AfCFTA, I anticipate increasingly more investors will look to Africa for their next venture, finding an increasing number of businesses to fit the bill.
The launch of the AfCFTA is not a one-stop shop. The path to success is not to be underestimated. While the African Continental Free Trade Area promises to remake African economies, and the world’s, some issues cannot be solved in their entirety by simply increasing intra-African trade. To witness genuine benefit, greater support is needed from the international community to diversify trade and develop infrastructure. Only then will true free trade be accomplished.
Article by Zuneid Yousuf, Chairman, Zumran Group