AfCFTA, the long road
to Africa's promised land
of trade and prosperity

The African Continental Free Trade Area (AfCFTA) has been touted as the supercharger of Africa's long-term economic success. Here, Bohani Hlungwane, Group Head of Sales, Trade and Working Capital at Absa, looks at how far we have come and what needs to be done.

The 1st of January 2021 was the go-live date of the Free Trade Area. This meant that those countries whose Parliaments had ratified the agreement and deposited a schedule of tariffs under which 90% of the goods will be zero tariffed goods and services were permitted to trade under the area.

Countries that have still not deposited their schedule of tariff-exempt goods and services have been given until the end of June 2021 to complete this, which is very transformational in and of itself because, instead of having sets of levies for various imports and exports, the majority of those defined goods and services will be subjected to zero tariffs.

There are still important issues to clarify, including broad agreement and acceptance around the question of rules of origin and intellectual property and how this impacts the value of components added as part of the value chain.

The other big and seemingly eternal question revolves around infrastructure, or the lack thereof across the continent.

There is a ready acceptance that Africa has an enormous infrastructure deficit, and by all accounts, the annual required spend is well northwards of US $100 million over at least the next decade, amounting to around $1 trillion.

And while that is a daunting figure, the reality is that Africa will bridge the infrastructure gap because of the enormous potential and gains inherent in seeing the creation of a single inter-connected market. Moreover, global corporates, asset and fund managers see the opportunity presented by a single market in Africa and the potential evident in factors such as labour competitiveness that make the continent supremely primed for manufacturing and large-scale industrial development.

We already see essential infrastructure projects across the continent underway that will add to the growing network of roads, rail, port, and other notable infrastructure development nodes. This is critical because, as more infrastructure projects are completed, these will generate increased confidence among global investors and finance institutions demonstrating that Africa is on the right track. It also counters the narrative of Africa’s dismal record in moving projects to successful closure.

Added to this is a solid political will to make AfCFTA succeed. The issues around non-tariff barriers such as delays with customs as one example can sink the very best initiatives. However, the AfCFTA Commission has established a digital platform whereby countries and any person involved in the trade of goods and services can flag issues that hamper the effective and efficient trade movement. This points to a commitment to engage with key stakeholders to ensure that critical issues are addressed.

Digital infrastructure will play a critical role in facilitating the workings of the free trade area. For example, the registration of businesses and the movement of goods across borders and general business administration requirements are completed quickly and seamlessly.

As we have seen with Absa Regional Operations, the COVID-19 pandemic and large-scale drive towards digital transacting speaks to the very future of the free trade area and how business will increasingly be conducted. By its very nature, digitisation drives integration much faster than regulatory reform as entrepreneurs and SMEs seek innovative solutions.

The current reality and the challenges are stark. According to the World Bank, Africa has a population of 1.3 billion people with a combined gross domestic product estimated at US$3.4 trillion. Yet, despite its abundant resources and riches, the continent only contributes around 3% to total world trade, while intra-Africa trade sits below 20% of total trade on the continent.

For the first time, Africa is gearing up to ensure that the value found on the continent is to the ultimate benefit of African economies and her citizens.