Can Africa reinvent itself through the Africa Continental Free Trade Area (AFCTA)?

03/07/2019

Compass lies on some sandy ground

Compass lies on some sandy ground

The African continent has taken a major step towards advancing the free exchange of goods and services under rules that facilitate interaction between the parties. This should foster prosperity and development directly for the parties involved, and even for third parties indirectly, as all this is the result of the profits generated by these transactions.

May 30, 2019 was the launch of the major agreement of Africa Continental Free Trade Area (AFCTA). 52 countries signed the agreement, and are currently ratifying their adherence to it. This means that the weaker economies of the continent can do more business with their African neighbours, and increasingly compete with countries that are already major players in the global economy.

Africa has a very great potential for the production of goods, especially perishable goods and diverse manufactures, because they have an impressive diversity of natural resources; the continent’s other great resource is its people.

The potential to generate significant economic activity

According to the last article published by the World Economic Forum, this agreement will allow the area to generate about $4 trillion USD for investments and commercial transactions of goods and services. This already makes this market more appetizing, for large, medium, small and micro entrepreneurs. The latter are those that can benefit the most, by the removal of the tariff and non-tariff barriers to intra-regional trade, which would now be better called intra-continental. The harmonization of tariff rates is important, since a Free Trade Agreement between two or three countries is not the same as one with 52, and each with different visions and interests.

This is where the political will must assert itself and leave behind the particular interests of rulers who dictatorially determined the commercial, financial and social policy of their respective countries. Their actions unleashed many socio-political problems that always maintained an image of instability and high risk regarding doing business in Africa.

Times have changed in Africa

Now times have changed. There are more democratic governments, and there is more investment and development. True, that has not always been exponential, but has been well directed and has stimulated emerging economies with good attractions such as South Africa (host of a World Cup of Soccer, and being the first African country to participate). Kenya follows, impelling the formalization of its micro and small entrepreneurs, You can also include Equatorial Guinea in the scenario, the hidden oil reserve of Spain and perhaps a good part of Europe.

All this indicates that the horizon looks very promising. There will be growth platforms for the local businessmen of each of the signatory countries, and with that, real wealth increasing through the free exchange of goods and services and investments. However, there are also great challenges to make order and harmony prevail.

Challenges remain

Among these challenges are establishing the minimum and necessary legal frameworks so that resolutions of conflicts and disputes can be carried out efficiently.

Another significant challenge for all governments will be to modernize and improve the road infrastructure of all the countries involved. When talking about road infrastructure, I refer to all forms of transport that are part of the channels of supply chains used in commerce. The network of roads and highways are best to start with, as this should dramatically reduce the transit times of heavy transport and people throughout the treaty regions.

It will be important to accentuate the efficiency of infrastructure and customs personnel within borders, so that there is free transit of merchandise according to the bases of the treaty, combined with the internal laws of the country where it is only transited or is the end point of destination of the goods or people. More investment should also be made in the rail network, as well as in ports and airports.

These last three types of road infrastructures are critical for commercial development, since supply chains that have efficient multi-modal forms bring reduced costs, increasing the competitiveness of all the countries involved in this agreement.

E-commerce is also an important part of the future of this vision, which will be supported by clear rules, together with a modern regulatory framework. It could create the conditions to generate the sale of millions of products, following the major global trends of retail and business to business (B2B).

Another critical and major challenge is financial control, due to the high flow of transactions that will result from the opening of investment markets and the exchange of goods and services, as well as the mobility of people.

This control should be aimed at monitoring monetary flows and their origins. The scourge of money laundering is a global problem, and is also an issue within Africa. It may not be easy to apply more efficient controls and policies adapted to the reality of the way in which criminal structures operate. However, the support of countries with more development in establishing and enforcing financial controls could help Africa, supporting economic growth through trade and investment, and bringing development and prosperity for its inhabitants.

Beyond just sending humanitarian aid (which has been vital in most cases), it is extremely important to support the African continent so that they can make full use of their potential and thereby also enter more markets globally. Being more efficient as a block will also bring improvements at the individual level of each country, since together they can improve their negotiations with other large economies, which otherwise would be impossible.

This treaty is the best example of what looks to be a trend in world trade: an economy of blocks. I firmly believe that Africa is reinventing itself.  We can already see a new Africa, open and determined to compete strongly in the global conglomerate.

Disclaimer: The opinions expressed in this article are those of the contributing author, and do not necessarily reflect those of the Forum for International Trade Training.

About the author

Enrique Sobalvarro, CITP

Author: Enrique Sobalvarro, CITP

Enrique Sobalvarro is an international trade and business consultant, and has helped hundreds of businesses succeed internationally.

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