African countries can become global competitors and benefit from AfCFTA by investing in critical infrastructure, promoting innovation and technology
The global economy is currently facing unprecedented challenges, including trade wars, disruptions in transport and logistics systems, shocks from the COVID-19 pandemic, geopolitical tensions such as the ongoing Russia-Ukraine conflict and its ramifications for food security and the price of oil, and the impact of climate change.
However, the African Continental Free Trade Area (AfCFTA) is a beacon of hope, offering significant opportunities for businesses across the continent.
The AfCFTA Business Forum that took place in Cape Town, South Africa, from 16 - 19 April this year brought together more than 1,000 policymakers, business leaders, and key stakeholders to discuss the potential of this ambitious initiative.
The forum took place at a time when there is waning confidence in the multilateral trading regime, and concerns are growing about the unequal distribution of benefits and burdens, inefficiency in decision-making, loss of sovereignty, and politicization of global governance.
The ongoing discussion regarding the effectiveness of multilateralism, particularly in the face of global economic and geopolitical shifts, underscores the importance of finding domestic solutions to national and continental issues.
The African Continental Free Trade Area (AfCFTA) is a beacon of hope, offering significant opportunities for businesses across the continent.
Given this context, it is increasingly compelling to pursue the pan-Africanist concept of a single African market, which would create a continental market of 1.3 billion people with a combined GDP of $3.4 trillion, making it the largest free trade area in the world since the establishment of the World Trade Organization.
The AfCFTA is expected to boost intra-African trade by 52.3 per cent by 2025, increase Africa's income by up to $450 billion by 2035, according to the IMF, and lift 30 million Africans out of extreme poverty.
However, intra-African trade currently accounts for only 15 per cent of the continent's total trade, compared to 58 per cent in Asia and 67 per cent in Europe.
The AfCFTA has been in effect for two years, and 2023 has been designated the "Year of AfCFTA: Acceleration of the African Continental Free Trade Area Implementation" by the African Union.
Infrastructure funding gap
The AfCFTA Business Forum discussed the importance of seizing opportunities and investments created by a single African market, but emphasized the need to improve the continent's infrastructure, which requires $130-170 billion annually.
Currently, there is a funding gap of $68-108 billion, resulting in only 34 per cent of the population having access to electricity and 40 per cent living more than 5km from the nearest all-season road.
These challenges contribute to high logistics costs, which can account for up to 40 per cent of the cost of trading goods between African nations.
AUDA-NEPAD and the government of Senegal jointly hosted the 2nd Dakar Financing Summit for Infrastructure (DFS-2) this February to address the infrastructure gap in Africa. The summit highlighted the importance of building partnerships with the private sector and leveraging technology to modernize infrastructure.
As a result of DFS-2, $65 billion in investment interest was received for PIDA Priority Action Plan (PAP) 2 projects in the transport, energy, water, and ICT sectors.
These investments will support the development of transportation networks, the construction of energy infrastructure, and the improvement of internet connectivity, among other initiatives.
Such investments will play a crucial role in supporting the AfCFTA's objective of reducing trade barriers, harmonizing regulations and standards, and improving cross-border investment, thereby promoting economic growth, reducing poverty, and increasing regional integration and cooperation.
AUDA-NEPAD is working with stakeholders to develop multi-sectoral industries in Africa, including agro-processing, manufacturing (especially pharmaceutical products), green technology, and minerals development.
Manufacturing
The Business Forum also discussed the opportunities for Africa's manufacturing sector. Currently, the sector contributes only 10 per cent to Africa's GDP, compared to 20 per cent in East Asia and the Pacific, and 15 per cent in Latin America and the Caribbean.
However, the United Nations Industrial Development Organization (UNIDO) predicts that Africa's manufacturing output could increase from the $500 billion currently to $1.7 trillion by 2030, potentially creating up to 14 million jobs.
To overcome the challenges associated with raw material-oriented production, it is essential to promote critical industrial launch pads.
What AUDA-NEPAD is doing?
AUDA-NEPAD is working with stakeholders to develop multi-sectoral industries in Africa, including agro-processing, manufacturing (especially pharmaceutical products), green technology, and minerals development.
Furthermore, AUDA-NEPAD is advancing alternative pathways to economic growth, such as industries without smokestacks, including blue economy industries, and tradable services like tourism and ICT.
These industries have gained momentum in Africa, and their development can help create jobs, boost productivity, and promote sustainable economic growth.
The forum called for increased investment in Africa to produce goods that meet international standards and are competitive in global markets.
The platform also acknowledged that eliminating trade barriers under the AfCFTA will enable participating countries to develop their comparative advantages, increase productivity, and improve the quality of their goods and services.
By promoting innovation and technology, investing in critical infrastructure, and improving the quality of their products, African countries can position themselves as global competitors and take advantage of the opportunities presented by the AfCFTA.
While it is crucial to tackle the barriers affecting cross-border trade, it is equally important to encourage producers to improve the cost and quality of their products through innovation and technological upgrades.
This will enable them to build dynamic comparative advantages and perform better than their competitors, which can help overcome the narrative that only a small proportion of African firms (around 20 per cent) can consistently produce high-quality products at scale.
Digital trade
Digital trade in Africa was a key topic of discussion at the AfCFTA Business Forum, and it is rapidly gaining traction.
The continent is experiencing an increase in the adoption of digital technologies across various industries, with growing interest in e-commerce platforms, fintech solutions, mobile money, and other digital tools that are transforming how business is done on the continent.
This will unlock the potential of digital trade in Africa and enable businesses, especially small and medium-sized enterprises, to expand their reach and tap into new markets.
To support this growth, AUDA-NEPAD is engaged in various initiatives that promote private sector engagement and investment, innovation, technology development, collaboration, partnerships, and capacity building for AfCFTA.
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Additionally, AUDA-NEPAD is leveraging the potential of African MSMEs through initiatives such as Home-Grown Solutions Accelerator, African Kaizen Initiative, and 100K MSMEs.
The continent is experiencing an increase in the adoption of digital technologies across various industries, with growing interest in e-commerce platforms, fintech solutions, mobile money, and other digital tools that are transforming how business is done on the continent.
African MSMEs account for 80 per cent of total production, two-thirds of investment, and three-quarters of credit, employing 90 per cent of Africa's working-age population.
Overall, the Forum recognized that cooperation and collaboration are pivotal enablers for the success of the AfCFTA.
The AU and its organs, Regional Economic Communities (RECs), governments, and the private sector will need to work together to tap into each other's responsibilities, mandates, and capabilities.
It is essential to raise awareness of all relevant stakeholders and capacitate them to ensure they are all on the same page regarding the nature, scope, and channels of impact.
The AUDA-NEPAD-led AfCFTA impact assessment study will play a key role in identifying critical areas of sensitization and capacity building to be considered by all relevant stakeholders.
In conclusion, by promoting innovation and technology, investing in critical infrastructure, and improving the quality of their products, African countries can position themselves as global competitors and take advantage of the opportunities presented by the AfCFTA.
This will not only promote economic growth and reduce poverty but also increase regional integration and cooperation, leading to a more prosperous future for all Africans.
Ms. Nardos Bekele-Thomas is the CEO of AUDA-NEPAD, the development arm of the African Union.
