How Africa’s AfCFTA agreement will impact startups and policymakers

From January 1, 2021, Africa will be ushering in a new economic era with the implementation of the African Continental Free Trade Area (AfCFTA) Agreement. The agreement was to be implemented in July 2020 but was stopped because of the global pandemic.

Several pundits and major organisations have lauded the initiative, but it presents tough questions for policymakers and huge opportunities for startups and innovators in Africa.

The AfCFTA Agreement is a pact that involves the 55 member states of the African Union looking to create a single continent-wide market for goods and services and facilitate capital movement.

The African Union (AU) adopted and opened up the AfCFTA agreement for signature on March 21, 2018. Besides Eritrea, all member states have duly signed and ratified the pact, thus making it set to be the world’s largest free trade area.

Besides AfCFTA, several treaties and agreements exist in different parts of Africa. We have the East African Community (EAC), the Economic Community of West African States (ECOWAS), and the Common Market for Eastern and Southern Africa (COMESA) to mention a few.

Titi Akinsanmi, a digital economy and policy expert, explains that the Free Trade Agreement was an extension of existing treaties and agreements between African countries.

“You can trace them as far as the Southern African customs Union (SACU) of 1910, to more recent ones like the Kigali Declaration. It’s all part of the AU’s agenda for 2063,” she says.

According to Akinsanmi, the new Free Trade Area’s existence does not negate the relevance of the previous agreements, but rather improves them and creates new opportunities.

The AfCFTA is looking to boost several segments of the economy, including intra-regional trade within Africa and the production of made-in-Africa goods and services, among others.

The African Export–Import Bank (Afreximbank) stated that only 14.4% of Africa’s exports went to other African countries in 2019. The continent remains a major supplier of primary goods to non-African countries and an importer of processed and manufactured products.

According to the World Bank, the pact connects 1.3 billion people across 55 countries with a combined gross domestic product (GDP) valued at US$3.4 trillion. It also claims that it can lift 30 million people out of extreme poverty and raise the income levels of 68 million others who live on less than $5.50 per day.

Consequently, among several initiatives, the new agreement includes plans to:

• Let products and services be traded duty-free across Africa.
• Create tariff concessions for goods and services moving in and out of Africa.
• Facilitate payments across the region to promote trade.

As much as the benefits are being touted, the Africa Free Trade Agreement’s challenges run deep and signing the new document might just be a drop in the ocean of easing Africa’s cross-border trade.

Andrew Nevin, FS Leader and Chief Economist, PwC West Africa, argues that the trade agreement’s impact will not be felt overnight. For now, it would be best to be cautiously optimistic about the impact of the agreement.

“There are issues around physical and soft infrastructure connecting countries in Africa. Right now it’s much easier to ship by sea. We would need better roads and effective rail systems across Africa for a more effective trading system,” he says.

Rails are an efficient way of moving vast amounts of goods across long distances, but it has witnessed a gradual decline in Africa. According to the African Development Bank (AfDB), rail transport’s market share in most African countries accounts for less than 20% of the total volume of goods transported.

Despite recent years’ progress, Africa’s road network, both within and between countries, leaves much to be desired.

Deepening Internet connectivity, easing cross-border payments, creating digital identities, and improving Africa’s addressing system has remained a challenge.

Besides infrastructure, Nevin insists that each country would have to harmonise several policies to a unified standard.

“If you produce a product or service that satisfies the Standards Organisation of Nigeria (SON), it has to be the accepted standard for other countries, to ease economic transactions. Ultimately, the AfCFTA agreement will take a lot of goodwill from member states,” he explains.

For West Africa, Nevin argues that relations might continue to be handicapped by the language barriers between Francophone and Anglophone West Africa.

Also, some African countries are historically territorial. South Africa has battled with long with xenophobia, Nigeria’s borders are closed despite the prospect of a free trade treaty, and Kenya wants its citizens to hold significant equity in ICT companies operating in the country.