The Role of AfCFTA In Promoting Intra-Africa Trade, Investment

The Role of AfCFTA In Promoting Intra-Africa Trade, Investment

Increasing intra-African trade is key to Africa’s long-term economic growth. The African Continental Free Trade Area (AfCFTA), which came into effect in January 2021, aims to boost intra-African trade, promote industrialisation, create jobs, and improve the competitiveness of African industries. 

To date, 38 countries have ratified the AfCFTA agreement, including South Africa, Nigeria, Egypt, Ethiopia and Kenya.

The AfCFTA presents key economic growth opportunities through the reduction and elimination of tariff and non-tariff barriers across member countries on the continent to provide a single market for goods and services. 

The AfCFTA will also ease the movement of people across the continent, further supporting intra-Africa trade, deepening economic integration and further increasing the ability of African governments and businesses to access global investment and value chains. 

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A World Bank report published July 2020 found that the implementation of the AfCFTA would boost regional economic growth, reduce poverty and broaden economic inclusion. The World Bank projects that AfCFTA will boost Africa’s income by USD450 billion by 2035. Currently, intra-African exports account for only a fifth of Africa’s trade, whereas in Asia it sits at around 60%, and at almost 70% in Europe.

The adoption of continent-wide trade regulations and financial practices will be positive for the continent as it is a sign that countries in Africa are committed to multilateral collaboration. African countries will benefit from having a bigger home market and the successful application of more consistent approaches should encourage foreign investment.

In Africa, governments that collaborate with businesses to enhance transparency and credibility in their financial systems can benefit from improved economic development. Inclusive and good governance is imperative to Africa’s economic recovery and future growth.

The real opportunity for Africa lies in its rapid urbanisation, underpinned by a thriving agriculture sector and the diversification of industries. Growth in the region will be as much bottom-up as top-down, driven by urban consumption, adoption of better farming techniques, renewable energy solutions and smart digital solutions that optimise the allocation of goods, capital and labour. 

It is therefore incumbent on governments, city authorities and businesses to help small-scale African farmers intensify their operations and meet rising urban demand and changing tastes. The compounded benefits to livelihoods, health, productivity and social upliftment are virtually limitless. Africa will also need to invest in the emerging digital ecosystem, which will act as a multiplier for growth.

There are other multipliers not only for economic growth but also for social and environmental good. Climate-smart intensification of farming is one such multiplier and sophisticated urban food markets is another. Urban consumers will drive economic growth and socio-political change in Africa.

The COVID-19 pandemic has reminded us of the benefits and risks of global interconnectedness, challenging us to rethink our priorities. The AfCFTA has the potential to herald a new era for the continent, removing trade barriers that currently inhibit the cross-border movement of goods. If successfully implemented the opportunities are endless. 

Africa has vast sources of power and potential for renewable energy. African consumers are projected to spend USD2 trillion by 2025, with economic growth prospects supported by a population of over one billion people with rising purchasing power. At the same time, businesses will have to deal with complex trade-offs and leaders will be called on to communicate a simplified vision that resolves this complexity. 

Drawing on Standard Bank Group’s presence in major international markets, our ability to access international pools of capital, our strong client relationships with global multi-nationals, and our strategic partnership with ICBC, we help facilitate the deepening of investment and trade flows between African countries and global markets.

In relative market size and activity, sub-Saharan Africa presents the greatest opportunity to initiate implementation. South Africa is our most mature market, while Nigeria is Africa’s biggest economy and a major growth opportunity for the Standard Bank Group. Our footprint in countries across sub-Saharan Africa means we are well-placed to ensure that our clients benefit from greater African integration.

As the AfCFTA gains traction it will improve intra-Africa trade and competitiveness and give Africa more relevance in global trade negotiations. As the digital revolution advances, technology will also play an important role in reimagining and reshaping transactions as well as the delivery of goods and services on the continent. 

Efficient and secure contactless solutions aligned to economic integration will in time be addressed by emerging digital platforms that will contribute to a seamless trade ecosystem. There is a clear opportunity for digital businesses to drive efficiency in the utilisation of assets. In Africa, this drive has the added benefit of uplifting local communities, supporting the growth of the middle class and ensuring broader economic opportunities for her people.

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