[Column] Bob Koigi: What the Africa free trade pact portends for the continent and businesses
In its May report, the International Monetary Fund, IMF, hailed the African Continental Free Trade Area, AfCFTA, as an economic game changer akin to those that have previously bolstered growth in North America and Europe.
Days after becoming operational, the continental free trade pact is already exciting markets and investors with the promise of a combined population of more than 1.2 billion people, a cumulative GDP of $3 trillion and total consumer and business spending of over $4 trillion.
As it seeks to address the fundamental question of removing trade barriers and tariffs, with member countries agreeing to remove tax on an estimated 90 per cent of 200 items that are traded in the continent, the free trade area that has been billed the largest world-over after the World Trade Organization, is poised to boost Africa’s competitiveness globally and has fortified efforts of making Africa a primary destination for global investors.
This, as the share of the trade within Africa promises to shore up from the paltry 15 per cent compared to North America’s 37 percent and Europe’s 68 per cent which has made trading costlier and more time-consuming in Africa than anywhere else in the world. Infrastructural and non-tariff barriers like restrictive border procedures and requirements, prohibitive licensing regime and corruption have been the continent’s Achilles heel.
Africa’s share of the global trade has equally been dismal as fragmented markets and underdeveloped key industries including manufacturing and agroprocessing reduce Africa to a net exporter of raw materials. The creation of an aggregate economy is therefore set to be a magnet for large scale and sustainable investments. The African trade bloc will also act as a buffer to global shocks with the consolidated local market offering an alternative in the event of global volatility or a dip in demand.
For African businesses this new phase of trade heralds a world of opportunities from reduced cost of doing businesses owing to removal of some of the most prohibitive taxes, availability of qualified labour as skills and technology transfer becomes simplified and an expansion and diversification of goods and services which will be crucial in turning raw materials into finished goods.
And then there is the thriving middle class whose consumption is expected to hit $2.2 trillion by 2030 that now offers a ready and guaranteed market to African businesses. This constituency has traditionally sought to sate its appetite by focusing on markets out of the continent as access to products across African countries becomes hampered by logistical and intra-border hiccups. With increased market efficiency that the bloc promises, competitiveness of local products will be enhanced through mass production and harmonization of standards and rules of origins,the focus shifts to local products.
But equally important is the role AfCFTA is set to play in reinforcing regional economic communities like the East African Community that have made considerable efforts in harnessing the power of integration. Economies of scale and standardized rules of trade by such regional trade blocs gives them an added advantage in pushing their trade agenda continentally. For countries like Kenya that have solidified their trade volumes due to years of identifying key demands among its trading partners within the regional blocs, their pole positions will come in handy when marketing and selling its goods and services with key sectors like agriculture, manufacturing, financial services and ICT poised to be big beneficiaries.
Ultimately the success of the trade pact moving forward is hinged on the creation and enforcement of trade rules that ensure that economic gains are enjoyed by all member states and that market liberalization isn’t seen as cannibalistic.
Multiple award winning journalist Bob Koigi is East Africa Region Chief Editor at Africa Business Communities. He was recently selected by MIPAD for the list of 100 most influential people of African descent under 40.
This column a contribution to [Africa CEO Forum] What are the opportunities that AfCFTA brings for business?