The Launch of the African Free Trade Area (AfCFTA)

The AfCFTA (also known as the Continental Free Trade Area – CFTA) was formally launched on 1 January with 54 countries have signed and 34 have ratified the Agreement. It is expected that by the end of 2021 at least 45 countries will have ratified. The launch represents a delay of nearly a year due to COVID, however, the new AfCFTA Secretariat under Secretary-General Wampele Mene has been settling into their headquarters in Accra, Ghana, and negotiations on reducing customs tariffs took place online throughout 2020. The intention is to remove 90% of intra-Africa trade tariffs (customs tariffs on imports from non-African countries are not involved in the AfCFTA). The Member States can retain tariffs on specified “strategic” goods (for example to protect a struggling agricultural sector) for up to 10 years, but by 2030 all customs tariffs should have disappeared. Parallel to the negotiations on tariffs, the Member States have started to identify and remove non-tariff barriers (NTBs). This is a far more complex task and will take ages (NTBs are anything from special requirements placed on foreign firms, to difficult forms for customs declarations). A special ‘protocol’ will also be prepared on cross-border ecommerce. EFA will keep readers up to date throughout the year and we plan in cooperation with AfriLabs and The Global Policy House to hold 3 online conferences to help ecommerce businesses appreciate and benefit from the opportunities the AfCFTA offers.

It is worth bearing in mind that the principal objective of the AfCFTA is to stimulate African production and manufacturing. More industry will mean more employment for the thousands of young people arriving each year in the jobs market. The good news is that the COVID pandemic appears to be reinforcing the aim for African countries to produce locally, rather than importing from abroad. Import substitution creates jobs, transfers skills and saves foreign exchange, as well as building pride in ‘Made in Africa’. In its 2018 report, Africa’s Business Revolution, McKinsey forecast that “three-quarters of the growth opportunity in manufacturing lies in meeting intra-African demand and substituting imports”.

A major challenge to intra-Africa trade is the lack of transport infrastructure. Getting products from manufacturers to market can be a slow and expensive process. There are cases where exporting goods out of Africa and then re-importing them to a neighbouring country is cheaper and more efficient than risking the cross-border road services. Poor infrastructure and logistics is estimated to add between 40% and 60% to the cost of goods in Africa, according to e-Conomy, a recent report by the International Finance Corporation (IFC) and Google. But a new generation of trucking companies believes internet technology can transform supply chains. Among the “e-logistics” businesses looking to shake up the transportation of goods is Kenya’s Lori Systems, which uses a cloud-based platform to connect companies wanting to shift cargo with the truck drivers who can move it. A cumbersome supply chain means fruit grown on the continent often spoils before reaching its destination, or it cannot compete on price. Lori Systems has raised over $25 million in funding. Sendy, another Kenyan e-logistics company, raised $20 million in an investment round backed by Toyota (TM) in January, and last year, Nigeria’s Kobo360 raised $20 million from Goldman Sachs (FADXX) and other investors. The IFC/Google report cites e-logistics startups as key in growing Africa’s internet economy.

The AU does, however, face a major issue – its own funding. Since the AU does not have an independent source of income, it either has to ask members for annual subscriptions (which are not always forthcoming), or be dependent on external partners. Financing the AU goes to the heart of its pan-African agenda, which is driven by decolonial integration and development objectives. Having examined the finances of numerous organisations, researchers observed that the double dependency on member states and external donors poses important challenges for the establishment of an independent and powerful administration. Achieving financial autonomy requires member states to improve their payment record.