A senior official of the African Union (AU) has noted that leveraging the African continental free trade area (AfCFTA) contributes to silencing the guns in Africa, through the process of delivering broad-based prosperity on the continent.
The 33rd AU summit is being held under the theme, Silencing the Guns: Creating Conducive Conditions for Africa’s Development, at the AU headquarters in Ethiopia’s capital Addis Ababa.
Speaking to the press last Thursday in the framework of the summit, the AU Commissioner for Trade and Industry, Albert Muchanga, said the AfCFTA, as a development programme, broadens policy space for development and compliments the programme of silencing the guns.
“The advocates of free trade have long argued that its benefits are not merely economic. The advocates advise us that free trade also encourages people and nations to live in peace with one another. They also point out that free trade reduces the possibilities of war by making nations more economically interdependent because free trade makes it more profitable for people of one nation to produce goods and services for people of another nation,” he said.
“With the AfCFTA working and producing tangible benefits, Africa will be able to create conditions for ending poverty and unemployment. Poverty and unemployment are some of the key factors that generate social and political tensions, which if left to linger, can transform into tension and conflicts,” noted the Commissioner.
Fifty-four of the 55 AU member states have signed the agreement establishing the AfCFTA, and 28 countries have ratified and deposited the instruments of ratifications with the AU.
Speaking of the progress on the ratifications of AfCFTA agreement, the AU Commissioner said that more are expected to deposit instruments of ratifications during the summit, indicating that things are going in the right direction.
The main objectives of the AfCFTA are to create a single continental market for goods and services, with free movement of business persons and investments, and thus pave the way for accelerating the establishment of the Customs Union.
It will also expand intra-African trade through better harmonisation and coordination of trade liberalisation and facilitation and instruments across the RECs (regional economic communities) and across Africa in general.
The AfCFTA is also expected to enhance competitiveness at the industry and enterprise level through exploitation of opportunities for scale production, continental market access and better reallocation of resources.
The AfCFTA will bring together all 55 AU member states, covering a market of more than 1.2 billion people, including a growing middle class, and a combined gross domestic product (GDP) of more than US$3.4 trillion.
In terms of numbers of participating countries, the AfCFTA will be the world’s largest free trade area since the formation of the World Trade Organisation.
The consotium of partners - Initiative Africa (IA), Center for International Private Enterprise (CIPE) and PACCI held their first physical meeting with representatives of the team in Addis Abeba, January 27th - 31st, 2020.
The discussion was on the implementation phase of the newly signed project funded by the Swedish International Development Cooperation Agency (SIDA).
The project titled: EMPOWERING MARGINAL ECONOMIC ACTORS THROUGH POLICY REFORM FROM THE BOTTOM-UP, will focus on Ethiopia with PACCI's main role being on Public Private Dialogue, Capacity Building of Business Membership Organisations, Ethiopia's WTO accession and AfCFTA sensitization backed with export promotions.
Project Timeline: 2020 - 2022.
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This particular study – AfCFTA conditions for Success – provides both an analytical framework as well as an actual analysis on local and international factors likely to either augment or hinder implementation of the AfCFTA, and therefore gives an evidence-based understanding and capacity to make specific local policy and investment decisions. The study can further guide interventions aimed at strengthening and aligning related institutional and human capital needs using integrated, cross-sector and transboundary approaches. Using the International Futures Modelling Tool, the study presents, for planners, policy makers and development specialists, a uniquely African perspective and foresight analysis to help in evidence-based prioritization and determining of national or regional AfCFTA implementation pathways – also connecting between individual and collective (regional) Member States’ implementation efforts. Success of the AfCFTA is cardinal to the success of Agenda 2063.
Tariffs: Today, Central African Republic, Chad, Comoros, and Democratic Republic of the Congo are all estimated to depend on intra-African tariffs for more than 5% of total government revenue. Figure 3 shows that at its peak in 2025, 24 countries are projected to experience net losses in revenue greater than 1% relative to the Current Path. These intra-African tariff-dependent countries are likely to face a challenging period of adjustment over the medium term. However, most countries that experience net revenue losses also quickly enjoy GDP gains that fully offset those losses.
At the continental level, by the mid-2030s, total gains surpass and begin to rapidly outpace losses, such that by 2063 African economies are projected to receive an additional $500bn in annual revenue relative to a scenario without AfCFTA. This value is roughly 140 times the amount necessary to compensate the few countries that do not fully make up tariff revenue losses. In addition, while countries heavily dependent on intra-African trade tariff revenues will see short-run disruptions to government revenue generation, they also experience much greater long-term economic gains relative to countries that have less of a short-run dependence on trade tariff revenue.
While the GDP and revenue gains suggested by this analysis are more than enough to outweigh the losses, since intra-African tariffs are already relatively low, their removal alone may not be enough to generate transformative change and significantly increase intra-African trade.
Rwanda’s Private Sector Federation in collaboration with African Export-Import Bank (Afreximbank), have announced a planned roadshow that will sensitise the business community on the benefits of the Africa Continental Free Trade Area (AfCFTA).
In March 2018, Rwanda witnessed the historic signing of the AfCFTA – a continental single market set to connect 1.3 billion populations. The single market will come into force in July this year.
Rwanda won the ticket to host this year’s IATF2020 which is expected to trigger deals worth $40 billion.
Ahead of the Trade Fair, Afreximbank and PSF organised the road show that will
Rwandan private sector how it can become a primary beneficiary of the African Continental Free Trade Area (AfCFTA) which will provide significant opportunities to access the largely untapped markets and sectors in an integrated African market of over 1.3 billion people.
According to Afreximbank, Rwandan businesses can take advantage of the AfCFTA by establishing new networks of business buyers and sellers from across the African continent, enabling the country to significantly expand its intra-African trade.
In a statement released on Thursday, Prof. Benedict Oramah, President of Afreximbank, said: “Rwanda’s economic transformation is undoubtedly one of Africa’s success stories. Rwandan businesses can further capitalise on this achievement by positioning themselves to take full advantage of the AfCFTA.”
“By attending IATF2020, they will gain an unrivalled opportunity to showcase their goods and services to buyers from across the African continent, whilst establishing new trade and investment links with a wide network of private and public sector players from more than 55 different countries.”
IATF2020 is expected to be Africa’s main trade event of 2020 and is aimed at providing a marketplace for buyers and sellers of products and services from Africa and beyond to meet and explore business opportunities.
The Management of Invest in Africa (IIA) is empowering Small and Medium Scale Enterprises (SMEs) to enable them explore opportunities that come with the African Continental Free Trade Area (AfCFTA) agreement. The AfCFTA becomes operational on June 1st, 2020 and it is expected to create the world’s largest free trade zone with over one billion consumers, a potential $3 trillion economy and zero tariffs on goods traded across countries. Mr Clarence Nartey, the Country Director of IIA, said IIA was investing to adequately prepare its SMEs to harness the market opportunities to be provided by the agreement. He said there was still work to be done to educate and sensitise the private sector on both the opportunities and threats that the agreement comes with and work to develop a competitive AfCFTA strategy. He said from an IIA perspective, the good news was that some of its suppliers ware already engaged in Pan-African trade – equivalent to 15 percent of IIA’s active supplier pool. “However, this is not enough and the organisation is committed to increasing this to 40 percent in a few years,” he added. Mr Nartey said the 40 per cent target would be done through rolling out its AfDB- sponsored flagship Business Linkage Programme. The programme focuses on integrating SMEs into supply chains of multinational companies and large local organisations by improving their competitiveness and building their long-term capacity, across eleven countries. He said they would also leverage on Information Communication Technology in the form of IIAs digital infrastructure, an online marketplace that connects 50 buyers and 5,500 suppliers across Africa. It will accelerate cross-border and regional value chain integration and rapidly scaling up SMEs through its home grown buyer project all of which should position IIA’s SMEs to be regionally competitive. Mr Nartey said the awards scheme honours indigenous businesses, who have demonstrated entrepreneurial excellence and developed the capacity to participate in supply chains of large local and international companies. Mr David Ofosu Dorte, the Executive Chairman of AB & David Africa, said there was the need for SMEs to enhance their competitiveness by upgrading the standards of their products and expanding production capacity in order to maximise the benefits from AfCFTA. He said looking presently at the private sector, they are not prepared to take advantage of the agreement and urged the players to be abreast with the agreement and take advantage of it. “The private sector must take charge and work with government to take full advantage of the agreement,” he added. Mr Dorte said it was encouraging to see the heads of states of the African continent trying to promote and boost intra-African trade among themselves to develop the continent. Mr Sebastian Okeke, the Country Manager of African Development Bank Group (AfDB), expressed the bank’s commitment to continue its partnership with IIA through the Fund for Africa Private Sector Assistance to support the growth of Ghanaian SMEs and promote local content. Mr Okeke said through the partnership, some SMEs in the agricultural, oil and gas, financial services and telecommunication sectors have been supported with access to skills, market and finance. He said the business skills of more than 300 SMEs have also been enhanced and over $2 million worth of credit had been secured for them through IIAs partner banks. The awardees include Young Entrepreneur of the Year- BTL Africa Marketing Limited, Sustainable Business of the Year- Jekora Ventures, Business Transformation- Aidec Holdings Limited, and Business Linkage- Lightingale Limited. Others are, Business Technology Growth- Consolidated Shipping Agencies Limited, Business Innovation of the Year- Agriaccess Ghana Limited, Mentorship Recognition- Agriaccess Ghana Limited and Scale-Up Business of the Year – Western Premium Company Limited. The IIA Star Award for Excellence was awarded to Joissam Ghana Limited.
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THE FORCE OF SERVICES AWAKENS
For generations, trade barriers were measured by tariffs, quotas and voluntary export restraints. The policy equivalents of a clumsy and random blaster. That was before new technologies reduced transaction costs. Tradable services gave rise to more integrated business models for a more modern age. Today, services generate more than two-thirds of world gross domestic product, employ the most workers, and create most new jobs globally.
THE MIDICHLOREANS OF INTERNATIONAL TRADE
The force of services is what gives the global economy its power. Services surround, penetrate and bind global value chains together. Telecommunications and audio-visual services constitute a digital network connecting the world trading system. Transportation and logistics services form the backbone of global supply chains. Financial and professional services are essential enablers of commerce. Engineering and construction services are the foundation of physical infrastructure. Health and education services are at the heart of better lives.
SIZE MATTERS NOT
Judge exporters by their size, do you? The force of services is a powerful ally for small and medium sized enterprises. Jobs are created by it. It make firms grow. Services surround businesses of all sizes, binding them together and boosting SMEs. Regulatory co-operation can minimise compliance costs, and better use of technology can ease the burden of administrative procedures.
SERVICES TRADE RESTRICTIONS STRIKE BACK
A seductive dark side lurks, a pathway to measures that are considered to be restrictions on trade. The OECD’s fifth annual update of its Services Trade Restrictiveness Index (STRI) has detected a disturbance in the services force. It’s as if millions of future jobs risk being silenced. As measured by the OECD STRI, the pace towards more open services trade has been reversed. Newly published data for 2019 demonstrates a 30% increase in new services trade restrictions, while the introduction of liberalising measures has declined by 60%.
WE’VE GOT A BAD FEELING ABOUT THIS
There are two reasons to worry. First, new restrictions impact sectors that enable trade in digital technologies. Barriers include impediments to online payments and the imposition of local presence requirements on cross-border operations. Second, many countries have introduced measures affecting foreign investment and the temporary movement of professionals. The cumulative effect can trap competitiveness and productivity in a tractor beam and propel the cost of doing business into hyperspace.
DO. OR DO NOT. THERE IS NO TRY
Fortunately, a band of policy-makers have been resisting the dark side. In 2019, Brazil implemented comprehensive reforms to air transport services. The European Economic Area (EEA) further liberalised cargo-handling, commercial banking and insurance services. Thailand, France and Greece recorded the highest net decreases in the 2019 STRI indicators. Australia is leading the way with a government-wide services export action plan. Read about all the top performers, reformers and trends in The OECD Services Trade Restrictiveness Index: Policy Trends up to 2020.
A NEW HOPE
Trade Ministers and sectoral regulators must unlearn what they have learned. Impediments to services trade remain pervasive. Regulatory policies are made with limited regard for economy-wide impacts. Countries should adopt whole-of-government services strategies and bind reforms in trade agreements. The alliance of services trade proponents should be revived from its carbonite deep freeze. We encourage trade Ministers to reach out with their feelings, liberalize services trade, and restore balance to the international trading system. In so doing, they can ensure that the force of services trade will be with us always.
If they have not already, companies have to start creating strategies for expansion into the available 1.2 billion people African market, projected to grow to 2.5 billion by 2050.
54 of the 55 African Union(AU) Member States have now signed the Africa Continental Free Trade Agreement - AfCFTA. The main objectives of which, are to create a single continental market for goods and services, with free movement of business persons and investments, and thus pave the way for accelerating the establishment of a continental customs union.
As of January 2020, 30 member states had ratified the agreement; meaning that the rights, provisions, and obligations of the agreement now apply. It has been agreed that there should be 90% tariff liberalization - Over 10 years with a 5-year transition. There will be an additional 7 % for “sensitive products" that must be liberalized. Trading is set to commence under AfCFTA in July 2020.
As with all markets, there are always businesses tipped to benefit most, based on their business model, available infrastructure and ability to overcome barriers to entry without much effort. E-Commerce businesses are such companies. The hard infrastructural needs required are minimal and for the most part, the soft infrastructure is already there.
Most E-Commerce businesses today are offering a ‘shipped from abroad’ option with items primarily being shipped-in from China.
I remember assisting a colleague set up an online shop on one of the biggest online shopping platforms in Ghana. During the onboarding and training on how to use the system, the Executive was hard-pressed to explain why they could not open up the ‘online shops’ to African vendors from other African Countries yet, Chinese sellers had their shops complete with Chinese people modelling what they had available for sale.
There should be no more excuses from 1st July 2020, as to why African vendors are not featured on E-Commerce platforms in the different African Union member states. Between now and July, these businesses should be restructuring and configuring their systems to allow shoppers access to products from all over Africa, as well as make payments accordingly.
To do this, there are some critical factors that these businesses must consider:
Understanding the tariff breaks and implications that come with AfCFTA
During an interview with journalist Micheal Mugisha, the African Union Commissioner on Trade - Albert Muchanga, confirmed that through an online application, each member state can upload their tariff offers online (though password-protected currently). He added that indeed some countries have uploaded their offers. E-Commerce businesses can request access to some of this information for them to generate indicative pricing of some of the products they would sell.
Figuring out the logistics
Twenty-three African Countries in January 2018 signed up for the African Single Aviation Market. These are some of the steps being taken to make the movement of goods and people easier and cheaper within Africa. However, logistics has been the bane of Intra-African trade for a long time. So while measures are being taken, a lot of experimentation would be required here, to establish approximate delivery times as well as develop a database of reliable carriers. When I order online from China, delivery takes about two weeks. What time will it take across each African country?
Securing vendors - armed with a plan that allows them to make money
This sounds pretty straightforward however, even in the local markets they operate in, E-Commerce platforms have lost vendors due to low margins. Additional costs such as packaging and pick-up fees deter vendor sign-ups or longevity. A vendor in the neighbouring country might decide to put a package on a bus directly to the client, even though an e-commerce platform is their best option for visibility and safety. Though the platforms are also in it to make money, they must first attract vendors through attractive margins. CEO Jeff Bezos has long maintained that investing in future growth is more important than hitting quarterly earnings targets.
Synchronising and securing payments
One of the outcomes at the signing of the AfCFTA, was the launch of the Pan-African Payment and Settlement System (PAPSS), by the African Export-Import Bank (Afreximbank).
This is a platform that will domesticate intra-regional payments, making it possible for African companies to clear and settle intra-African trade transactions in their local currencies. There is an opportunity here for E-Commerce platforms and businesses to integrate their payment gateways into this system. In addition to efficiency, this will save users the high transaction costs of using a third party currency such as the popularly used US Dollar.
By offering producers and sellers a chance to enter new African markets without stepping away from their desks, these companies also increase their attractiveness to investors.
Undoubtedly, there are more factors to consider when seriously looking at enabling online selling and buying across Africa. However, based on their existing infrastructure, this is the time for E-commerce businesses to start considering themselves pioneers of bringing AfCFTA to life.
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Africa’s economic growth remained stable in 2019 at 3.4 percent and is on course to pick up to 3.9 percent in 2020 and 4.1 percent in 2021, the African Development Bank’s 2020 African Economic Outlook (AEO) revealed Thursday.
The slower than expected growth is partly due to the moderate expansion of the continent’s “big five” — Algeria, Egypt, Morocco, Nigeria, and South Africa – whose joint growth was an average rate of 3.1 percent, compared with the average of 4.0 percent for the rest of the continent.
The Bank’s flagship publication, published annually since 2003, provides headline numbers on Africa’s economic performance and outlook. The 2020 edition, launched at the Bank’s Abidjan headquarters, was attended by former Liberian president Ellen Johnson Sirleaf, African ministers, diplomats, researchers, and representatives of various international bodies.
Johnson Sirleaf commended the Bank for upholding the confidence of the people of the continent “… because we trust you. As simple as that. Because we trust you to share our vision. We trust you to understand our limitations.”
Referring to Africa’s fastest-growing economies, she said, “There are stars among us…and we want to applaud them. We want to see more, particularly for countries like mine, which have been left behind, so that more can be done to give them the support that they need.”
In 2019, for the first time in a decade, investment expenditure, rather than consumption, accounted for over 50% of GDP growth. This shift can help sustain and potentially accelerate future growth in Africa, increase the continent’s current and future productive base, while improving productivity of the workforce.
Overall, the forecast described the continent’s growth fundamentals as improved, driven by a gradual shift toward investments and net exports, and away from private consumption.
East Africa maintained its lead as the continent’s fastest-growing region, with average growth estimated at 5.0 percent in 2019; North Africa was the second fastest, at 4.1 percent, while West Africa’s growth rose to 3.7 percent in 2019, up from 3.4 percent the year before.
Central Africa grew at 3.2 percent in 2019, up from 2.7 percent in 2018, while Southern Africa’s growth slowed considerably over the same period, from 1.2 percent to 0.7 percent, dragged down by the devastating cyclones Idai and Kenneth.
Urgent call to address Africa’s education, skills mismatch
The 2020 AEO, themed Developing Africa’s workforce for the future, calls for swift action to address human capital development in African countries, where the quantity and quality of human capital is much lower than in other regions of the world.
The report also noted the urgent need for capacity building and offers several policy recommendations, which include that states invest more in education and infrastructure to reap the highest returns in long-term GDP growth. Developing a demand-driven productive workforce to meet industry needs, is another essential requirement.
“Africa needs to build skills in information and communication technology and in science, technology, engineering, and mathematics. The Fourth Industrial Revolution will place increasing demands on educational systems that are producing graduates versed in these skills,” the report noted.
To keep the current level of unemployment constant, Africa needs to create 12 million jobs every year, according to the report. With rapid technological change expected to disrupt labour markets further, it is urgent that countries address fundamental bottlenecks to creating human capital, the report said.
“Youth unemployment must be given top priority. With 12 million graduates entering the labour market each year and only 3 million of them getting jobs, the mountain of youth unemployment is rising annually,” said Akinwumi Adesina, African Development Bank President, who unveiled the report.
“Let’s look at the real lives beyond the statistics. Let’s hear their voices, let’s feel their aspirations.”
Although many countries experienced strong growth indicators, relatively few posted significant declines in extreme poverty and inequality, which remain higher than in other regions of the world.
Essentially, inclusive growth — registering faster average consumption for the poor and lower inequality between different population segments — occurred in only 18 of 48 African countries with data.
“As we enter a new decade, the African Development Bank looks to our people. Africa is blessed with resources but its future lies in its people…education is the great equaliser. Only by developing our workforce will we make a dent in poverty, close the income gap between rich and poor, and adopt new technologies to create jobs in knowledge-intensive sectors,” said Hanan Morsy, Director of the Macroeconomic Policy, Forecasting and Research Department at the Bank.
The African Economic Outlook provides compelling up-to-date evidence and analytics to inform and support African decision makers. The publication has built a strong profile as a tool for economic intelligence, policy dialogue and operational effectiveness.