Missed chance hindering Intra-African trade growth

Despite AfCFTA entering into force over five years ago, intra-African trade remains low, hovering around 15-18 percent of the continent's total trade.

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The frequent and unpredictable nature of changes and disruptions in today’s global trade landscape have called upon emerging markets like Africa, to reconsider how they shape their own futures.

With US President Donald Trump’s recently announced tariffs sparking global trade wars and the looming expiry of the African Growth and Opportunity Act (Agoa) in September acting as a wake-up call, African countries are coming to the realisation that the continent’s development must be underpinned by further regional integration and trade liberalisation.

Most experts speculate that with Trump’s administration’s preference for bilateral deals as opposed to multilateral blanket agreements like Agoa, the US is likely to do away with the trade agreement or significantly amend it come September.

This will further shrink Africa’s international trade market, especially for those that relied on the trade act to gain free tariff access to the US market.

However, all is not lost. During the global tariff wars, the African Continental Free Trade Area (AfCFTA) could come in handy as strategic response to the shifting global trade landscape as it is a $3.4-trillion market that could potentially be tapped without the need to pay tariffs.

Despite AfCFTA entering into force over five years ago, intra-African trade remains low, hovering around 15-18 percent of the continent's total trade. This pales in comparison to trade within other regions like Europe and Asia, which both have over 60 percent of intra-country trade.

The potential that lies within the implementation of AfCFTA is huge with World Bank estimates showing that the AfCFTA could raise Africa’s exports to the rest of the world by 32 percent by 2035, while catalysing foreign direct investment.

Despite this, the implementation of the agreement has been sluggish at best, and the continent is yet to reap its intended benefits.

As the AfCFTA Secretariat gets to work, it is being faced with hurdles like inefficient border procedures, complex documentation requirements, and a lack of harmonised standards across countries.

To fully realise the benefits of the AfCFTA, African nations need to fast-track the harmonisation of trade policies, invest in infrastructure and strengthen institutional frameworks for trade to build capacity for sustainable trade.

To attain this, several challenges need to be dealt with starting with overcoming non-tariff barriers. Costly non-tariff measures, such as complex regulations and customs procedures, impede trade within African countries.

This goes hand in hand with infrastructure limitations where poor infrastructure development in Africa, particularly transportation and logistics, and inadequate customs procedures, increase the cost and time of trade, thereby discouraging businesses.

African countries must also work to systematically get rid of the lack of harmonisation between countries and regions which has been a thorn in the flesh for African trade for decades.

Inconsistent rules and regulations, including those related to product standards and origin, continue to create confusion and barriers for African traders who want to explore the continent's markets.

This is coupled with regional disparities like varying levels of development and economic diversity across African countries which has at times led to imbalances in trade, with some countries benefiting more than others.

High transaction costs and complex payment systems have been known to deter trade, particularly for small and medium-sized enterprises. However, it is encouraging to see the development of systems like the Pan-African Payment and Settlement System, a cross-border, financial market infrastructure enabling payment transactions across Africa.

It is through the development and uptake of such infrastructure that intra-African trade will receive the jolt it needs.

Most traders on the continent have also decried limited market information as an impediment to trading under AfCFTA. This is because a lack of comprehensive information about market opportunities and regulations within the AfCFTA area makes it difficult for businesses to navigate the trading environment.

Despite this challenge, the AfCFTA Secretariat is working to bridge this information gap, and businesses should focus on understanding and complying with the rules of origin, ensuring quality standards, and leveraging digital tools to connect with African markets.

Additionally, businesses that want to be ahead of the pack in reaping the benefits of the AfCFTA should focus on adding value to their products and services to increase their competitiveness in the AfCFTA market.

This includes embracing digital technologies to improve efficiency, reduce costs, and expand their reach.

It goes without saying that funding is instrumental when businesses decide to expand their reach. To fully take advantage of the expanded market offered by AfCFTA, businesses can benefit from government support in accessing funds or look for other reliable ways to secure access to financing.

When looking for a financial partner to support intra-African trade, businesses need to identify a financial institution like a bank which has a notable presence across the region.

The right financial partner plays a crucial role in financing trade under AfCFTA by providing trade finance services, facilitating cross-border payments, and supporting investment in the region by integrating regional value chains.

As the world navigates the murky waters of trade wars and reciprocal tariffs, it is becoming clearer that Africa’s economic future lies in fostering a seamless trading environment within the continent.

This will ultimately be attained if African countries help in frog-leaping the implementation of AfCFTA, in order to unlock unprecedented growth, job creation, and economic resilience.

The writer is Head of Trade & Africa-China Banking Business | Stanbic Bank Kenya

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