Eliminating the high cost of inter-Africa trading

It costs far less to ship a car from Paris to Lagos than from Accra to Lagos, yet the two West African cities are just 460km apart. Likewise, furniture shipped from SA to Nairobi will retail for 320% of its value in the Kenyan capital. That's the reality of doing business across Africa, but this will change from 1 July next year when the African Continental Free Trade Area (AfCFTA) agreement commences. The elimination of tariffs under AfCFTA will be a key accelerator of market-seeking foreign direct investment (FDI). It will enable investors to tap into a common market of 1.2bn people with a combined GDP of approximately $2.2tn. A TimesLIVE report notes that AfCFTA will unlock FDI inflows, especially in the manufacturing and services sectors, according to the UN Conference on Trade and Development. Most critically, the agreement will fuel intra-African trade by immediately removing all tariffs on 90% of goods. The UN's Economic Commission on Africa estimates intra-African trade could increase 52.3% by 2022. And once the remaining 10% of tariffs on ‘sensitive goods’ are eliminated, it could double again.

A Moneyweb report notes that Africa has already seen the benefits of uniting on a smaller scale, in regional economic unions. The AfCFTA seeks to combine the strengths of those unions and to build on them to create an even stronger and, of course, larger union. This acknowledges that what West Africa has to contribute is different from what East Africa brings and they are both different than what Central Africa can add. The hope is that by combining these regional economic unions, there is the prospect, perhaps for the first time in history, of Africa becoming self-sustainable. The expanded market that will be created by the agreement is expected to stimulate trade in services, resulting in financial stabilisation and the promotion of cross-border investments. Not only is there expected to be an influx in exported services, but industries that rely heavily on services – such as the manufacturing and agricultural sectors – are also expected to grow. Unlike trade liberalisation, which is expected to be driven directly by African Governments, the liberalisation of services is likely to be led by the private sector, specifically financial institutions, which will play a significant role in influencing policies and implementation.