INSIGHTS
Working capital solutions, integrated with your business.
AfCFTA: a ‘new dawn of opportunity’
• Agreement aims to
Twrites Lynette Dicey
head of transactional products and services for Standard Bank South Africa, Thandiwe Legwaila. There are fragmented trade policies across the continent which need to be harmonised for AfCFTA to reach full potential. There is no doubt implementation will be a challenge. A key element of AfCFTA is the removal of crossborder tariffs on 90% of goods by 2030. Many African countries, however, are reliant on the income from import tariffs and may be unwilling to give these up. Legwaila says it s important that during the implementation phase, in particular, member countries
understand the benefits and the extent to which AfCFTA will benefit their economies and that they invest time and resources into putting the necessary conditions in place to enable free trade.
According to a research study compiled by Baker McKenzie and Oxford Economics called AfCFTAs $3-trillion Opportunity, the challenges AfCFTA needs to address relate not only to lowering tariff barriers but also to addressing nontariff barriers to intra-regional trade. Virusha Subban, a partner specialising in customs and trade at Baker McKenzie Johannesburg, points out that some of the more significant obstacles to AfCFTA are inadequate infrastructure, poor trade logistics, onerous regulatory requirements, volatile financial markets, regional conflict and complex and corrupt customs procedures. These can be even more detrimental to trade expansion than tariff measures,
she says. There is a consensus that the vast infrastructure gap in Africa, including transport and utilities infrastructure, must be urgently addressed so as not to restrict increased trade integration, she says, adding that developing infrastructure is also key to addressing the devastating economic impact of Covid-19.
According to our AfCFTA report, reliable transport infrastructure is vital for businesses to be able to scale up production for regional export and to develop manufacturing bases. The continent also needs to redouble its efforts
African nations must produce what’s needed
s combined needs. Currently, Africa s most important external suppliers of manufactured goods are Europe (35%), China (16%) and the rest of Asia including India (14%).
By contrast, imports from other parts of Africa account for 16% of total merchandise imports. The report revealed more than 75% of African exports to the rest of the world were heavily focused on natural resources and primarily raw materials. The report also compared Africa s 20 largest economies in terms of the share of exports destined for other economies on the continent. Some economies, such as Uganda and Zimbabwe, bucked the overall trend, trading more with their neighbours than other African nations do. Yet, says Subban, their economies are small in contrast to those of Egypt, Nigeria and SA, which together represent more than half of the continent s GDP. Egypt and Nigeria, for instance, have limited trade relationships with their African peers. As major fuel exporters, they are focused on exports outside the continent. Manufacturing GDP represents on average only 10% of GDP in Africa. This means limited production capabilities within Africa are currently being compensated for through foreign imports. Says Subban: “However, this manufacturing capacity could eventually be satisfied within the continent and enabled by AfCFTA. Manufactured
Virusha Subban impetus.
Thandiwe Legwaila digitisation.