The African Continental Free Trade Area can help move innovation forward
During January 2012, the African Union, building on the Pan-African economic values of its founding organ – the 1961 Organisation of African Union decided to adopt a free trade area covering the African continent. Fast track to March 2018, 44 countries indicated their commitment through signing the agreement in Kigali, Rwanda.
In July 2018, South Africa, along with five other countries, became a party to The African Continental Free Trade Area agreement joining the 44 existing signatories to the agreement. In April 2019, the Gambia ratified the agreement, bringing the total number of African Union (AU) member state ratifications to 22, the minimum threshold for AfCFTA to begin implementation. The hard work of creating one unified African market that had once been a dream became a reality thirty days later.
The agreement for a while lacked the participation of Nigeria as a signatory – significant as it is the largest economy on the continent. On the 7th of July 2019, Nigeria and its neighbour Benin signed the agreement, bringing the current number of states to 54.
The aim of the AfCFTA is to create a single market which includes the free movement of goods, services and people. It will create a market of over 1.2 billion people that is projected to create an economy of $2.3 trillion.
Currently, traditionally high tariffs on intra-African trade have depressed trade levels. Visa restrictions between African states have restricted movement of talent across the continent as well. On the other hand export of raw minerals and materials has stunted growth in the manufacturing industry. The AfCFTA is expected to create a more competitive, yet sustainable environment for cross-border trade built on collaboration. With every ambitious goal, it is important to define a shared vision of what success looks like from the start.
Given that Africa is starting with a low intra-regional trade of 15% compared to 19% in Latin America, 51% in Asia and 72% for Europe, the success of AfCFTA therefore has been measured and set as an exponential increase in trade.
Studies have shown that by creating a pan-African market, intra-Africa trade could increase by about 52% by 2022.
Operational phase
There are outstanding issues that could plague the successful integration of the agreement. In the manufacturing sector rules of origin are concerned with the classification and quantifiability of a product as made in Africa. The rules are a passport enabling goods to circulate duty-free within a free trade area. If rules are not clearly articulated in a business friendly, simple and predictable manner, it could present challenges for trade.
There is another potential challenge that smaller member nations with highly informal economies face little legal protection to protect key sectors, that in most cases contribute highly to the GDP of a nation. Governments may face a challenge in promoting competition in local markets as some companies will be able to take advantage of economies of scale and grow faster to capture dominant positions in markets.
A reduction in tariffs coupled with high economies of scale could unlock wide margins for export/import businesses. We can hope to see monopolies based on price as a result.
If these concerns are unaccounted for – instead of increased trade levels, we might witness a rise in protectionism and isolationist sentiment similar to current American foreign policy that shuns globalization in favor of nationalist market economics. Therefore, the success of the agreement while possible will require extraordinary commitment, consistency, automation and clarity, legal support and economic buy-in from different industries.
Sand Mba Kalu who is executive director at Africa International Trade and Commerce Research headquartered in Lagos believes that research and a single electronic window will be crucial for AfCFTA implementation. Considering that AfCFTA will be reviewed every five years, without research and strong monitoring and evaluation, AfCFTA has the potential to fail. Research into trade and investment policy reform will enable the AfCFTA secretariat to observe what is working and what can be improved regularly.
Digital lions on the move
It is the continent’s growing and inventive startup ecosystem led by an innovative youthful educated workforce that will transform industry across Africa. Africa is a great place to build a business as there are genuine problems that can be solved with technology. Couple that with a rising youth population, high technology uptake and smartphone penetration year on year you have a clear backdrop of a future leading global market in development.
In 2017, Eric Osiakwan partner and venture capitalist at Chanzo Capital highlighted five key countries that were defining innovation and churning out investable startups across sectors such as financial technologies, data, agriculture and e-commerce. Sectors that all affect and can accelerate the successful implementation of AfCFTA.
Kings of Africa
The key countries named as Kings of Africa are Kenya, Cote d’Ivorie, Nigeria, Ghana and South Africa. Ghana has a digital first agenda that has witnessed the government automate the legal system, company registration, digital ID and an online tax filing system. A recent report highlighted its economy as the fastest growing mobile money economy in Africa due to its financial inclusion mandate.
Cote d’Ivorie has also experienced stable growth with a 5.17% average growth rate that covers a long time frame spanning 1961 to 2018. In 2018, Ivory Coast’s projected economy was 7.4% – higher than Ghana, Tanzania and Rwanda.
Nigerian innovation and startup growth is on a steady rise as well, case in point, Kobo 360 is a logistics company headquartered in Lagos, Nigeria. Kobo360’s platform aggregates a fleet of over 10 000 drivers and trucks,with operations in Nigeria, Ghana, Kenya and Togo. Using a state of the art Global Positioning Tracking System the startup solves a very important problem for truck owners. Making sure that the supply chain system is efficient from point A to point B. A company like Kobo 360 leveraging their technology could tomorrow manage Africa’s entire transport sector digitally. Technology will eliminate losses resulting from empty miles and open up new markets.
In the same positive vein, Elohor Thomas, former Andela alumna and the Chief Executive Officer of Accra based Code/Ln – an online recruitment startup that validates the skills of software engineers, believes that the AfCFTA will lead to more job placements for the engineering talent that lands on their desk. Elohor is of the opinion that they will be granted greater access to a rich source of talent from all across Africa. Companies like Code/Ln play the pivotal role of spreading top talent across Africa by matching real time immediate needs of employers to verified skilled personnel. In essence, they are the orchestra at the very center building nascent ecosystems and doing the important and necessary work of community building.
From research to academia, ease of movement due to high intra-African connecting flights that often cost more has been a magnified concern as well. Professor Gordon Awandare is the Director of West African Center for Cell Biology of Infectious Pathogens in Accra Ghana. He highlighted that travel within the continent for researchers can be very onerous, so he hopes in the potential for AfCFTA to lead to an ease in movement across African countries.
Nelson Torto, Executive Director at The Academy of African Sciences Kenya, a not for profit organization with a vision to transform lives on the African continent using science, commenting via email also spoke on the impact of visas. He mentioned that:
“Not all countries give visas on arrival and thus researchers still face delays as approval is not quick enough to meet the demand nor do all countries have embassies in all parts of Africa. Just the concept of visas for Africans in Africa is strange and needs to be dealt away with.”
It may take some time for these hopes to come to fruition as key negotiations on movement that could potentially lead to a single African passport are still under discussion.
Strategically positioning for growth
What startup innovators are already achieving across African markets though is consolidating age old fragmented ecosystems, simplifying trade by using data science, and bundling value added services across multiple sectors. The whirlwind effect of this is already clear – African economies are diversifying their profits and risk thanks to local and foreign private sector venture capital.
Egypt’s economy in particular has grown exponentially due to technology in the last five years. One of it’s most successful transportation startups, Swvl recently raised a $42 million funding round that was announced in June 2019.
On top of the foreign direct investment into technology and the youth, some African economies have leapfrogged industrialization and gone straight to the Information Age. In the process they abandoned defined patterns of growth and created new growth patterns. As a result, far sighted innovators are strategically positioning their growth and expansion plans in line with a long term strategy. They are also identifying key partnerships so as to achieve a single market for their products across one Africa in the next ten years.
Jetstream Africa is a Ghanaian based tech company that works with farm cooperatives and food processors in Africa to aggregate shipments and streamline cross-border trade logistics. Commenting via e-mail, Chief Executive Officer Miishe Addy highlighted how partnerships and the AfCFTA will lower the distribution costs of African goods, ultimately reducing the continent’s reliance on imports from more developed economies.
Clearly, there is so much that is possible.
Disrupting bad governance – a top priority
In the technology ecosystem there is widespread enthusiasm due to the potential for a single African currency and a single African passport that the AfCFTA has the potential to yield.
In early August 2019, more than thirty innovators and technology players convened in Kigali, Rwanda to debate the potential loopholes of the AfCFTA. The meetup, held at CC Hub Design Lab and hosted by Bosun Tijani was graced by members from Rwanda’s Development Bank and co-founder of Transparency International Oby Ezekwesili.
“If technology can disrupt patterns, then technology can disrupt bad governance because bad governance is also a pattern” said Ezekwesili who is Former Vice President of the World Bank Region in Africa, as well as the former Minister of Education of Nigeria mentioned at the summit.
Ezekwesili tasked the innovators to disrupt bad governance as effectively as they had done with services in the last few years. Consumer trends illustrate how technology has disrupted African buying patterns in the last few years. Low television sales show that youth are no longer investing in televisions but investing in laptops and Wi-Fi over fixed connections such as landlines and cable TV. This is evident in the growth of on demand entertainment such as Iroko in Nigeria, and global players such as Showmax and Netflix that have recorded steady growth in Africa over the last five years.
The gig economy is on the rise as well, a casual look online will show families are renting out extra rooms in their homes as evidenced by the popularity of Airbnb and local housing startups. Uber and Bolt, despite suffering huge operational losses and stiff competition from local solutions such as Little in Kenya are not pulling out of Africa any time soon either. E-commerce company Jumia, as controversial as it is offers a model of shopping that will attract more users as incomes rise, smartphone prices continue to fall and the internet becomes more affordable.
We can expect more disruption across every single sector as the challenges Africa has are many, and a successfully implemented AfCFTA will only accelerate growth.
As Africa moves towards a service based economy largely driven by technology and convenience, bottlenecks that are common across the continents regional economic communities from ECOWAS to SADC include bureaucracy and manual processes that feed corruption. Studied together, these poor governance indicators cost African governments millions in lost tax revenue every year and thousands of hours in lost productivity. Blockchain enabled solutions that deal with the above mentioned by pushing for accountability and transparency are on the rise as a result.
However, without government and public sector buy-in, the above mentioned will continue to have a compound effect of derailing progress and diminishing any useful gains that may be made. Consequently, if these are not dealt with early, the culture of corruption may spread across borders and choke the very lifeblood of the instrument.
Conclusively AfCFTA is not a one-time event but a consultative long term goal that will require checks and balances and constant reflection to ascertain what is working and what is not. In the spirit of Ubuntu, it has subsequently been tied to Agenda 2063 that is led and structured by the African Union and the 2030 Agenda for Sustainable Development and Sustainable Development Goals as well.
Negotiating the detailed agreement timeously between nations is critical to ensure a development-oriented, balanced, comprehensive and modern agreement that can foster structural transformation at a granular state level, create jobs across regional economic communities whilst simultaneously reducing poverty. Emmanuel Gamor, a World Economic Forum Global Shaper and owner of education consulting group Kanea Solutions believes that in keeping with multilateral norms of negotiation, “special-interest technical negotiating groups” may help speed up the overall negotiation.
The stance about AfCTFA or any trade policy with multiple stakeholders, is that business agents need to take advantage for it to be fully realized. Outside of setting policy, government can only do so much without private enterprise players – and this case – African business taking full advantage. In short; after ratification the ball is in the court of the African innovator.
Across social media a popular hashtag has become an unofficial movement celebrating Africa’s rise as a major global player in art, culture and music. From Cape to Cairo, Lagos to Abidjan, #AfricaYourTimeIsNow has shown up in graffiti, on t-shirts, and most recently music videos. If one is to reflect retrospectively by coupling the hashtag with the prophetic The Economist cover design of 2011 – of the famous Africa Rising image, it is apparent to the reader that Africa is doing something right.
Our time it seems has arrived.