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.
Click here to access Full Report
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.
It’s still up in the air whether the African Union can keep its promise to deliver a continental passport by the end of the year. The travel document would allow visa-free travel between the Union’s 55 member countries.
The potential economic impact is huge. Recently-released data show that intra-African travel continues to lag the world. The continent’s 1.2 billion people made far fewer intra-continental trips—in total, and per person—than Europeans, Asians and Americans.
In addition, as Europeans and Asians increasingly travelled to nearby countries, in recent years, African figures remained mostly the same.
Globally, intra-continental travel was a far more common practice than inter-continental travel. The amount, however, differs drastically from region to region. Sixty-five trips in Europe crossed into another European country for every 100 Europeans in 2016. Just four trips for every 100 Africans were to other African countries.
The data account for international travel by air, land and water transportations from 2011 to 2016. Ettore Recchi, the lead researcher behind the project, attributed the ease of traveling in certain regions to three factors:
- Geographic proximity. Clusters of countries that occupy small areas—like in Europe—make it easier to take international trips.
- Economic prosperity. People with disposable income and places with a growing middle class—like Asia—are able to make more trips because they have the money to do so.
- Political integration. When political and administrative barriers to travel are removed—like in the European Union—it makes citizens more mobile.
Africa lagged behind on all these dimensions, according to Recchi.
In 2016, the African Union promised to deliver a continental passport to “help realize the dream of visa-free travel for African citizens within their own continent by 2020.” A number of prominent Africans, including some heads of state and diplomats, have been issued the passport. Through August 2019, 33 member states have signed the protocol to establish a pan-African economic body, the first step toward the free movement of people.
Click here for full article:
Let’s zoom in on the rice issue. In 2018, Benin, a country of 11 million people, was the sixth largest importer of rice in the world and the largest rice importer from Thailand. More recently, Benin’s rice imports have been steadily rising while Nigeria’s have been falling at a similar pace, suggesting large re-exports of rice from Benin to Nigeria (Figure 1). Why might that be the case? Because import tariffs in the two countries are widely different. In 2013, Nigeria’s tariff on rice imports was set at 70%. In 2014, Benin reduced its tariff on rice imports from 35% to 7%. This makes the practice of re-exporting extremely attractive to both formal and informal operators. They can import rice to Benin at a low cost and smuggle it into Nigeria to sell at a much higher profit margin. One of the most straightforward ways to combat this behavior would be to agree on a common external tariff, which could help make re-exporting less profitable. But this incident between Nigeria and Benin highlights some of the other non-tariff trade barriers that could still provide incentives for re-exporting. Below, we focus on three of the major technical challenges that need serious consideration as governments negotiate the terms of their participation in the AfCFTA.
Tension between national industrial policies and AfCFTA ambitions: The AfCFTA will only succeed if member countries make the regional strategy part of their national policy and proactively address the tensions that arise between the two. Countries should find the sweet spot that reinforces national economic goals and ensures maximum gains from increased integration, looking beyond a static assessment of their priorities. In addition, countries need to make the case to their people as to why integration is useful in the long term – this is particularly important in the larger countries, which may have greater influence on regional decisions.
Lack of capacity to monitor and safeguard against illicit practices, including smuggling, dumping, and violation of the rules of origin: Given the African Union’s ambitious industrialization agenda, we expect to see even more of these types of disputes on rules, particularly the rules of origin, once trade under AfCFTA becomes more widespread. With this on the horizon, countries need to think through how to address origin fraud, setting clear and simple rules that are monitored and enforced at the national and regional levels.
Trade dispute settlement mechanisms: One of the key challenges to the AfCFTA we identify in our forthcoming book, is the need for an effective dispute resolution mechanism with the authority and institutional capacity to mediate and enforce decisions within and across countries in Africa and with parties outside the continent. This body should be complementary to the traditional diplomatic/political approach to resolve disputes. [The authors: Woubet Kassa, Albert Zeufack; tradebarriers.africa: Despite closed borders, Nigerian manufacturers begin online registration for AfCFTA]
An online platform developed by UNCTAD and the African Union to help remove non-tariff barriers to trade in Africa became operational on 13 January.
Traders and businesses moving goods across the continent can now instantly report the challenges they encounter, such as quotas, excessive import documents or unjustified packaging requirements.
The tool, tradebarriers.africa, will help African governments monitor and eliminate such barriers, which slow the movement of goods and cost importers and exporters in the region billions annually.
An UNCTAD report shows that African countries could gain US$20 billion each year by tackling such barriers at the continental level – much more than the $3.6 billion they could pick up by eliminating tariffs.
“Non-tariff barriers are the main obstacles to trade between African countries,” said Pamela Coke-Hamilton, director of UNCTAD’s trade division.
“That’s why the success of the African Continental Free Trade Area depends in part on how well governments can track and remove them,” she said, referring to the agreement signed by African governments to create a single, continent-wide market for goods and services.
The AfCFTA, which entered into force in May 2019, is expected to boost intra-African trade, which at 16% is low compared to other regional blocs. For example, 68% of the European Union’s trade take place among EU nations. For the Asian region, the share is 60%.
The agreement requires member countries to remove tariffs on 90% of goods. But negotiators realized that non-tariff barriers must also be addressed and called for a reporting, monitoring and elimination mechanism.
The online platform built by UNCTAD and the African Union is a direct response to that demand.
Complaints logged on the platform will be monitored by government officials in each nation and a special coordination unit that’s housed in the AfCFTA secretariat.
The unit will be responsible for verifying a complaint. Once verified, officials in the countries concerned will be tasked with addressing the issue within set timelines prescribed by the AfCFTA agreement.
UNCTAD and the African Union trained 60 public officials and business representatives from across Africa on how to use the tool in December 2019 in Nairobi, Kenya.
They practiced logging and responding to complaints, in addition to learning more about non-tariff barriers and their effects on trade and business opportunities.
“The AfCFTA non-tariff barriers mechanism is a transparent tool that will help small businesses reach African markets,” said Ndah Ali Abu, a senior official at Nigeria’s trade ministry, who will manage complaints concerning Africa’s largest economy.
Justin Bayili, a business representative who heads the Ghana-based Borderless Alliance, agreed. “The online tool will play a key role in helping my organization effectively and efficiently tackle the challenges faced by the companies we represent,” he said.
Following the official presentation, they conducted multiple simulation exercises with business and government representatives to identify any possible operational challenges.
Lost in translation
One of the challenges was linguistic. Africa is home to more than 1,000 languages. So the person who logs a complaint may speak a different language from the official in charge of dealing with the issue.
Such would be the case, for example, if an English-speaking truck driver from Ghana logged a complaint about the number of import documents required to deliver Ghanaian cocoa to importers in Togo – a complaint that would be sent to French-speaking Togolese officials.
“For the online tool to be effective, communication must be instantaneous,” said Christian Knebel, an UNCTAD economist working on the project.
The solution, he said, was to add a plug-in to the online platform that automatically translates between Arabic, English, French, Portuguese and Swahili – languages that are widely spoken across the continent. More languages are being added.
UNCTAD’s work on the AfCFTA non-tariff barriers mechanism is funded by the German government.
WIA (Women In Africa) Initiative is the first international platform dedicated to the economic development and support of leading and high potential African women. WIA envisions to support the new generation of leading and high potential African women and to guarantee their impact in the service of an Africa anchored in its era, innovative and inclusive.
By networking women, mediating their initiatives and talents, detecting new talents, promoting inter-generational transmission, supporting entrepreneurship and parity through one of their pillars of action: WIA Philanthropy, is Calling out for Applications for African Women Entrepreneurs with a strong potential to shape the Africa of tomorrow (Africa We Want).
54 women will be invited for a specific program designed to help them boost their business. Also, this year, WIA 54 Award will recognize 54 women entrepreneurs from each of the 54 African Countries. This happens every year.
Applications are opened till February 9, 2020. For further info, visit: https://wia-initiative.com/en/wia-54
Authors: Maximiliano Mendez-Parra, Sherillyn Raga, Lily Sommer]
This report highlights the opportunities and challenges facing UK firms when investing or conducting business in Africa, with a particular emphasis on the non-extractive sector. It highlights the mutual benefits for Africa, in terms of economic transformation and growth, and for the UK, in diversifying investments in rapidly expanding markets. The study draws from data on UK investments in Africa, and information provided by more than 75 UK companies operating in Ghana, Kenya, Nigeria and South Africa.
Currently, UK foreign direct investment (FDI) in Africa is heavily focused on the extractive sector and in South Africa. The low penetration of UK FDI beyond mining and financial services and in other countries suggests that there are opportunities as well as challenges to increase the role of British investors in boosting African economies.The increasing population and growing middle class in Africa – expected to account for over 40% of the population by 2030 – bring growth and increased sophistication in consumption, presenting substantial opportunities in sectors where the UK has a strong comparative advantage, including financial services and insurance.
By: James Karuhanga
When asked what single word can best describe the African Continental Free Trade Area agreement’s journey through 2019, Carl Oshodi, the Executive Director of Nigeria’s Africa Industrialisation Group, said; “progressive.”
Indeed, nearly 22 months after the African Continental Free Trade Area (AfCFTA), was signed by African leaders on March 21, 2018, in Kigali, a lot of ground has been covered in an attempt to create a single continental market for goods and services, with free movement of business persons and investments.
At the onset, 44 out of the 55 AU member states – except the big boys such as South Africa and Nigeria— signed the consolidated text of the agreement at the Kigali Summit.
The 44 leaders signed the agreement establishing the AfCFTA, a protocol on trade in goods, a protocol on trade in services and a protocol on rules and procedures on the settlement of disputes.
Gathering the 22 ratifications needed to make the agreement operational, however, would take some time, and hard work.
Nonetheless, by March 21, as countries marked the anniversary of the agreement’s signing, there was cause for celebration, especially as, among others, 21 countries had not only signed but had also ratified the agreement.
Finally, the 22-country threshold in conformity with legal provisions was reached on April 29 when Sierra Leone and the Saharawi Republic deposited their instruments of ratification.
The agreement eventually entered into force on May 30, 30 days after 22 countries deposited their ratification instruments, for all the 24 countries that had by then deposited their instruments of ratification.
The coming into force of the Agreement, on May 30, experts said, was a turning point for the continent, as the pact then became a binding international legal instrument.
More than a month later, on July 7, the operational phase of the pact was launched during the extraordinary session of the AU Assembly in Niamey, Niger.
The AU Commission Chairperson, Moussa Faki Mahamat, hailed the launch as a “historic moment” in Africa’s history.
“The speedy entry into force of the AfCFTA has been a major pride to all of us,” Faki said.
During the same Niamey session, the President of Niger and leader of the AfCFTA process, Issoufou Mahamadou, presented his second report – the first was presented in February – on the status and progress made.
He noted that a lot of work was done to conclude major issues of the agreement.
Member states were at advanced stages in preparing their schedules of tariff concessions.
On AfCFTA rules of origin, Mahamadou observed, the remaining rules pertained to member states’ policy and investment interests. This, he said, required political intervention and guidance.
At the time, technical submissions were exhausted without consensus on areas pertaining to fisheries; edible oils; sugar; leather; textiles and apparel; machines and machinery; and motor vehicles.
Failure not an option
The July session in Niamey launched the operational phase of the AfCFTA, supported by key instruments.
These are the agreed Rules of Origin; a dashboard of the AU Trade Observatory, a Trade in Goods Password Protected Dashboard, a Pan-African Payments and Settlements System; an AfCFTA Mobile or Web-based application, and the Online Mechanism for Reporting, Monitoring and Elimination of Non-Tariff Barriers.
In addition, the Niamey meeting also made a number of important Decisions which included that: the AfCFTA be hosted by Ghana and that July 1, 2020, be the date to start trading within the AfCFTA regime.
It was also decided that AU Commission should ensure that the AfCFTA Secretariat is operational no later than March 31, 2020; and that July 7 every year be designated “the Africa Integration Day” without being a public holiday to commemorate the operationalization of the agreement.
Prudence Sebahizi, Chief Technical Advisor on AfCFTA at the AU Commission, said: “When the Heads of State and Government met in Niamey in July 2019, they launched the operational phase of the AfCFTA and decided that dismantling of tariffs shall start not later than July 1, 2020, to allow the start of trading within the AfCFTA regime on the same day.”
Sebahizi added: “We are working around the clock to ensure that this decision is fully implemented. Failure is not an option.”
Cameroon approved ratification on July 19.
Fast forward, on December 14-15, Ministers of Trade met in Accra, Ghana and decided that the positions of AfCFTA Secretary-General and three Directors for the AfCFTA Secretariat be advertised immediately to allow completion of recruitment by March 2020.
As of December 17, 54 AU member states had signed the AfCFTA Agreement.
Efforts are ongoing – by the AU Commission – to engage with Eritrea, the only country yet to sign, as the former prepares to sign and ratify the agreement.
So far 28 countries have deposited their instruments of ratification with the AUC and hence became state parties.
These are Burkina Faso, Chad, Congo Republic, Côte d’Ivoire, Djibouti, Egypt, Eswatini (Swaziland), Equatorial Guinea, Ethiopia, Gabon, Gambia, Ghana, Guinea, Kenya, Mali, Mauritania, Mauritius, Namibia, Niger, Rwanda, Saharawi Republic, São Tomé and Príncipe, Senegal, Sierra Leone, South Africa, Togo, Uganda, and Zimbabwe.
The Agreement will be governed by five operational instruments: the rules of origin; the online negotiating forum; the monitoring and elimination of non-tariff barriers; a digital payments system and the African trade observatory.
The rules of origin, the criteria needed to determine the national source of a product, derive their importance from the fact that duties and restrictions in several cases depend upon the source of imports.
For Andrew Mold, the Acting Director of UN Economic Commission for Africa- Eastern Africa sub-regional office in Kigali, one of the main moments in 2019 was reaching 28 ratifications – more than half the continent’s countries.
The date the agreement will come into force, July 1, 2020, Mold said, “Is a major target that has been set.”
“There will be an intensification of the negotiations in a lot of areas over the first semester of 2020. Services trade negotiations have to be initiated – there is enormous potential in terms of increased intra-African services trade,” Mold said.
“In contrast with its deficit on merchandise trade, for instance, Rwanda posted a positive balance in services trade for the first time last year. Five other countries in eastern Africa actually have positive service trade balances. So, the region potentially has a lot to gain from the successful conclusion of the service trade negotiations.”
Also yet to be concluded are the rules of origin negotiations, a very important area for an effective AfCFTA, Mold noted.
The rules of origin will need to be as flexible as possible in order for poorer African countries to be able to significantly increase their intra-African trade under the AfCFTA, he said.
“I think we will find discussions also focusing on the protocols on competition, investment, intellectual property and free movement. Ultimately, for citizens to benefit from the AfCFTA there are crucial areas in the construction of the continental market.”
“Take competition policy, for instance. A recent COMESA study shows that consumers in the region typically pay 25-30 per cent more than prevailing prices globally for a set of 12 staple goods. This is ascribed to anti-competitive behaviour.”
Clearly, Mold said, if the agreement can make a positive impact in this kind of domain, by increasing intra-regional trade and investment, creating new employment opportunities and reducing prices to consumers, “it will gain a lot of popular support.”
Once implemented, the agreement which connects 1.3 billion people across 55 countries with a combined Gross Domestic Product valued at $3.4 trillion will create the largest free-trade area in the world measured by the number of countries participating.