AfCFTA will give producers and exporters a shot in the arm
Tangible benefits with a wider reach across the continent will probably only be realised from 2030
Now that President Cyril Ramaphosa has been elected to chair the AU he is keen to see progress with the African Continental Free-Trade Area agreement (AfCFTA), which is set to be operational by July 2020.
In his acceptance speech in Addis Ababa, Ramaphosa said that AfCFTA would enable the continent to work together, reignite industrialisation and pave the way for the continent’s integration into the global economy. He noted that the success of AfCFTA depended on infrastructure development.
According to our research, compiled in conjunction with Oxford Economics, AfCFTA will increase the competitiveness of the continent’s producers and exporters, incentivise new business, improve prospects for increased local value, establish new intraregional value chains, and serve to lower inflation in the long term.
It will help address Africa’s industrial deficit and reduce the continent’s overreliance on primary goods exports.
Yet tangible benefits with a wider reach across the continent will probably only be realised from 2030 onwards due to a number of obstacles, including a lack of cohesive and reliable infrastructure, unreliable sources for water and electricity, and political instability and policy concerns.
Over the past decade Africa has made progress in overcoming the infrastructure financing shortfalls. In November 2019 the African Development Bank (AfDB) announced at the Africa Investment Forum in Johannesburg that infrastructure investment in Africa amounted to more than $100bn in 2018, with about $25bn coming from China.
Of the overall amount 40% went to energy infrastructure. China, through its Belt and Road Initiative (BRI) is Africa’s largest trading and investment partner, but the opportunities for investment and collaboration extend beyond China to other Asian nations, such as Japan, and the US.
However, Africa’s transport infrastructure is behind the global average. With an area of 30.4-million square kilometres, Africa’s size makes it challenging to build reliable transport networks and the continent’s major rivers (Congo, Niger and Nile) are unsuited as transport channels due to cataracts and deltas.
SA — as well as countries in North Africa such as Morocco, Egypt, Tunisia and Algeria — generally boast more sophisticated transport infrastructure, but landlocked nations lack easy access to ports, making their markets less accessible.
SA is one of the countries in Africa that stands to maximise the benefits of AfCFTA due to its existing strong connections across the continent and a well-established manufacturing base
Despite these challenges, large-scale projects are in the pipeline to mitigate the situation. These include the North-South Multimodal Corridor of roads and railways on the multimodal African Regional Transport Infrastructure Network corridor that runs through SA, Botswana, Zimbabwe, Zambia, Malawi and the Democratic Republic of the Congo (DRC).
Also under development is the Central Corridor that will modernise the Artin corridor in Eastern Africa, connecting Burundi, the DRC, Rwanda, Tanzania and Uganda. The Abidjan-Lagos Corridor Highway project on a six-lane dual highway is being built from Lagos to Abidjan to align with potential new economic zones, and the Trans-Maghreb Highway aims to improve the movement of services and goods across North Africa.
Most African countries are behind the global average in terms of their current utility infrastructure, according to the World Economic Forum global competitiveness index scores. Some countries such as Egypt, Morocco, Tunisia and Algeria are just reaching the world average, but the rest of the continent, including SA, Ghana, Ivory Coast and Kenya are under the global average in terms of their available supply of water and electricity.
Within the AfCFTA context, reliable utility infrastructure is vital for businesses to be able to scale up production for regional export or to develop manufacturing bases, and the continent needs to redouble efforts to ensure an adequate supply of water and electricity is available.
SA is one of the countries in Africa that stands to maximise the benefits of AfCFTA due to its existing strong connections across the continent and a well-established manufacturing base. Smaller economies, such as those of Ghana and Ivory Coast, stand to benefit from the agreement due to existing favourable conditions — open economies, good infrastructure and supportive business environments.
Our report lists Ethiopia as standing out as an especially promising investment destination. The government is aggressively boosting the country’s power-generation capacity and transport links to neighbouring countries (and, via, Djibouti, to the world), while undertaking an ambitious policy reform project to make the country an attractive investment destination.
Finding effective solutions to the continent’s infrastructure gaps will probably take many years given limited financial capacity in many countries, high risks to private financing of infrastructure, political hurdles, administration shortfalls and lack of resources.
There is nevertheless confidence that African nations can successfully address these challenges, and that in the next decade we will begin to see the formation of the world’s most exciting new global trading zone.
• Du Plessis is partner and head of Africa at Baker McKenzie in Johannesburg. The report in question is titled “AfCFTA's $3-trillion Opportunity: Weighing Existing Barriers against Potential Economic Gains”.