TERENCE SIBIYA: Free trade agreement can be a game-changer for the continent

The African Continental Free Trade Area (AfCFTA), which came into operation on January 1, is a potential game-changer for the continent.

Bearing in mind that Africa accounts for just 2% of global trade, and only 17% of African exports are intra-continental compared with 59% for Asia and 68% for Europe, the potential for transformation across Africa is significant.

AfCFTA will create the largest free trade area globally measured by the number of countries participating, connecting 1,3-billion people across 55 countries with a combined GDP of about $3,4-trillion.

The agreement aims to reduce all trade costs and enable Africa to integrate further into global supply chains, eliminating 90% of tariffs and creating a single market with free movement of goods and services. This can only be good for Africa as the pact comes at a time when much of the world is turning away from co-operation and free trade.

Key obstacles must be overcome that may otherwise inhibit our ability to facilitate trade in this manner. The first of these is policy, as at this level there is still much harmonisation that needs to happen as many African countries' policy regimens are still not enabled enough to promote intra-African trade.

So, for example, free trade across the continent will mean not worrying about getting import permits from multiple countries. Instead we need policies to align so that a single super permit will allow companies to trade, whether they are trading manganese or maize.

Second, there is the geopolitical challenge. More robust discussions about sovereignty and the protection of countries' own markets still need to be undertaken. Furthermore, stronger anti-dumping laws will need to be enacted. While talks are happening, these need to be fast-tracked; there needs to be political will behind it, and it needs to be fully supported.

Something else we should consider is how we can leverage technology to enable better trade across borders. We need to build efficient and robust platforms that allow facilitation between merchants, suppliers and even regulators.

We must also remember that we have 1,4-billion people in Africa, the majority of whom are young, along with a growing middle class, so the demand for products and services is multiplying. Unless we build a capacity to manufacture and supply we face the challenge of cheap imports flooding our markets. This is because the cost of production in Africa remains high, so we must also focus on lowering this.

Another critical key to success will be the ability to access vast amounts of available capital. This is where the banks and other financial institutions can play a role. At Nedbank we have adopted two approaches. The first is at the advisory level, in terms of contributing intellectual capital to workstreams aiming to refine the details of AfCFTA.

Digital platforms

Then, on a more practical level we are looking at how to use technology to empower businesses of all sizes to facilitate trade. This could be through digital platforms, marketplaces, or portals. Without these, how could a local exporter discover the prices elsewhere or place their product into a market? We need a digital trade platform to enable orders to be placed across the continent. Such a platform or portal would allow buyers and sellers to compare prices on a live basis, and source products and commodities.

Another critical key will be to liberalise border controls and fast-track the straight-through processing of goods and services. We can no longer afford to have backlogs of trucks standing at borders for many days. This will also be enabled by technology.

Banks are significant deposit takers, essentially deposit holders of the money held by entities and businesses across the continent. As a result, they have capital that needs to be channelled towards critical strategic projects in an enabling environment, targeting key sectors that can unlock trade, such as infrastructure, finance, energy and agriculture.

The private sector has a key role to play in the execution of such projects. Governments enable the environment through agreed-upon policies, and then the execution of the construction and implementation will fall to the private sector.

As a final caution, in our focus on setting up systems and processes we must not forget how important it is to manage the people aspect — the skills to be developed and deployed in places where they are needed the most. If we fail to bring our people along it will be challenging to bring the pan-African trade dream to life.

This, then, is the final pillar needed for success — developing appropriate skills for the relevant sectors and deploying these across the continent. But again, it is vital to make it easier for people to move from one country to another to deploy the required skills. This means the removal of work permits and other hoops and hurdles that affect citizens seeking to work in another country.

There is no doubt that AfCFTA holds enormous promise for the continent. We need to focus on building back better in the wake of Covid-19, tackling these challenges to foster continentwide trade and co-operation.

Dr Sibiya is group executive for Nedbank Africa.