CHRIS EGBERINK: SA trade potential evolves in AfCFTA era

As the global economy evolves Africa has the potential to become an emerging powerhouse of opportunity. Central to realising this is the African Continental Free Trade Area (AfCFTA), which started in January 2021. As the world’s largest free-trade area, this initiative encompasses nearly all of the 55 AU member states, aiming to create a unified market for goods and services across the continent. 

This could have a notable effect on SA’s trade relations within Africa, with projections indicating total exports could soar to $952bn by 2035. This has the potential to increase by 29% on full implementation of AfCFTA, representing an annual growth rate of 3% until 2035, according to the latest Standard Chartered trade report, The Future of Trade.

The report emphasises that while African economies are poised for trade expansion, effective trade policy must address market diversity and conflicting national and regional goals. For example, as a major exporter with advanced market structures and infrastructures, SA may favour greater tariff liberalisation to enhance its market reach, while less-developed countries might prioritise domestic industrial growth through tariff protection. The success of AfCFTA will depend on effective policy implementation, co-operation and leveraging technology and capital to enhance connecting within Africa and internationally.

The banking sector can also enhance financial inclusion by expanding banking access for small- and medium-sized enterprises (SMEs) and using digital technologies to reach underbanked populations. In addition, developing efficient payment systems for intra-African trade will facilitate cross-border transactions and provide much-needed foreign exchange solutions.

In this landscape the role of banks and financial institutions in promoting investments and driving economic growth will become critical to the success of the AfCFTA. They can initiate this by providing working capital to businesses involved in cross-border trade and offering trade finance solutions to minimise risks. Facilitating foreign direct investment through tailored finance products will be vital to connecting Africa to international opportunities and vice versa.

When responding to questions on alleviating intra-Africa trade challenges as part of the Future of Trade report, 89% of African business leaders surveyed cited “limited or costly access to capital” as one of the main barriers to trade within the continent. Other concerns included poor telecommunication infrastructure (77%) and “underdeveloped transportation infrastructure (53%).

Banks can also play a crucial role in financing large-scale projects for regional integration, particularly marrying government efforts with private sector capital and additional support from multilateral finance institutions. Together, project finance can be syndicated for energy, transportation and telecommunication initiatives, providing the vital infrastructure that can catalyse capacity growth.

SA remains a key player in African trade thanks to its diverse economy, developed infrastructure and advantageous geographic position. The country consistently demonstrates strong export performance — particularly in manufactured goods, machinery, chemicals and vehicles — reinforcing its role as a regional economic leader.

AfCFTA has the potential to vastly boost SA’s exports to other nations across the continent. The Covid-19 pandemic showed us the challenges of global supply chains and their limitations. With rising regional trade levels and enhanced connectivity, high-growth corridors are emerging across the continent. Between 2022 and 2035 intra-Africa trade is expected to reach $19.3bn, equating to average growth of 13.7%.

According to SA Revenue Service data Africa accounted for about 25% of SA’s total exports in 2023, demonstrating the continent’s importance to the country’s trade balance. Trade statistics from January to May 2024 show that intra-African trade was SA’s second-largest export trade partner, at R227.65bn (Asia is number one at R247.81bn).

Given SA’s industrial capabilities, the country could play a pivotal role in developing value-added industries across the continent, particularly in automotive manufacturing, agro-processing and renewable energy. This could lead to SA-led industrial hubs in other African countries, fostering greater economic integration and interdependence.

The AfCFTA presents a transformative opportunity for SA, as well as the broader African continent. By fostering a competitive local and regional market, the agreement can curb capital outflows and encourage reinvestment into African economies. “Made in Africa” products will become more attractive and ubiquitous across the region, as well as enabling the continent to take its place in the global supply chain.

• Egberink is CEO & head of banking and coverage in SA for Standard Chartered.