Preferential trade under the African Continental Free Trade Area (AfCFTA) was launched in South Africa at the end of January. With the recent AU heads of state summit focusing heavily on the AfCFTA, and given that South Africa is the most industrialised economy in Africa, the launch of the scheme at the Port of Durban signals the start of a new trade and economic era — not only for South Africa, but for the continent at large.
The full potential of this new era of intra-Africa trade has been aptly described by the president and chair of the Afreximbank board, Prof Benedict Oramah: “The AfCFTA provides a unique opportunity to smoothen and remove the complexity of existing rules of origin to prioritise local value addition across the region and further catalyse technology transfer and the development of regional value chains across the continent.”
The potential of the AfCFTA is clear when one compares hugely disparate global intra-continental trade data. Intra-Africa trade now stands at about 14%, compared with 80% for intra-EU and 60% for intra-Asia trade. The AfCFTA also aims to boost continental income by 7% or $450bn (about R8.6-trillion), lift 50-million people out of extreme poverty, and accelerate economic inclusion and financial empowerment for women and youth by 2035.
These figures indicate that Africa’s industrialisation could be realised in the medium term. But how will it translate into tangible economic development and financial upliftment for Africa’s people?
The AfCFTA can unite Africa economically by accelerating industrialisation through regionalised value chains, thereby reducing the amount of raw material leaving the continent and facilitating its processing in Africa itself
The various AfCFTA protocols adopted by the heads of state at the recent AU summit provide a framework for African businesses to become more competitive and efficient, and to scale up their operations. This will in turn lead to increased and better manufacturing, job creation and global market opportunities for the 54 countries that have signed AfCFTA, and especially the 47 that have already ratified the agreement. Clearly, then, last year’s AU theme, “Accelerating Implementation of the AfCFTA”, was a resounding success.
South Africa is the ninth country so far to begin preferential trading under the AfCFTA’s guided trade initiative (GTI), a scheme launched by the AfCFTA secretariat in October 2022 to enable any interested signatory state party to start trading under the AfCFTA agreement. The GTI allows those to be certified as having met the minimum threshold requirements to begin trading.
Under the leadership of President Cyril Ramaphosa, the container ship Navios Verde (with a variety of South African products complying with the relevant AfCFTA criteria on board) left Durban harbour bound for Kenya on January 31. This event was witnessed by ministers of trade from across Africa attending the 13th AfCFTA council of ministers meeting, hosted by trade, industry & competition minister Ebrahim Patel, in Durban that week. Also in attendance was a legion of private sector executives from across the country and the continent.
South Africa may be joining the GTI “party”, but its inclusion in the group of interested state parties accelerates the implementation of the AfCFTA across the continent. As Africa’s most industrialised and diversified economy, the range of products now available to be traded intraregionally is vast, providing immense opportunities for other state parties, especially South Africa’s neighbouring countries.
The AfCFTA can unite Africa economically by accelerating industrialisation through regionalised value chains, thereby reducing the amount of raw material leaving the continent and facilitating its processing in Africa itself. The finished goods can then be exported to the rest of the world.
The AfCFTA has many benefits, such as its ability to generate investment and partnerships for African businesses. Indeed, a number of companies at Davos this year pitched action plans about their intended use of the AfCFTA in a bid to attract investment and form partnerships with global companies.
The AfCFTA aims to reduce tariffs by about 90%, but, even more crucially, it streamlines trade administration. Reducing trade friction will produce a continentally aligned customs system that should result in more efficient and sophisticated businesses, greater economies of scale, and ultimately a more globally competitive Africa.
With the many barriers created during Africa’s history now being dismantled, huge opportunities for big and small businesses alike are opening up. This state of affairs will improve the financial participation of the continent’s people, as well as empower marginalised social groups such as women and youth.
The results of the South African GTI will be determined as soon as the sample goods reach Kenya. The ensuing report will reveal insights into the challenges and obstacles faced by the consignment, which customs officials will then analyse to find answers to these problems. Once the solutions have been integrated into the operational structures of the country’s trade system, the South African business community will be able to count 53 other countries as potential new markets for its goods and services. One should not forget that these new markets will have been enhanced by benefits such as reduced tariffs and the removal of trade barriers, which have historically limited our economic growth and development.
The AfCFTA ushers in a new era of trade for Africa. For AU member states each to have 53 potential new markets will be life-changing for small business owners and game-changing for big business.
Indeed, a new era of industrialisation is upon South Africa and the continent.
• Mene is secretary-general of the AfCFTA and Nicolaou an Aspen senior executive.
