At a time of multiple, overlapping global challenges – from climate change to energy shocks to rising inflation and a cost-of-living crisis – the Africa Continental Free Trade Area (AfCFTA) offers promise not only for the region but for the world.
By Chido Munyati
The AfCFTA, established in 2018, will create the world’s largest free trade area, bringing transformative change and tremendous opportunity to African economies and business environments. Its adoption and implementation will accelerate intra-African trade and develop regional and local value chains, creating new business dynamics that offer investors access to a population of 1.7 billion people with combined business and consumer spending reaching $6.7 billion by 2030.
Global businesses have an important role to play in accelerating the implementation of the AfCFTA, according to a new report from the World Economic Forum, in collaboration with the AfCFTA Secretariat and Forum partners. The report outlines high-potential sectors, initiatives to support business and investment, operational tools to facilitate the AfCFTA, and illustrative examples from successful businesses in Africa to guide businesses in successfully entering and expanding in this area.
The AfCFTA Secretariat selected four key sectors that represent high-potential opportunities for companies looking to invest in Africa: the automotive industry, agriculture and agro-processing, pharmaceuticals, and transportation and logistics. These four sectors are expected to see rapid acceleration in production and trade volumes under the AfCFTA, given that they have a high potential to meet local demand with local production. Until now, local demand for these goods and services is currently being met through relatively high-cost imports, despite the region’s growing and lower cost production capabilities.
While the AfCFTA offers business opportunities in each of these four sectors, companies will also need to understand how the changing environments under the trade agreement will affect their strategies for success in the region. The World Economic Forum is actively working toward implementing trade and investment tools that are aligned with the negotiation process of the AfCFTA by identifying areas where public-private collaboration can help reduce barriers and facilitate investment from international firms.
For example, public-private collaboration centered around implementing AfCFTA trade-facilitating provisions can facilitate trade in goods, on-the-ground initiatives can address fragmented investment regulatory frameworks, and bringing together groups committed to 4IR technology, digital payments, and information exchanges can support digital trade. To improve the societal outcomes of trade, the Forum’s Inclusive Trade Initiative is uncovering best practices that can be shared with AfCFTA negotiators and businesses. And an inventory of 25 key climate technologies and with country-specific studies helps identify opportunities for trade to align with circular economy goals.
Companies can also look to five new operational tools as they adjust to the changing dynamics under the trade agreement.
The AfCFTA Guided Trade Initiative has facilitated the start of trade in eight countries for 96 products, providing support and guidance on customs clearing and while gathering information on how to make the process more efficient for the private sector.
The Pan-African Payment and Settlement System enables users to make near-instant payments in their local currency without needing to convert to a foreign currency or use a third-party institution.
The AfCFTA Adjustment Facility Fund is a combination of a base fund, general fund, and credit fund, that assists governments and the private sector in addressing short-term disruptions through financing, technical assistance, and grants and compensation funding.
The AfCFTA Private Engagement Strategy helps companies to better understand the overall continental strategy as well as the specific initiatives and policy recommendations in emerging sectors that the AfCFTA is prioritizing.
And the Rules of Origin Manual & E-Tariff Book sets the guidelines for the rules and procedures for determining the origin status of goods and makes information on duty rates easily searchable and comparable.
In addition, analysis of on-the-ground experience from companies including Agility, AFC, Coca-Cola, DP World, Menzies, Novartis, OCP, UBA, Volkswagen, and Yara, has revealed three main strategies that have led to success in Africa and can provide invaluable lessons to companies planning to seize the opportunities opened by the trade agreement.
The first strategy is to form local partnerships with governments, local institutions, universities and others to create regional hubs and host R&D at local universities. The second strategy is to leverage key trade accelerators such as investing in local infrastructure and logistics, with opportunities ranging from food storage to partnering with local organizations to move various parts of the value chain onto the continent. The third strategy is to form integrated ecosystems by developing end-to-end value chains around local resources, which de-risks projects and creates an environment where shared infrastructure can support multiple projects in different sectors.
The global private sector must be prepared for the changes in trade dynamics ahead on the continent to seize the opportunities that the AfCFTA brings, achieving business success while helping to usher in a new era of economic development.
Chido Munyati, Head of Regional Agenda, Africa, World Economic Forum, and Landry Signé, Executive Director and Professor, Thunderbird School of Global Management in Washington, DC; Senior Fellow, The Brookings Institution; Co-Chair, World Economic Forum Regional Action Group for Africa.
This article is part of the World Economic Forum’s Annual Meeting 2023.