How can technology accelerate the AfCFTA (African Continental Free Trade Area)?
How can technology accelerate the AfCFTA (African Continental Free Trade Area)?
What is the AfCFTA?
2018 marked the advent of the African Continental Free Trade Area (AfCFTA) – a free trade area with the sole purpose of promoting inter-African trade between its 55 member countries (44 ratified). Through this, the social mobility of countless Africans will be increased, placing Africa as a global economic power. Using the metric of member participation, the AfCFTA agreement can be described as the largest free trade area in the world. Resulting in an agreement that will link 1.3 billion Africans in this region and by 2035, potentially lift 30 million people out of extreme poverty.
The AfCFTA is a strategic long-term plan to increase growth, trade, employment and reduce the extreme poverty faced on the African continent. The Agreement is ambitious yet achievable and most significantly, will reduce the high tariffs imposed on member countries. This will be achieved through collaboration to produce robust policies that lower the barriers to economic growth, such as reducing the technical barriers to trade. What differentiates the AfCFTA from past agreements, is its practical design to steer key policymakers and African stakeholders into developing reforms that will boost economic growth. The agreement poses a unique opportunity that will allow countless employment opportunities and produce a measurable wage increase for unskilled workers whilst also reducing the gender pay gap between African men and women.
What are its goals?
Ultimately the goal of the AfCFTA is to create a single market for goods and services on the African content. It boasts the purpose of maintaining the Pan-African vision to create a prosperous and peaceful Africa through the movement of capital and the free movement of its people. Similar, but previous, agreements focused solely on the tariffs barriers applied to goods, however, the AfCFTA differentiates itself by analysing the effects of services, trade facilitation measures, distributional impacts on poverty, employment, and the wages of female and male workers on the African continent.
The official goals of the AfCFTA:
Goods and services
- Create a single market for goods and services, facilitated by the movement of persons in order to deepen the economic integration of the African continent and in accordance with the Pan-African Vision of “An integrated, prosperous and peaceful Africa” enshrined in Agenda 2063
- Create a liberalised market for goods and services through successive rounds of negotiations
- Promote industrial development through diversification and regional value chain development, agricultural development, and food security
- Contribute to the movement of capital and natural persons and facilitate investments building on the initiatives and developments in the State Parties and RECs
- Lay the foundation for the establishment of a Continental Customs Union at a later stage
- Promote and attain sustainable and inclusive socio-economic development, gender equality, and structural transformation of the State Parties
- Enhance the competitiveness of the economies of State Parties within the continent and the global market
- Resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes
These goals will be achieved in three phases where phase I focuses on the trade in goods and the trade in services. Phase II focuses on investment, intellectual property rights, competition policy, digital trade, and women and youth in trade. Finally, phase III focuses on e-commerce.
What does it mean for the continent?
Reduction in tariffs on 90% of goods and services
The AfCFTA will directly impact the tariffs applied to the goods and services on the African continent. It can be seen that the largest reduction in tariffs will greatly impact countries such as Cameroon, Nigeria, Ethiopia, Madagascar, the Democratic Republic of Congo, the Arab Republic of Egypt, and Senegal. As these countries are currently adversely affected by tariffs, the AfCFTA will greatly impact their trading capabilities by 2035, thus improving their access to new markets and diversifying their trading portfolios.
These competitive goals offer encouraging benefits to the African continent. Whilst working at its full capacity, a full assessment of the agreement suggests that nearly a 7 percent - or $450 billion in monetary value - boost in income will occur due to the AfCFTA (working at 2014 market and exchange rates).
Reduction in extreme poverty
The 2018 World Bank estimate highlighted that 415 million people Africans on the continent live in extreme poverty, translating to roughly 57 percent of the global total. At its full capacity, AfCFTA can lift an additional 30 million people out of poverty by 2035. Therefore by lifting 1.5 percent of the continent’s population out of abject poverty, one of the main goals of the agreement will be directly validated
Attract foreign direct investment
By Implementing the agreement, the AfCFTA members will be established as stable and key players in the global economic field. The sustained collaboration between inter-African trading members to import vital goods such as fertilisers will reinforce the reliability of competitive member states, potentially attracting foreign investments.
How can technology accelerate the AfCFTAs enablement?
It long has been known that the African continent suffered greatly by missing the initial internet and smartphone technological revolutions. Usually, when addressing the current state of technology in Africa, it is in the context of catching up with its more advanced western and eastern counterparts. Africa may never catch up to its counterparts, however, one silver lining of this missed wave is that the AfCFTA enables Africa to leapfrog. Instead of inheriting and copying the current uses of technology, the African continent can cherry-pick the most beneficial technologies that propagate and therefore leapfrog the continent into economic advancement.
As mentioned before, phases two and three of the agreement focus on the digitisation of the African continent. Where three crucial and promising technological areas to focus on are the internet, e-commerce and fintech.
The main issue is to fully digitise, since the majority of the continent needs to be brought online and onto the internet. By continentally adopting a stable internet connection, online job advertisements would greatly reduce poverty and increase the wages laid out in the AfCFTA agreement. Stronger internet connections allow for faster communication between parties. Therefore, with this increased reliability, the ease of interaction across Africa will be improved, resulting in more successful commercial trade outcomes. One way in which this could be actualised is through the integration of copper wiring for faster telecommunications. This would cause member states to leapfrog into a reliable telecommunications system. Where a more targeted design of copper wiring infrastructure would lead to a more secure network for steady trade across the AfCFTA.
Once a strong presence has been established by the African majority, e-commerce reduces the barriers to inter-African trade between people and businesses. Landowners will be able to diversify their trading capacity. Their ability to attain essential goods, such as importing fertilisers and foods, will therefore be easier. As well as increasing the accessibility to a wider variety of goods, e-commerce enables the ability for new partnerships to be formed. Countries such as Kenya, which were limited to trading within their previous respective trading regions (COMESA) will have the ability to trade to regions as far away as Ghana. Therefore, With e-commerce as the main driving force of these transactions, new potential markets across Africa will be revealed. Furthermore, an efficient and easily accessible digital supply will be formed for B2B and B2G transactions.
Finally, financial technology will allow for greater security and trust between trading partners. Since decreasing the barrier to the movement of capital between trading African countries is a goal of the AfCFTA, fintech will allow for a robust system of monetary exchange throughout the continent. Mobile money vendors, such as M-PESA, have proven the era of digital payments to be one of reliable and safe transactions in Africa. Since a large swathe of African countries are dependent on the USD, digital payments will allow for alternate ways to avoid issues such as currency fluctuations due to the USD/EUR that produce damaging effects on inter-regional commerce.
What are the challenges with implementing the AfCFTA but why does it matter?
Achieving the AfCFTAs full potential will ultimately rest in the seamless collaboration between member countries. Conflicting policies at domestic and regional levels could hinder the progress of the AfCFTA. Africa already contains 8 regional trade areas with their own policies and economically competitive countries such as Nigeria already have strong markets and entrepreneurial industries. Therefore, the AfCFTA will have to work to encourage members to adopt policies that align with its proposed goals to cultivate a powerful trade area.
Digitisation has also been touched on and without the development of strong and stable electricity supplies and internet connections, a large swathe of the African population will be disenfranchised and removed from the economic pool.
The logistics of trade poses another issue in implementing the AfCFTAs goals. Out of the 55 countries in Africa, 16 (roughly 30%) are landlocked. Since the majority of trade between countries occurs on underdeveloped roads, this raises the issue of bad transportation in trade. As a result road access will need to be improved.
It is imperative that these challenges are overcome, since as a whole, they are crucial to the success of the development of the African member countries, economically and socially.
Conclusion - ATEX and its role in the implementation of the AfCFTA and long-term success
Creating a united African market requires tools that make it easier to adopt the policies and goals laid out by the AfCFTA. The Africa Trade Exchange (ATEX) is one of these tools and directly harnesses the digitisation elements raised in phases two and three of the AfCFTA plan. Through business-to-business and business-to-government trading, ATEX presents itself as a digital ecosystem in which African businesses can tap into new markets and trade essential commodities. As an early adopter and using the AfCFTA plan, ATEX lays the foundation for a new digital silk road, that enables African stakeholders to import food, fertilisers, and many other goods. ATEX, therefore, acts as a digital representation of the reduced barrier to trade enabled by the AfCFTA agreement.
By improving the ability to easily acquire vital goods, members within the region should harness the platform to maximise and boost digital trade. Furthermore, external crises such as the pandemic and climate change have highlighted the precarious nature of food security and global supply chains. Therefore, secure platforms such as ATEX offer a tool directly targeted to African businesses that enables them to acquire essential commodities for their supply chains and manufacturing needs. The success of this new African free trade area will hinge on platforms such as ATEX. These platforms integrate seamlessly into existing markets whilst promoting AfCFTA goals such as reducing barriers to trade, therefore assisting in the successful long-term African economic growth.