The African Continental Free Trade Area (AfCFTA) has the potential to increase African exports, which are already estimated to reach almost a trillion USD by 2035, by 29 per cent according to Standard Chartered, the multinational bank.
This represents an annual growth rate of around three per cent from now until 2035 reveals the report. Titled Future of Trade: Africa, the Standard Chartered report delves into the impact connectivity will have on intra-African trade. Done correctly, greater connectivity could result in $140billion in trade by 2035. This equates to 15 per cent of Africa’s total exports.
Africa’s corridors with some of the world’s most dynamic regions will grow faster than the global average of 4.3 per cent. The East Africa-South Asia corridor is expected to emerge as the fastest-growing major corridor, at 7.1 per cent per annum through to 2035. The Middle East – North Africa and the Middle East-East Africa corridors will also be substantial, with their combined trade volume expected to reach almost $200billion by 2035.
Promoting greater cohesion
The AfCFTA is not the first attempt made by Africa’s markets to promote greater cohesion, but the existing agreements often have overlapping or contradicting objectives – creating a ‘spaghetti bowl effect’.
There are eight significant regional economic communities (RECs) recognised by the African Union (AU). Most AU markets are enrolled in two or more RECs, with the high costs of compliance and administration making intra-Africa trade less competitive. AfCFTA could help overcome this by implementing common rules of origin. This grants all 54 AfCFTA members preferential trade access to each other’s markets, to the extent set out in the agreement.
Dr José Viñals, group chairman of Standard Chartered PLC
Dr José Viñals, group chairman of Standard Chartered PLC,said: “Implemented effectively, the African Continental Free Trade Area can radically reshape future growth and development. It will enable higher value-add supply chains and more diversified exports, allowing member states to reduce historical commodity dependence and achieve meaningful progress towards multiple sustainable development goals.
“Through our global footprint, local expertise and innovative solutions, we are committed to supporting the development of the right policies, securing cooperation, and applying technology and capital in order to build better connections within the continent, and beyond.”
Not on the final stretch just yet
Africa however still has barriers to overcome to realise the full potential of its trade opportunity. Based on a survey conducted with over 100 of Africa’s business leaders, 63 per cent polled said complex and uncertain trade rules are one of the top challenges of intra-African trade.
Fifty-three per cent of respondents noted that underdeveloped transportation infrastructure is a key barrier. Fifty-one per cent cited ineffective trade facilitators as another hurdle, whilst 46 per cent noted that limited and/or costly access to capital is a challenge.
Around 90 per cent of respondents believe the AfCFTA can address most of these issues. Progress has been made in this regard, with the AfCFTA taking steps to address barriers through various initiatives, such as a reporting mechanism and a guided trade initiative to accelerate trading among countries.
The impact of digitisation
Digitalisation also plays an important role in bolstering intra-Africa trade. The report demonstrates that adopting digital supply chain financing (SCF) solutions could unlock $34billion of export value in five key African markets by 2035. In fact, in Egypt, SCF solutions could boost total exports by 16.9 per cent, to $79billion.
However, there are some challenges to adopting digital solutions. Forty-six per cent of business leaders said a lack of financing was hindering intra-Africa trade. Furthermore, despite almost all (97 per cent) of the respondents showing interest in digital SCF solutions, they cited resource constraints (60 per cent), a technology gap (57 per cent) and interoperability challenges (52 per cent) as key barriers to adoption.
Compared to the rest of the world, however, challenges such as a reluctance to disclose information and a lack of incentives were not viewed as highly. Only 44 per cent of African business leaders identified the former as a challenge while 54 per cent of leaders from other regions identified it as an issue. Similarly, only 34 per cent of African leaders viewed incentives (or a lack thereof) as a challenge. Meanwhile, 43 per cent of world leaders viewed it as a challenge.
Making the opportunity a reality
Sunil Kaushal, CEO of Standard Chartered, AME
Sunil Kaushal, regional CEO, Standard Chartered Africa Middle East, said: “The disruptions to Africa’s supply chains over the last few years have amplified the urgency to implement the AfCFTA. At the same time, the findings of our report outline the requirements to exponentially bolster Africa’s exports, which the AfCFTA would benefit greatly.
“With the right regulations, collaboration, and governance, this opportunity can be made a reality. For over 150 years, Standard Chartered has supported Africa’s growth and progress, actively contributing to the continent’s infrastructure development and economic advancement. We will continue to work with the relevant stakeholders in driving trade throughout the continent and ensuring Africa’s sustainable economic development.”
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