A session was held at the World Economic Forum (WEF) in Davos last week called Achieving a single market in Africa. The panel consisted of business leaders from Pan African companies, the President of the African Development Bank (AfDB) and Oxfam.
And the most interesting thread through the discussion was the urgent need for Africa to focus on reducing non-tariff barriers to trade, reports Paul Clark, Africa fund manager at Ashburton Investments.
The business leaders bemoaned the difficulty in obtaining work permits and visas for Africans across the continent.
For businesses to thrive, the continent needs best practices and the best business people to move across country borders with ease. This is particularly true for new and entrepreneurial companies where skills transfer is an imperative.
At least 75 percent of businesses on the continent are small and medium sized enterprises (SMEs) and they employ many of Africa’s citizens. These businesses will benefit from the removal of non-tariff barriers by, for example, being able to more easily access finance for their Pan African expansions.
Of course, Africa always operates to its own drum beat and in March 2018 the African Continental Free Trade Area (AfCFTA) Agreement was signed by most African Union members in Kigali. A protocol on the free movement of persons was also adopted in January 2018.
The goal of the AfCFTA is to fulfill the ‘need and critical importance of creating an expanded and secure market for the goods and services of Member States of the AU through adequate infrastructure and the reduction or progressive elimination of tariffs, and elimination of non-tariff barriers to trade and investment’.
Africa is not new to trade agreements and the Economic Community of West African States (ECOWAS) was established in 1975 and covers 15 countries and almost 400 million people.
Similarly, the East African Community (EAC) was established in 1967, although revitalised in 2000. The EAC is planning a single currency by 2023, an ambitious plan considering that the European Union had its origins in the 1950s and only established its own currency at the turn of the century.
At the WEF Africa meeting in Kigali in 2016, the then finance minister of Rwanda, Claver Gatete, explained how in the EAC they had managed to reduce the time that it took a container to reach Kigali from the Kenyan port of Mombasa from 21 days to 5 days just by reducing non-tariff barriers.
The AfDB recently released their African Economic Outlook 2019, where they bemoan the fact that intra-regional trade is only 12 percent of the trade on the continent.
They consider how, as the AfCFTA agreement gets implemented over time, we could see this grow to more than 18 percent. However, the most important benefit will be the development of value chains spanning multiple countries, which will boost exports of value-added products to the rest of the world as the continent industrialises.
Although a long way off, their models show that this could boost the continent’s gross domestic product (GDP) by 4 percent to 5 percent. This would be in addition to the existing growth of more than 5 percent that is expected for non-oil exporting countries (and excluding South Africa) over the next five years.
The need for African governments to follow through with domestic policies to enable the full implementation of the AfCFTA agreement is therefore key and panel members bemoaned the dearth of politicians at the session.
If we are looking for the ‘Next China after China’ it could be right under our noses. A continent growing at these high rates will surely surpass the current Asian and Indian subcontinent high growth regions.