The New Era of Trade and Investment for Africa
The Africa Continental Free Trade Area (AfCFTA) offers hope not only for the region but also for the rest of the world at a time when there are numerous, interrelated global concerns, including climate change, energy shocks, growing inflation, and a cost-of-living crisis.
The world's largest free trade area will be created by the AfCFTA, which was founded in 2018. This will reshape African economies and business environments and present enormous opportunities. Its adoption and implementation will speed up intra-African commerce and build regional and local value chains, opening up new business dynamics and providing access to a 1.7 billion-person market with $6.7 billion in annual business and consumer expenditure by 2030 for investors.
High-growth industries
Global businesses have an essential role to play in advancing the implementation of the AfCFTA, according to a new report from the World Economic Forum, in conjunction with the AfCFTA Secretariat and Forum partners. In order to help firms effectively enter and grow in this region, the paper details high-potential industries, measures to assist business and investment, practical instruments to facilitate the AfCFTA, and instructive examples from successful companies in Africa.
The automotive industry, agriculture and agro-processing, pharmaceuticals, transportation and logistics, and are four important industries that the AfCFTA Secretariat has identified as high-potential investment prospects for corporations wishing to invest in Africa. Given that they have a strong potential to match local demand with local supply, these four sectors are anticipated to enjoy a rapid acceleration in production and trade volumes under the AfCFTA. Despite the region's expanding and lower cost production capabilities, the local demand for these goods and services is currently being satisfied through relatively expensive imports.
While the AfCFTA presents potential for business in each of these four fields, businesses must also be aware of how the evolving trade climate may impact their plans for regional success. The World Economic Forum has identified areas where public-private cooperation can assist lower obstacles and ease investment from foreign enterprises in order to actively work toward implementing trade and investment mechanisms that are in line with the AfCFTA negotiation process.
For instance, bringing together groups committed to 4IR technology, digital payments, and information exchanges can support digital trade, as can public-private collaboration centered on implementing AfCFTA trade-facilitating provisions and on-the-ground initiatives that address fragmented investment regulatory frameworks. The Forum's Inclusive Trade Initiative is identifying best practices that can be distributed to AfCFTA negotiators and businesses in order to enhance the societal results of trade. Together with country-specific studies, a list of 25 essential climate technology aids in identifying trade prospects that support the objectives of the circular economy.
Guidance for Success
Five new operational tools that businesses can use to adapt to the changing dynamics under the trade agreement are also available.
The AfCFTA Guided Trade Initiative has enabled the beginning of commerce in eight countries for 96 items while also gathering information on how to improve the efficiency of the customs clearance process for the private sector.
Users of the Pan-African Payment and Settlement System can send money almost instantly in their home currency without using a third party institution or converting to a foreign currency.
The AfCFTA Adjustment Facility Fund, which combines a base fund, a general fund, and a credit fund, offers financial support, technical support, grants, and compensation funding to help governments and the commercial sector deal with temporary disruptions.
The AfCFTA Private Engagement Strategy aids businesses in understanding the AfCFTA's priority efforts and policy proposals in emerging areas as well as the continent's overall plan.
The Rules of Origin Manual & E-Tariff Book also lays out the procedures and regulations for identifying the origin status of commodities and makes it simple to search for and compare data on duty rates.
Additionally, an examination of real-world experience from firms like Agility, AFC, Coca-Cola, DP World, Menzies, Novartis, OCP, UBA, Volkswagen, and Yara has revealed three key strategies that have been successful in Africa and can teach businesses planning to take advantage of the trade agreement's opportunities many valuable lessons.
The first tactic is to establish regional centers and host R&D at nearby universities by forming local collaborations with governments, local organizations, universities, and others. The second tactic is to take advantage of important trade-accelerators like investing in regional infrastructure and logistics, with opportunities ranging from food storage to working with local businesses to bring different stages of the value chain onto the continent. The third technique is to construct integrated ecosystems by creating end-to-end value chains centered on local resources. This reduces project risk and fosters an environment where several projects across various industries may be supported by a single shared infrastructure.
To take advantage of the potential that the AfCFTA presents and to help usher in a new era of economic development, the global private sector must be ready for the changes in trade dynamics that will occur on the continent.
