As member states accelerate the implementation of the Africa Continental Free Trade Area (AfCFTA), a trade bloc that brings together 54 member states of the African Union, the discussion around its benefits is becoming more robust.
Among other objectives, the AfCFTA aims to grow intra-continental trade and boost Africa’s standing in the global market.
Trade between African countries is not at the levels it could be, and the benefits of trading with the rest of Africa far out-weigh the risks. We can rightly justify the significant magnitude of the AfCFTA’s counter-cyclical impact in light of the challenging conditions that our economy currently faces.
The AfCFTA offers investors access to an integrated single trade and investment market of more than 1.3 billion people, with a gross domestic product that is estimated to exceed $3.5 trillion by 2025. Right now, however, there is little evidence to suggest that this potential is being adequately recognised. At present, intra-African trade is very low, estimated at around 15%, compared to 67% in Europe, 61% in Asia and 47% in North America.
By effectively creating an enlarged regional market, this trade bloc could offer long-term economic benefits by catalysing greater development of cross-border infrastructure, incentivising eco- nomic diversification and boosting institutional quality. Regional trade will enable companies to develop economies of scale and create opportunities for cross-border co-operation to develop; for example, integrated value chains and the provision of critical logistical services, resulting in increased investment activity.
Other potential benefits and opportunities that will be derived from the AfCFTA include opening up new markets for South Africa in terms of both trade and investment; improved access to raw materials and intermediate inputs; additional opportunities for in-country value addition, thus elevating the positioning of individual economies in global value chains; expanding industrial capacity and job creation; and, among others, opportunities to develop strong regional value chains.
Improved access to markets across the African continent will result in increased competition and innovation. The AfCFTA has created a free trade area that may eventually develop into a continent-wide customs union and facilitate the movement of capital and people between countries. The AfCFTA is expected to increase intra-African trade in transport services by nearly 50%, according to the latest estimates by the Economic Commission for Africa (ECA).
Among other benefits of the AfCFTA, the continent’s wealth of natural and mineral resources can now be utilised to build industrial capacity, diversify productive structures and raise the growth potential of individual economies – creating, in the process, a huge market that will attract foreign investors to locate their production facilities on the continent.
For the Industrial Development Corporation (IDC), the AfCFTA symbolises the emergence of a more assertive continent that no longer mainly exports raw materials and imports finished goods. The bolstering of trade ties between countries will strengthen Africa’s industrial base and open up opportunities for the continent to become more self-sufficient.
It is indisputable that increased growth will inevitably lead to new prospects for emerging entrepreneurs and small- and medium-sized enterprises. With policy and other support, such as ecosystem and financial support, this can empower women and boost the potential of the youth – the fastest-growing segment of the African population – to find work and realise entrepreneurial opportunities.
The IDC’s confidence in the continent is demonstrated by large investments into Mozambique in the 1990s, an economy that was then considered risky given that the country was emerging from a taxing civil war. In partnership with other foreign investors, the IDC invested in the establishment of Mozal, an aluminium smelter in Maputo’s Beluluane Industrial Park. Our investment in this venture rates as one of the biggest flagship projects on the continent. Since commencing operations, Mozal has grown to become the single-largest con- tributor to Mozambique’s GDP.
The IDC’s portfolio of investment on the African continent, outside of South Africa’s borders, is currently estimated at R27 billion (market cost) across 17 countries, and spans several sectors of economic activity. Over the years, the Corporation has also helped pave the way for several South African companies – drawn from the telecoms, retail, agriculture, manufacturing and mining sectors, among others – to establish a strong presence on the continent.
Our experience of doing business in the rest of the continent is the reason for our optimism regarding the AfCFTA’s benefits. We remain steadfast in our belief that now is the time to boost intra-trade, industrialise and create employment opportunities.
– TP Nchocho, CEO of the Industrial Development Corporation