The African Continental Free Trade Area Could Save African Businesses
When the Covid-19 pandemic hit the African continent, it put a halt to work on the African Continental Free Trade Area. But with the lifting of various lockdowns and the opening of its headquarters in Accra, it’s all systems go to get everything in place before 2021.
The Case for Free Trade for South AFrica
South Africa is the biggest economy in Africa, after Nigeria. The biggest driver of the South African economy is the consumer spending component, while the second biggest contributor to the economy is the export market. Unfortunately, that is more than offset by the vast imports entering the country, which all but nullifies any gains made by the exports.
In January 2019, South Africa’s imports and exports looked as follows:
- Exports: R88.68 billion
- Imports: R101.76 billion
- Trade deficit: R13.08 billion
The top 5 countries importing to South Africa are China, Germany, USA, India and Saudi Arabia.
We currently export much less than we import, with China, USA, Germany, Japan and Botswana the top 5 countries we export to. Many small businesses simply can’t afford to export because of the cost but with access to free trade, import and export between African countries will be invigorated, as happened with free trade agreements on other continents.
According to the SAIIA website,
the AfCFTA promises significant gains for the continent: $16.1 billion in welfare gains, GDP growth of 1-3%, employment growth of 1.2%, intra-African trade growth of 33% and a 50% reduction in Africa’s trade deficit. It also promises lucrative potential for businesses and investors operating on the continent – 97% of tariff-free trade across African markets, reduced trade barriers and liberalisation of services-trade.
The case in China
When one looks at the Chinese economy, their exports far exceed their imports and has therefore been the main driver of growth in the Chinese market for more than two decades now. This relates to South Africa, where 11.1% of South Africa’s R88.68 billion in exports go towards China, while 23.1% of South Africa’s R101 billion in imports come from China. This leaves South Africa with a trade deficit with China in January 2019 alone of R13.672 billion.
The figures I mention here only relates to trade between South Africa and China but it’s the case with most of our other trade partners. The Covid-19 pandemic has brought some changes to the actual trade figures over the past few months but as a whole, the African continent is still dealing with an enormous trade deficit. For a thriving African economy, this needs to change.
The influence that free trade in Africa could have
The trade wars initiated by President Donald Trump with so many countries pushed African nations to galvanize their own position in the world market by negotiating various trade agreements with each other. This includes the African Continental Free Trade Area (AfCTFA) Agreement.
In July 2018 South Africa joined other African states in signing the agreement, which is aimed at facilitating a single market for goods and services on the continent. The Continental Free Trade Agreement will be one of the greatest achievements of the African Union and will ultimately benefit cross-border trade among all African countries. With the AfCTFA headquarters in Ghana up and running getting systems in place, it will hopefully assist in mitigating the economic havoc wreaked by the Covid-19 pandemic on African countries.
Since the agreement will reduce import and export tariffs, it will greatly benefit entrepreneurs, both in big and small businesses. A trade tariff free environment will provide an opportunity for entrepreneurs from across Africa to work together in a tariff free environment, making it more affordable to do business.
It’s easy to see that this will open more opportunities for African entrepreneurs, which has been the case with both intra-European and intra-North American trade. In the same way, an increase in Intra-African trade should have a positive impact on the continent, job creation and development.
It will take time to see the positive effect of the agreement on the African continent as a whole but reaching an agreement needs to be at the forefront for all African leaders at the moment. It will take time to translate the agreement into effective continental trade. Once the agreement is finalized, it will represent the world’s largest free-trade area since the formation of the World Trade Organisation.
Transport and Logistics at the forefront of the successful implementation of the African Continental Free Trade Area (AfCTFA) Agreement
When trade happens, goods need to be transported. For many, this is where they fall flat, since it’s a science unto itself to successfully and cost-effectively transport goods across Africa. Documentation and the most effective modes of transport are only two of a myriad of details one needs to tend to when taking part in Inter-Continental trade. For this, you will need expert advice.
For advice and assistance with anything related to import or export anywhere in Africa, contact us at Macro Clearing. We are the best in the business and we are always here to help.