In 2018, forty-four African nations signed the agreement establishing the African Continental Free Trade Area (AfCFTA), which was launched in 2021 to facilitate trade in goods, services, and the movement of people.
Though African countries have existing regional economic communities which all have regional trade agreements (RTAs) like the Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC), Economic Community of West African States (ECOWAS), and the five others, but the evidence of gains from these RTAs is vague. This may be because most studies have examined regional communities separately. However, looking at the shallow levels of intra-African trade, you realize RTAs haven’t significantly impacted trade flows in Africa.
This makes the new continental trade agreement an opportunity to achieve food security, reduce abject poverty and create opportunities for Africans. Though ambitious, the AfCFTA is modeled after the European Union (EU), making a borderless Africa obtainable.
There is a consensus that developing countries would gain more from free trade. But, despite regional trade agreements and free trade zones within the continent, intra-African trade is merely 13 percent which is low when compared to intra-regional trade achieved by Europe (60 percent), North America (40 percent), and Asia (30 percent).
Let’s not forget that Africa has the richest concentration of natural resources. With 65 percent of the world’s arable land, Africa accounts for 10 percent of the planet’s freshwater source and agricultural products. It also holds the world’s largest reserve of bauxite, cobalt, gold, diamonds, manganese, phosphate, and uranium and produces 12 percent of the world’s oil.
Despite enormous resources, Africa accounts for only 3 percent of global trade in goods and services, which is a massive disservice to the over 1.4 billion people on the continent. When you look at the low levels of global and intra-African trade despite the resource reserves, you can tell why Africa is primarily underdeveloped and would agree that the continent has some work to do.
Although the AfCFTA may be a recent development, free trade is not new in Africa because Africans have a long history of exchanging goods across all regions of the continent. However, the AfCFTA presents an economic opportunity for the continent to achieve its trade potential and contribute more significantly to the global economy.
The new trade agreement can be Africa’s game-changer if stakeholders do not miss the vital piece in the puzzle: i.e., the need for an efficient supply chain because, without it, the gains of AfCFTA can neither become widespread nor far-reaching. That’s why conducting a thorough analysis of Africa’s supply chain is critical to achieving success in the African free trade agreement, so I will make it brief.
Analysing the Supply Chain within the AfCFTA
In my interview with Adebayo Adeleke, the founder of Supply Chain Africa, about Africa’s new trade agreement. He stated that for the AfCFTA to work, it will require enormous effort, and we must take cues from a supply chain perspective because it will be hard to look into African trade without looking at the supply chain that underpins it. In trade, the supply chain is the executioner, so if the supply chain that drives it is misaligned, trade flows will not be smooth, and this may cause the African free trade deal to fall through.
In reality, the African supply chain has issues that need to be resolved to ease procurement, production, distribution, and delivery of finished goods to consumers. This could mean revamping the African supply chains to drive goods more within the continent instead of primarily outside the continent.
Creating an African supply chain that addresses these issues will lead to the smooth running of the AfCFTA, which will benefit Africa and the global economy. Now, let’s look at some ways to do this.
One of the reasons for low intra-African trade is the poor quality of roads and weak transport infrastructure. Instances of inadequate infrastructure are the lack of road networks, especially in the sixteen landlocked nations, and the lack of alternative transport means of moving goods within Africa. Perhaps this is why the Logistics Performance Index ranked African countries low, between 1.77 and 3.38 out of 5.
Adebayo Adeleke stated further that Africa must synchronize its supply chain and logistical corridors by land, water, rail, and air. But to do that, the continent would need investment to create more transportation networks to benefit the regional value chain and connect Africa with the global economy. For example, until a year ago, when the $260 million Kazungula Bridge was built on the Zambezi River, transporting goods across borders between Botswana and Zambia was slow and congested. Today, the pontoons used to load vehicles across the river sit ashore redundant, and the time of moving goods has reduced from about 7-15 delays to minutes.
Despite Africa’s manufacturing potential and many available opportunities, most African countries have relatively remained dearth of factories. This explains why the continent is at the bottom of the global value chain with its share of global manufacturing at around only 1.9 percent.
According to African Development Bank (AfDB) President, Akinwumi Adesina, Africa urgently needs to rapidly diversify its economies and add value to everything it produces because exporting raw materials only leads to vulnerabilities, and no nation or region has succeeded by simply exporting primary commodities.
Adesina’s remarks show that Africa needs to improve its manufacturing output to meet the demand of its large and youthful population and contribute significantly to the global economy. However, to create a regional value chain for production and manufacturing, African leaders need to foster industrial policies that will catalyse funding into infrastructure and industrialization projects and promote enterprise development because when entrepreneurs know that there is an opportunity to expand beyond their locality in Cotonou, Kikuyu, Lagos, or Accra to other African states, they will take on the risk of market expansion.
Another thing the continent must do right is to restructure its existing supply chain infrastructure. Adebayo said when we think of the supply chain, it is easy to think about the processes and activities taken to move goods from suppliers to customers. But it’s more than that; supply chain infrastructure involves transportation, communication, utilities, and technology. And as a matter of fact, other tangents and essential issues accompany those basic elements. These include security, risks, value, legal considerations, contracts, insurance, customs, and payment. For the AfCFTA to excel, Africa must rejig its infrastructural issues to aid logistics, purchasing, operations, and market channels.
It is unimaginable that it is relatively easier to export to the Asian continent from an African seaport than from other African countries. Therefore, to make intra-African trade possible, Africa needs more investment in its supply chain infrastructure. This implies that regulators and governments make trade and investment policies that favour building a continental union with an adequate supply chain system.
Undoubtedly, having a single African market is a lofty goal to transform the continent. But we need to push the conversations about what should be improved. Development agencies, journalists, and stakeholders have been estimating and discussing the tremendous economic benefits of the AfCFTA. Still, despite the potential gains of this agreement, there is a gap in Africa’s supply chain infrastructure that can hinder the success of the new trade area. Without an efficient supply chain infrastructure, the gains of AfCFTA will remain theoretical.
This article was first published on SupplyChainBrain.