Africa has made a move to free the trade among its members. By this action, it hopes to unleash the energies of its teeming population of vibrant and ubiquitous micro, small and medium enterprises (MSMEs). This move has been widely received, with praise and kind words, at euphoric levels, from practically every segment of the African society and even beyond.
The excitement over the lunch of AfCFTA is not unfounded. Africa trades the least among its members than any other continent. It is founded on the grounds of the many good things that could materialize under a free trade arrangement, especially when the opportunities are effectively utilized. The point to note is however, is that the agreement, while throwing up a large array of benefits, will also throw up both challenges and responsibilities that must be dealt with for the many benefits of the pact to avail the MSMEs that would want to tap them. The African Continental Free Trade Area agreement will create opportunities, impose responsibilities and, demand effective response from the players. His is exactly the bone to be cracked in the whole arrangements entailed in the AfCFTA agreement.
By opening the trading space, removing the cogs on the wheel of trade and levelling the playing field, AfCFTA will make the market wider and deeper. For SMEs, it means more customer base and points of sale, within and beyond their primary constituencies. A larger customer base means more than sales and revenues. It includes opportunity for creative thing and innovation, which the new market will elicit. The divergent peoples of Africa have the capacity to induce market operators to innovative action in a bid to satisfy new demands.
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The opportunity to interact with consumers with different cultures and backgrounds will spur new products and services, with potentials for increased revenues for local operators, and tax revenues for their various countries. The national economies will have even more benefits, beyond increased tax revenue from operators. Local industries that might not have been very attractive to operators in the past may appeal to foreign investors who may decide to put money into them. That is the foreign direct investment part of the free trade arrangement. This expansion in investment opportunities will positively impact the Gross Domestic Product and cause more revenue inflow at the national level.
The promoters of the agreement believe that it will give Africa the missing negotiating power over its counterparts, like European Union and other free trade zones in the world. It is also believed that a united Africa will be stronger and more economically stable. However, the large gaps in macroeconomic development among the member countries will definitely stand in the way. For the gains of such a union to be democratically shared, some level of macroeconomic convergence or similarity of conditions is necessary.
Unfortunately, this is not the case here. Lack of macroeconomic convergence has been a stumbling block in the consolidation of some economic groupings in Africa at the subcontinental level. The case of the West African Monetary Zone, which planned to introduce a common currency after achieving some level of convergence is a case in point. Their inability to meet this objective has practically ruined all the lofty plans of the group. Africa is reported to have the highest rate of income disparity in the world, just as it has the lowest rate of intercontinental trade.It may well be that the more diversified economies like Rwanda, Ethiopia and Côte d’Ivoire, and the more manufacturing-oriented ones, such as South Africa and Kenya, may be the main beneficiaries of AfCFTA, at least, in the short term.
The opportunity to interact with consumers with different cultures and backgrounds will spur new products and services, with potentials for increased revenues
The challenges that dog African economies and make it almost impossible for operators to innovate, or even harvest the opportunities in the system, are well and alive. They will not evaporate at the sound of the AfCFTA. There is a dearth of functional in fracture, and internet penetration still poses a major challenge. The payment system is expanding and improving in many climes, such as Nigeria, but many communities from where the potential export commodities come are still unbanked and without proper access to modern civilization.
While Africa celebrates the unanimous agreement to remove restrictions to trade and increase their chances of baking a bigger cake for all, it must realize that the hindrances to trade are not only tariff. As the agreement removes tariff barriers it should also work to reduce the non-tariff barriers. Bribery and corruption at the borders and extortion of travelers on the roads are still booming businesses in certain places. They need to be tackled along with infrastructure and such other nontariff barriers.
