• Saturday, February 24, 2024
businessday logo

BusinessDay

Africa’s services sector and what AfCFTA can do differently

How Nigeria can attract multi-trillion funding from climate finance–Experts

Africa stands at the threshold of a transformative era, and at the heart of this change lies the untapped potential of its services sector. Despite contributing 56 percent to the continent’s economic output in 2019, the sector remains overshadowed by goods-based trade. This imbalance results in stunted growth, limited job opportunities, regulatory obstacles, inadequate infrastructure, and a lack of cross-border harmonisation. The African Continental Free Trade Area (AfCFTA) emerges as a beacon of hope, offering the potential to reshape intra-African trade in services by dismantling barriers and creating a unified market for goods and services.

The International Monetary Fund’s (IMF) nominal GDP estimates for this year reveal that Africa possesses the world’s fifth-largest GDP at $2.858 trillion, representing a meagre 2.7 percent share in the global GDP. Africa’s real GDP growth, which averaged 5.1 percent annually from 2000 to 2010, slowed to 3.3 percent per year between 2010 and 2019. The current economic landscape, affected by the global pandemic, the Russia-Ukraine conflict, and other geopolitical issues, impedes the service industry’s optimal contribution to Africa’s overall economic output.

Moreover, the dearth of job opportunities within Africa perpetuates a cycle of unemployment and underemployment, particularly among the continent’s teeming youth population. The International Labour Organisation (ILO) stats revealed that unemployment in Sub-Saharan Africa is at 7.1 percent as of 2022 which is huge compared to the European Union (6.1), North America (3.8), and East Asia and Pacific (4.1). Despite this, 42.4 percent of total employment in Africa was in the service sector in 2021, indicating that policies geared towards this sector could mitigate unemployment issues and unleash talent and innovation.

Regulatory barriers and custom obstacles pose significant challenges for African businesses, affecting cross-border trade and impeding the competitiveness of the service sector globally. Recent instances include Kenya’s ban on Ugandan poultry and Nigeria’s 2019 border closures, disrupting trade and impacting SMEs. These kinds of barriers create a labyrinth of hurdles that deter potential investors and contributors. In spite of the rise of innovative African tech start-ups, regulatory complexities have impeded their seamless expansion across borders to eradicate cross-border payment issues.

More so, the lack of cross-border harmonisation affects Africa’s economic output, especially in tourism. There are active customs union agreements among African countries but concerns remain due to high visa rejections which significantly affects Africa’s services sector. Stringent customs documentation for goods transported within Africa and movement of people across borders as well as immigration protocols also constrain the sector. Not to forget, sixteen landlocked African nations face inadequate road networks, with costly alternative transport solutions. This makes inadequate infrastructure remain a perennial obstacle that hampers the seamless delivery of services, hindering efficiency and impeding the sector’s growth potential.

Read also: AfCFTA endorses Africa tourism private sector alliance

In the midst of these challenges, the AfCFTA emerges as a potential solution, indicated by early indicators revealing its capacity to reshape intra-African trade. A McKinsey report forecasts the creation of 85 million net new jobs in Africa’s services sector by 2030 if productivity improves. While the services sector’s contribution to Africa’s economic output has increased from 50 percent in 2000 to 56 percent in 2019, productivity remains a stumbling block, lagging behind its global counterparts.

The Secretary General of the AfCFTA, Wamkele Mene, has announced that trading of services across the continent will commence in the next phase of the Guided Trade Initiative (GTI). This move could significantly boost the service industry, reaching new potentials and markets. As more African countries continue to lift visa restrictions placed on other Africans, adding services to the next phase of GTI would reflect positively on the services industry.

Undoubtedly, the service industry in Africa needs new visibility and reach, the best way to achieve this is digitisation. The AfCFTA has set this in motion with its digital trade framework. For instance, the AfCFTA hub, a digital platform, has become operational as a central hub for trade-related information. The portal provides businesses with access to essential data on market opportunities, investment prospects, and regulatory requirements across Africa. The AfCFTA can add new service businesses across finance, healthcare, education, technology and other sectors to the hub to improve continental reach and visibility.

Read also: AfCFTA: FG calls for collective action among African nations

In propelling Africa’s service industry, the adoption of digital trade by the AfCFTA members emerges as a linchpin for overcoming the inefficiencies in logistics and transportation infrastructure. Through digitalization, businesses gain the means to transcend physical constraints, effectively addressing the hurdles posed by suboptimal roads and fragile transportation networks. Digital platforms offer avenues for optimised supply chain management, instantaneous tracking, and effective inventory control. This not only refines the logistics framework, cutting down costs but also expedites the cross-border movement of goods, thereby catalysing heightened intra-African trade and services, and fostering robust economic growth.

While AfCFTA marks a pivotal moment for Africa’s services sector, it is a stepping stone, not the destination. Sustained economic growth requires a multifaceted approach and the AfCFTA, when coupled with comprehensive strategies, has the potential not only to transform the services sector but to catalyse a broader economic renaissance—one that empowers nations, uplifts communities, and positions Africa as a formidable player in the global economic landscape.

Mohammed is a master’s student at the University of East Anglia, and a Free Trade Fellow at Ominira Initiative