• Wednesday, February 21, 2024
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With AfCFTA, its swim or drown for tech startups

AfCFTA

Nigeria’s President Muhammadu Buhari, on Sunday, signed the African Continental Free Trade Agreement (AfCFTA), bringing to a close months of uncertainty and bickering and potentially opening up new opportunities and headaches for ambitious tech businesses across the continent.

Nigeria, Africa’s largest economy, had held off penning signature on the historical agreement due to concerns at home that Nigeria could be flooded with low-priced goods, confounding efforts to encourage moribund local manufacturing and expand farming. The Nigerian Manufacturers Association, one of the most powerful trade groups in the country, mounted stiff opposition to the agreement culminating in the setting up of a committee by the presidency. The committee was tasked with coming up with recommendations that ensure that businesses are protected under the AfCFTA regime.

The committee finally submitted their report recently which eventually led to the turnaround. While signing the agreement, the President said “As African leaders, our attention should now focus on implementing the AfCFTA in a way that develops our economies and creates jobs for our young, dynamic and hardworking population.”

Although Ghana gets to host the secretariat of the AfCFTA in recognition of Kwame Nkrumah’s contributions to African unity, a paper in 2012 presented by two UNECA specialists, said the agreement have the potential to unite Africa’s 1.3 billion population, create $3.4 trillion economic bloc and lead to around 52.3 per cent boost in intra-African trade by 2022.

The AfCFTA is a dream come true for tech businesses with plans big enough to expand their innovative solutions beyond their home countries. It could also be nightmare for small startups without the capital and technical capacity to withstand the competitive challenge it will create.

“Easier mobility will favour technology because the younger demography of those in tech will be more mobile within the continent,” says Collins Onuegbu, executive vice-chairman of Signal Alliance. “It’s an opportunity for a country like Nigeria with large market offered by its size to attract smart businesses from Africa to locate in and take advantage of our market.”

It also means increased pressure for smaller technology businesses without sufficient capital to scale their business. For instance, while Nigeria’s commercial capital, Lagos is home to some 500 tech businesses, only 44 startups were able to attract a total investment of $110.9 million in the first half of 2019, according to data from TechPoint.

A difficult business environment made worse by a recessive economy, multiple taxation, returned invoices, poor technology infrastructure and policy flip flops has contributed immensely to the high failure rate in the tech ecosystem. In a January interview with Punch, Leo Stan Ekeh, founder of Zinox said the current failure rate of startups in Nigeria is at 75 per cent.

The case is not helped with the silo mentality of most founders. It has meant that local tech startups are not strong enough to dislodge big competitions. In many cases they end up as the lunch of the big and foreign competitions.

Onuegbu however says with AfCFTA, new generations of African businesses will be built with Africa in mind and not the current silo thinking for most businesses born in Africa.

Although there are many reasons to be excited, the reality however is that AfCFTA is still a paper agreement, it has not yet begun, even with majority of the leaders signing up for it. It still has to map out strategies for continent-wide trade facilitation, a common external tariff and full liberalisation.

Archie Matheson, head of Policy & Analytics at Botho Emerging Markets Group estimates that most of the AfCFTA plans are likely to take effect between 5 to 8 years depending on how fast negotiations are agreed upon.

“Therefore, it is unclear what the impact of AfCFTA will be, and when it will start to be felt,” he wrote. “Even so, it is highly likely that the inclusion of exempt will limit intra-African trade gains. Given the narrow range of industries and produce in many African countries, a few exemptions could easily end up covering a high proportion of a country’s exports, so restricting potential new regional trade.”

Additionally, Nigeria tech startups may find themselves at a disadvantage as a result of poor technology and general infrastructure compared to peers from more advanced African countries. The cost of creating solutions without proper or advance infrastructures ultimately impacts the down-line.

Niyi Yusuf, managing partner at Verraki told BusinessDay that while there may be infrastructure constraints, it should rather propel tech startups to upscale and play to global standards as the “Nigerian standard” will not be enough to succeed in the other 54 countries in Africa.

“There will only be one standard – the global standard,” says Yusuf.

He added that the war for affordable talent will become more intense and technology companies will have to be more strategic and deliberate in the way they attract, develop and retain talents.

“There is a lot to be done by several countries in Africa to improve the efficiency of their markets,” says Onuegbu. “The pressure from Africa will force local policy makers to improve ease of doing business for their local businesses. Nigeria as an example must work on its ease of doing business to attract the right kind of investment into its economy and avoid being the dumping ground for finished products.”