“It is clear that we must find an African solution to our problems, and that this can only be found in African unity. Divided we are weak; united, Africa could become one of the greatest forces for good in the world.” – Kwame Nkrumah
The African Continental Free Trade Area (“AfCFTA”) is finally here and could be the solution to African problems as prophesied by the Father of Africa, Kwame Nkrumah. After several delays, trading under the African Continental Free Trade Area (“AfCFTA”) finally commenced on the 1st of January 2021. The long-awaited trading has been a historic event for not only African unity but for intra-Africa trade. On the 24th of May 2019, Zimbabwe joined other African countries in signing the long-awaited AfCFTA. In simplified terms, the AfCFTA is the world’s largest free trade area bringing together the 55 countries of the African Union (AU) and eight (8) Regional Economic Communities (RECs) to create a single market for the continent. It is basically a trade agreement wherein African countries have agreed to eliminate tariffs on most goods in order to allow free access to commodities, goods and services across the African continent. Ultimately, the objective of the agreement is the free movement of goods, labor, services and capital thus paving a way for a continental single market and creating one African market. The agreement establishing the AfCFTA is a game changer for the African economies at large and has come at a crucial time, marked by increased poverty levels and socioeconomic setbacks following the COVID-19 pandemic and other natural disasters.
It has been estimated that the implementation of the agreement could increase intra-African trade by up to fifty -two percent in the next five years. The AfCFTA is expected to expand the size of Africa’s economy to US$29 trillion by 2050. Zimbabwe’s ratification of the AfCFTA is in accordance with the African’s Union’s Pan-African Vision of; “An integrated, prosperous and peaceful Africa”, as enshrined in Agenda 2063.
In Africa, Small and Medium-sized Enterprises (SMEs) represent about 80 percent of Africa’s businesses and are responsible for more than 80% of Africa’s employment and 50% of its GDP. In Zimbabwe specifically, our economy is mostly informal wherein, it is asserted that SMEs comprise approximately 94% of businesses and yet only contribute less than 50% of the country’s GDP. Notwithstanding this most SMEs in Zimbabwe struggle to grow and expand because of multiple barriers that limit their capacity to compete on the international market and trade with other neighbouring African countries. The AfCFTA thus provides an opportunity for businesses in Zimbabwe to grow and expand into other African markets. This is because the AfCFTA facilitates imports and exports among member countries with lower or no tariffs, free access to the market and market information, and the elimination of trade barriers.
One of the biggest opportunities offered by the AfCFTA to businesses in Zimbabwe is market access. Under the free-trade area, businesses will be exposed to a more expanded market which is estimated to be as large as 1.3 billion people across Africa, with a combined gross domestic product (GDP) of $3.4 trillion. Further, trading under the AfCFTA provides for open borders, improved contracts, and better-structured value chains which are key benefits for SMEs to grow.
One of the main objectives of the AfCFTA is to increase Africa’s intra-continental trade by 52.3 percent by 2022. SMEs will thus benefit from this as they will be able to increase their sale and boost their business because of their capacity to reach consumers from all over the continent. Businesses will benefit from partnerships with potential foreign investors who would want to invest or launch their businesses in Africa through foreign direct investment.
Increased intra- African trade will increase the economies of scale and provide an access to cheaper raw materials and intermediate inputs. The free trade also offers better conditions for regional value chains and integration into global value chains, catalysing the transformation of SMEs towards greater utilization of technology and knowledge, facilitating both intra-African and external direct capital flows. This in-turn creates a labour market and a demand pull throughout the continent. Further, the AfCFTA will increase facilitate exports diversification which gives SMEs an opportunity to expand their markets.
Furthermore, the reduction of tariff revenues collected by African countries on intra-African trade will make it easier for more SMEs to join the “real” economy by ensuring a fairer distribution of the gains from free trade. The AfCFTA will provide greater support for trade facilitation and exchange of information from the pan-African, regional and local bureaucracies which will be a great incentive for SMEs participation.
The AfCFTA is may be answer for most of Africa’s problems as it creates a platform for economic growth as well as social transformation through the liberalization of trade. Businesses in the private sector have a lot to benefit from the AfCFTA but must ensure that they are knowledgeable of the opportunities that it provides to ensure that they fully enjoy the benefits of same. Businesses must also take measures to ensure their increase their competitiveness in the market and look for opportunities for partnership regionally. Businesses must therefore strategically position themselves regardless of their industry to exploit larger market opportunities offered by the AfCFTA and tap into new and more exciting markets.
Disclaimer:The information and opinions expressed above are for general information only. They are not intended to constitute legal or other professional advice. For clarification, assistance, or any questions please contact Lex Amicus, by email at: lexamicus@outlook.com
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