Despite the historic agreement to establish the African Continental Free Trade Area (AfCFTA) more than four years ago, African business leaders are highlighting persistent challenges hindering cross-border trade. Customs duties, administrative hurdles, and varying national regulations continue to impede the seamless flow of goods and services across African countries, leading to increased costs and delays. African corporations are finding it difficult to compete with low-cost rivals due to these barriers.
Jeremy Awori, the head of Ecobank, which operates in 30 countries, expressed the complexities of navigating different laws in each country during a business conference in Abidjan. The AfCFTA, signed by 54 out of 55 African Union (AU) member states in 2019, aims to create a continent-wide single market worth trillions of dollars. It officially commenced operations on January 1, 2021, with the objective of achieving significant tariff reductions within five to ten years.
The International Monetary Fund (IMF) projects that the implementation of AfCFTA would lead to a real increase of 10 percent in per capita GDP and a 50 percent growth in intra-African commerce. For example, a 2014 AU study revealed that it was three times cheaper to send a vehicle from Japan to Ivory Coast compared to sending the same vehicle from Ivory Coast to Ethiopia.
However, the road to achieving the goals of AfCFTA faces significant challenges. Wamkele Mene, the Secretary-General of AfCFTA, noted that market fragmentation has worsened over the past decades, negatively impacting African businesses. He cited the example of a company with subsidiaries in Rwanda and the neighbouring Democratic Republic of Congo, which have to rely on a bank in New York for money transfers despite being just 12 miles apart.
Customs duties, which contribute substantially to government revenue in many countries, can exceed 50 percent, posing a significant barrier for trade. Additionally, non-tariff barriers such as lengthy border waits and bureaucratic procedures impose hidden costs on corporations. These challenges are impacting the growth of African companies compared to their counterparts in other developing regions.
African leaders recognise the importance of developing intra-African trade and the potential of the single market. Ivorian Prime Minister Patrick Achi emphasised the need to help future African champions integrate into global value chains. ‘By 2050, 40 percent of the [world’s] population will be African. We have to help our future champions find their place in global value chains,’ he said.
Olivier de Noray, the director for ports and terminals in Africa Global Logistics, highlighted the significance of the single market as a tool to boost infra-African trade, which currently only accounts for 20 percent of trade volume on the continent.
The Covid-19 pandemic and the Ukraine conflict further underscored Africa’s dependence on imports for essential goods. African business leaders stress the importance of learning from such crises to foster self-sufficiency in key sectors like food production and reduce reliance on external sources.
‘If we don’t learn from polycrises like this, shame on us. We could be self-sufficient in food, in fertilizers, and not to worry about where we are getting our wheat from,’ said Awori.
