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Trade 5 Sep 2023

What is the AfCFTA and how will it impact African trade?

If you’re not fully clued up on the AfCFTA, don’t worry you’re not alone. In our latest African Trade Barometer research, we polled over 2,400 businesses of all sizes operating in 10 economies in sub-Saharan Africa, and over 90% of respondents reported that they too were unaware of the AfCFTA.

So, what is the AfCFTA and why should it interest you?

The African Continental Free Trade Area (AfCFTA) agreement is a historic initiative spearheaded by the African Union (AU), that once fully implemented is hoped to become a game-changer for the economic development of the continent.

The AfCFTA will be the world’s largest free trade area, uniting 54 of Africa’s 55 states and all eight of the continent’s regional economic associations in a partnership that aims to create a single continental market representing a population of about 1.3 billion with a combined GDP of approximately US$ 3.4 trillion.

Among other benefits, this free trade zone is intended to make intra-Africa trade easier and cheaper through various policies aimed at the removal of many of the current non-tariff trade obstacles (such as customs delays, import quotas and technical barriers) and the gradual elimination of tariffs on 90% of goods traded within Africa.

The potential benefits of the AfCFTA

By reducing the cost of doing business and making African goods more competitive in the global market, it is hoped that these measures will significantly enhance competitiveness, attract more foreign investment, encourage economic diversification, and create new job opportunities.

A report recently published by World Bank estimates that effective implementation of the AfCFTA has the potential to:

Raise 30 million Africans out of severe poverty and increase the earnings of almost 68 million other people living on less than US$5.50 per day

Increase earnings for both skilled and unskilled employees by 10.3% for unskilled workers and 9.8% for skilled workers

Increase Africa's income by US$450 billion (a 7% increase) by 2035

Boost Africa's exports by US$560 billion, mostly in the industrial sector.

For African countries to fully benefit from this agreement, however, it is crucial that they develop their manufacturing capabilities along with the infrastructure that will make it possible to transport inputs and finished goods by road, rail, air, and sea across Africa’s extensive continental land mass.

Strengthening manufacturing capabilities and infrastructure

Africa is a continent rich in natural resources and has long been known for its agricultural and mining sectors. For African countries to benefit from increased trade, however, a conducive environment needs to be developed to empower Africa’s private sector to develop the manufacturing capabilities need to beneficiate products and produce high-quality finished goods.

Manufacturing has been widely recognised as a crucial driver of economic growth and development. African countries, with their abundant natural resources, large labour forces, and youthful and growing consumer markets, have the potential to become major players in global manufacturing.

Manufacturing, therefore, can contribute significantly to Africa’s GDP growth. By producing goods locally, countries can reduce their dependence on imports, and increase their exports. This, in turn, can help to reduce trade deficits and promote economic development.

To unlock these benefits, it is essential to invest in four key areas: infrastructure, technology, collaboration, and the private sector.

1. Infrastructure is critical to support the transportation of goods and distribution networks

This includes roads, ports, airports, and railways. Without adequate infrastructure, it’s difficult for manufacturers to efficiently move their products within the country and to cross-border markets.

According to African Trade Barometer research, road, telecommunications and power stability concerns remain top of mind for African traders.

When it comes to energy and power infrastructure, even limited cross-border cooperation and coordinated national investment could have a disproportionally high impact on regional and continental growth. Many African countries enjoy climates well suited to solar power generation, for example. Addressing current high developmental costs through local manufacturing and construction, and regional supply and sales arrangements, could be instrumental in unlocking the power of sustainable energy solutions for the whole continent.

2. Technology is another important factor in the development of manufacturing capabilities specifically, and business generally

Access to modern technologies, such as automation, artificial intelligence, and advanced robotics, can help manufacturers to increase efficiency, reduce costs, and improve product quality.

Importantly for Africa, and critically for the AfCFTA vision of a single African market, the continent’s booming digital ability supported by a youthful population is in many instances leading the world in digital adoption.

Moreover, on a continent where physical infrastructure is underdeveloped and distances are vast, digital technologies offer new opportunities to businesses and start-ups to leapfrog traditional infrastructure constraints and provide innovative and cost-effective solutions for logistical and physical connectivity backlogs.

3. Collaboration is also important for building regional value chains.

By working together, African countries can leverage their strengths and resources, establish strong regional trading hubs and create high-value beneficiated products for the global market. This requires collaboration among governments, businesses, and other stakeholders within the region.

The East Africa Community (EAC) serves as a prime example of the benefits that can be derived from regional cooperation and the free flow of goods, services and people across borders in Africa. Undoubtedly, it is the most successful regional economic association in Africa, and the relative ease with which cross-border activities are carried out in the EAC has led to increased business, trade and GDP growth.

Given that small and medium-sized enterprises (SMEs) make up 60% of registered business entities in East African countries - and up to 90% if micro-enterprises are included - the importance of efficient cross-border movement of goods, services and people in driving business growth cannot be overstated.

Other regional associations would do well to replicate the EAC's successes – and the African Continental Free Trade Area (AfCFTA) agreement has the potential to build and strengthen institutional connections between regions in support of its pan-African market goals.

4. Finally, the private sector plays a crucial role in the development of manufacturing capabilities.

Private sector investment can help to finance the development of infrastructure and technology and can also provide the necessary expertise and knowledge transfer to build local manufacturing capabilities.

Other areas where banks, and the private sector could work with the AfCFTA to begin implementation in 2023, is to identify and then cooperate on leveraging growth in high-potential sectors – manufacturing is one, and agriculture is another.

In Africa, for example, the agriculture sector is the biggest earner and greatest employer in many markets. Beginning with small steps to improve the movement of food and agricultural goods, inputs, services and people – along with capacitating the agro-processing manufacturing sub-sector to beneficiate primary goods – could have a disproportionally large positive impact on social stability, growth, investment and national revenue across the continent.

How Standard Bank supports infrastructure development, manufacturing and trade in Africa

As the continent’s largest bank by assets, with an on-the-ground presence in 20 sub-Saharan countries, Standard Bank is committed to driving Africa’s growth.

Our solutions are designed to help our African clients unlock value to achieve their ambitions:

A full suite of Commercial and Investment Banking services for the financing of large-scale power and infrastructure projects  

End-to-end cross border Trade solutions that include various trade finance, international payments and risk mitigation tools along with logistics services for import and export

Value-adding initiatives designed to assist African businesses in sourcing pre-vetted local and international trading partners via our Trade Club portal 

Commercial Asset Financing solutions to fund new or used CAPEX equipment, including solar energy components

An Africa-China Trade Solutions  team to assist African businesses to strengthen their manufacturing capabilities by sourcing and financing inputs, machinery and renewable energy system components from accredited Chinese suppliers

A significant non-tariff barrier in Africa is access to information. Standard Bank is addressing this challenge by providing free access to reliable trade data and insights via its African Trade Barometer 

Standard Bank is a key sponsor of the African Continental Free Trade Area (AfCFTA) Business Forum taking place from 16 – 18 April 2023 at the Cape Town International Convention Centre. The Forum is designed to accelerate African economic integration by activating private sector trade and investment in line with the AfCFTA’s 2023 theme of Accelerated Implementation.


For more information on how we’re supporting African traders to take advantage of the AfCFTA, click here to visit our website or email us at: [email protected]