Wednesday, October 21, 2020

African businesses guard against AfCFTA fall

Business conglomerates across Africa have warned that the Africa Continental Free Trade Agreement (AfCFTA) must not be allowed to fall by the wayside. 

The AfCFTA was due to be implemented on July 1 2020, the largest free trade area in the world, uniting 1.3 billion people in a $3.4 trillion economic bloc must 

The launch was postponed by the coronavirus pandemic in May and the African Union Commission had at some point proposed 1 January 2021 as the new tentative date for the start of trade under AfCFTA. 

The COVID-19 crisis has inevitably impacted on AfCFTA implementation. 

Negotiations have been suspended to complete some pending technical elements, such as rules of origin – products made in Africa – for some sensitive sectors, the exchange of tariff concessions on trade in goods and commitments on trade in services. 

Last week over a teleconference, a panel of speakers discussed financing the implementation of the AfCFTA at both country and continental level through. The panellists included Business Botswana President-Gobusamang Keebine, Dr Kiprono Kittony -International Chamber of Commerce from Kenya and Sir Sola Abondunrin, President of Ibadan Chamber of Commerce in Nigeria. 


Giving a keynote address through the platform, Botswana’s Minister of Finance and Economic Development, Dr Thapelo Matsheka explained that AfCFTA offers an opportunity for African countries to open up trade relationships amongst themselves by availing the full force of the three trillion dollar US to every African continent player across all corners of the continent. 

The expansion of this market he said, it will require African countries to make better use of their resources to meet the great demand as tariff and non-tariff barriers to trade and investment are eliminated between member states. The Minister went onto add that, major policy shifts will require to be developed by member states individually and collectively to give effect to this new economic dispensation. 

“Outside trade and investment policies, it will be necessary for member states to recognize a key element to trade investment cooperation is establishment of a robust financing mechanism which will form an engine of economic growth. That is; African continent will have to put in place institutional and policy mechanisms to provide short- and long-term financing to support trading activity depending on the nature of products available in the market. Public sector and supporting metrics will be necessary to support private sector financing if we are to effectively support the anticipated expansion of trade,” said Dr Matsheka.

Minister Matsheka worried that, failure to provide such finance may impede the desired growth in trade and investment, thus necessary to explore appropriate institutional mechanisms through which risks can be managed and mitigated to enhance flow of finance. 

He urged, private financial community to play a more aggressive and proactive role in laying down financial facilities for the regional and international trading community and as such; commercial trade investments and financing houses should step forward in formulating innovative strategies to meet this demand in Africa. 

There is no doubt, there will be constraints in capacity, however innovation and risk taking will result in financial benefit for those who will take up the instruments, he said. 

He further advised that: “African investors and trading partners seek out investment opportunities in a very treasurable strain; they must also be taken to provide their investment with the sense of security through appropriate instruments to safeguard against political risks. It is often the case that investments are affected by political developments in Africa.”

The three main panelists for the day fell for Minister Matsheka’s submission and in their comment, Dr Kittony added that East Africa in particular, the reality is that the challenge remains implementation on the non-tariff barriers.

Kittony also added that, there is a lot to be done to create legal and regulatory frameworks to support rising to the next level. 

We need to create a Pan African trade system for rules-based systems on how we engage as nations.

Further in terms of financing models, he suggests that, “capital markets are the best to raise money for long term finance and private equity to scale up enterprises within Africa to more effectively participate in free trade area. Development banks should also be an option to enable African business to scale themselves to participate effectively. African countries should also prioritize within their budgets funding to allow for the effective implementation of protocols within African free trade area. We have not been extremely effective on non-tariff barriers. We have a greater task in making our economies seamless.”

Business Botswana President, Gobusamang Keebine said: intra Africa is what Africa needs. Keebine urged Batswana to first satisfy their home markets before doing business with the 1.3 billion Africa population.

“We need to get into our own spaces in Botswana before going outside. In terms of financing, institutions must understand what emerging entrepreneurship needs.”

As the Minister hinted on the political impediments, Keebine also indicated that some of the barriers are very political, “until we come together and appreciate we can share the bigger cake. The problem as member states is we all want the small cake. Security hostility in other jurisdictions is a problem.” He further expressed that, with this AfCFTA in place, there should not be a situation where  for instance a cargos is returned at the port because you don’t belong to a certain economic bloc.  

Sir Sola Abondunrin urged that each country must have a political will to fully implement the agreements. He added, each country must be prepared to pay the equity contribution agreed and there is need for capacity building for the officials who will be supervising the implementation of the facilitating the agreements. According to Sola, there must also be a need for sensitisation of the agreements to all stakeholders so that they fully understand and are aware of the opportunities coming within the agreement and; “the AU has to undertake this implementation and all member states must be ready to support the financing of this agreement.”  

The AfCFTA is targeted at creating, amongst others, a customs union with free movement of capital and business travelers -the world’s largest – given Africa’s 1.2 billon population and combined GDP of over $2.5 trillion. 

Economists have noted that the stakes for successful implementation of AfCFTA are high, and if successful the projections show that Africa would have a combined consumer and business spending of $6.7 trillion by 2030.

Given the impact of the outbreak on Africa’s traditional intercontinental trade routes, intra-Africa trade will be key to getting the region’s nations back up and running.                                      

To date, even though one of Africa’s larger economies South Africa is battling with escalating infections and death of Covid19, the pandemic has not however punished the continent with the fury seen in other areas of the world, such as Europe or the Americas.

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