Evaluating the AfCFTA Supply Chain
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By Oluwatobi Ojo
Prior to the agreement establishing the African Continental Free Trade Area (AfCFTA) in 2018, African countries have long been involved in different bilateral, regional and continental trade agreements to boost the local economy and drive foreign exchange earnings. However, the AfCFTA offers a fresh breath for the continent in its structure to revamp the entire supply chain across the continent, opening up business opportunities for exporters and their value chain and subsequently reducing poverty across Africa.
Despite the impressive stride of intra-African trade in the last decade, there is still a huge neglect of supply chain management that undermines free trade by governments and relevant stakeholders.
Global Trade and African Trade in context
Africa currently accounts for a mere 3% of global trade– an embarrassing percentage when compared to intra-regional trade achieved by Europe (60 percent), North America (40 percent), and Asia (30 percent). It is more so concerning considering the abundance of natural and human resources embedded in the continent. However, projected to raise income by 7 percent, or $450 billion by 2035, the AfCFTA presents an economic opportunity for the continent to achieve its trade potential and contribute more significantly to the global economy.
According to a World Bank’s analysis, the AfCFTA will boost intra-continental exports by over 81% and exports with non-African countries by 19% by 2035. Manufacturing exports are anticipated to make the most gains: a 110% increase for intra-African trade and 46% for non-African trade. In contrast, service trade is envisaged to have the most modest rise (14% of intra-African trade).
For Africa to improve on its contribution of 3% to global trade, it is pertinent to focus on developing an efficient supply chain to realize the gains of the agreement. The estimated rise in the manufacturing industry will make Africa a significant opportunity as a trade partner for supply chain diversification.
African Supply chain within the AfCFTA
Trade is hinged on the supply chain, and for intra-African trade to work, there is no exception to this rule. While the removal of tariff plans is one step in the right direction, it is important to foster a supply chain that makes it possible to export within and outside the continent, as well as one that addresses local supply. Revolutionising the African supply chain means addressing all the barriers affecting the effective movement of goods and services in and out of the continent.
Phase 1 of the AfCFTA covers areas of trade in goods and services, custom and trade facilitation, while phase 2 is hinged on competition policy, investment and intellectual property. One critical factor important to an efficient supply chain within the AfCFTA context is the efficiency of the manufacturing sector and value-addition to export goods. In contrast to the rest of the world, Africa is simply not producing enough, contributing just 1.9% of the global manufacturing value chain. Government policies must prioritise investment in the manufacturing sector and create an enabling environment for investors and businesses.
Africa must adopt a hands-on policy to boost manufacturing by converting natural resources into industrial raw materials and adding value to these raw materials by processing them into finished products to meet international standards.
Barriers to supply chain in Africa
Lack of decent road networks and the high cost of transportation is a threat to the successful implementation of the AfCFTA, and a critical barrier to the supply chain across the continent. According to the African Development Bank, costs related to logistics can increase the price of goods traded within Africa by up to 75 per cent. For instance, a 1,000-kilometer journey takes about six days in Africa compared to 48 hours in other parts of the world, which undoubtedly jerks up the price of goods and services.
This explains why Africa is ranked low between 1.77 and 3.38 out of 5 in the World Bank Logistics Performance Index. Hence, Africa must invest adequately in road, rail, air and water transport infrastructure to maximise continental trade and connect Africa to global trade.
In addition to transportation, investment in technology must take a front seat in restructuring supply chain infrastructure across the continent. Bottlenecks surrounding the clearing, contracts, insurance, customs, and payment can be solved by adopting the use of technology to make the process easier, faster, and more efficient. In recent years, many African countries have taken drastic steps to adopt the use of technology to improve logistic requirements for trade. For instance, Tanzania is implementing the Pre-Arrival Declaration (PAD) system and electronic submission of customs declarations, and Kenya is implementing an electronic cargo tracking system and has linked this system to the Kenya Revenue Authority’s electronic data interchange system for customs clearance.
The AfCFTA is an ambitious project that requires an aggressive implementation of its enabling policies. Building an effective supply chain infrastructure to support trade is crucial, in order to maximize the gains of the monumental agreement.
Oluwatobi Ojo is a Nigerian writer. You can reach him via email, oluwatobimojo@gmail.com