Ghana: AfCFTA to boost intra-African exports

At the recent Africa Unlocked conference in Cape Town, panelists discussed the African Continental Free Trade Area (AfCFTA) agreement, highlighting that intra-African trade makes up about 16% of the continent’s exports.

In comparison, Asia’s intra-regional trade stands at 55%, North America’s at 49%, and the European Union’s at 63%.

Considering these figures, the panel emphasized the need to assess AfCFTA’s effectiveness and explore strategies to enhance the appeal of African products both globally and within Africa.A major obstacle to African progress is the continent’s inability to achieve economic complexity by leveraging its existing resources to create new opportunities in various fields. Developed countries have excelled at this principle, leading nations like the USA to develop and export oil-based products for over a century.

In contrast, Nigeria, despite having similar access to oil, has not advanced into economic complexity. Consequently, the country imports products that could be easily produced locally. This issue is prevalent in many African markets, where the beneficiation of raw materials has been neglected for decades.

Ghana is no exception to this. Farihan Alhassan, Head Business and Commercial Banking, Stanbic Bank said: “Producers in Ghana have a unique opportunity to export their goods to African countries, taking advantage of AfCFTA and the Pan African Payment Settlement Systems (PAPSS) to facilitate payments across the African continent.

The introduction of these 2 platforms should significantly impact the intra-African trade over the next decade, significantly bringing Africa closer, improving commerce and driving economic growth on the continent.”

The COVID-19 pandemic has been another limiting factor for African trade. The continent is still recovering from the pandemic’s impact, and many parts of it are still grappling with the economic damage wrought by COVID-19. At the same time, Africa is still suffering the effect of having to shoulder a disproportionate disease burden that exceeds those existing on any continent on the globe.

Despite the disease burden, the continent still imports most of its healthcare needs, and its trade deficit continues to increase. Rectifying this situation and providing for a more significant portion of its healthcare needs would greatly assist the continent in becoming ‘healthier ‘at a lower cost, saving precious foreign currency and promoting competitive growth through intra-Africa and global trade.

The panel said three conditions must be present for trade to improve welfare levels and fulfil the mission of using intra-African and global trade to reduce poverty in participating nations and increase employment.

These are financial development, as when domestic private credit extension as a share of GDP reaches 18%, it is found that trade begins to reduce poverty.

Education is the second factor, as a better-educated labour force translates into enhanced capabilities and productivity. The final factor is governance.

Although trade oils the machinery of growth, research has shown that in countries with higher levels of sound governance across all sectors of society, trade is ‘massively’ more effective in reducing poverty.

Practically, promoting intra-African trade and global exports of African goods requires connecting buyers and sellers so that markets can be explored, and products and services can be evaluated and adopted.

For African countries, more attention must be paid to forming strong local and international links and taking the necessary steps to ensure that all potential importers and exporters are fully aware of regulations, pending legislation, and other important factors impacting their potential partners.

AfCFTA presents its signatories with an opportunity to aggregate volumes across the continent and leverage Africa’s power. Pooling procurement can help simultaneously realise the promise of African industry and lessen the continent’s reliance on imports.

Accompanying this with a review of the incentives offered to industry by countries like India, which includes economic zones, soft trade loans, subsidised land, water, electricity, and tax breaks, and countering it with African offers could assist Africa’s trade development.

Although the continent may not be able to offer the depth of incentives of a country like India, a start could be made by removing tariffs on the continent to help close the gap. The African tradition of exporting raw materials and then importing products containing these products at massively increased prices is counter intuitive.

Trading as one may require adjustments across the continent, but as AfCFTA matures, there is no doubt that the present concerns about trading across Africa and the potential impact on local business in participating countries will dissipate as the promises of growth and prosperity are realized.