Is AfCFTA the missing building block for a united Africa?

Trade is a game changer and an incredible force for economic growth and prosperity. The World Bank estimates, that since 1990 more than one billion people have been lifted out of poverty thanks to economic growth underpinned by open trade.

The rise of China from an agrarian society to a global economic superpower within a mere generation is a story of export-led growth and industrialisation. Initially, China’s domestic consumers were too poor to provide enough demand for the country’s nascent industries; however, focusing on large-scale manufacturing for export markets underpinned by low labour costs allowed Chinese companies to reap economies of scale and become globally competitive. Over time, that approach increased the income level in China and created a viable domestic consumer market.

Many African producers and manufacturers struggle to achieve economies of scale as their domestic markets are small and hence lose out on efficiency gains that a larger market could provide. For example, Botswana used to assemble motor vehicles on a small scale between 1992 and 2001, but these activities did not achieve the necessary economies of scale and were therefore stopped. The Botswana experience makes me question how successful the motor vehicle plants in Ghana and Kenya will be in the next five years.

Accessing foreign markets is therefore key to increase viability for producers and manufacturers. The creation of a common market through African Continental Free Trade Agreement (AfCFTA), which was approved in 2012, is a critical step allowing small economies to access a sizeable market.

Looking at the rise of China, it is no wonder that the establishment of AfCFTA is seen by many as a potential game changer for Africa’s economic fortunes. The expectations are high that the AfCFTA will lead to export-led economic growth by creating a common market of close to 1.5 billion people and a combined GDP of about US$2.85 trillion.

While free trade is an important component for unlocking economic potential of countries, it is not a silver bullet in itself. Africa’s trade structure is very skewed towards commodities, limiting opportunities for African economies to trade with each other. In 2023, roughly three-quarters of the continent’s exports were primary commodities. In about 40% of the continent’s countries commodities accounted for more than 90% of export earnings. This is in stark contrast to, for example, the European Union and China, where commodities account for 20% and 6% respectively and the bulk of exports are manufactured products. Having a more diverse export basket that includes a sizeable share of manufactured products cushions countries from commodity price fluctuations and allows countries to specialise and to potentially command higher prices for their exports.

The creation of a common market could create regional value chains. In regional value chains countries can specialise on specific inputs and supply to other countries that have more mature industries and scale.

Austria, for example, does not produce cars; however, the relatively small European country, with its over 900 automotive industry-related companies, is a key supplier of automotive components to the automotive industry of its much larger northern neighbour Germany. If Austria can build a vibrant automotive industry without making cars, why shouldn’t Namibia, Lesotho, or Botswana be able to do so too and supply parts to South Africa’s automotive industry?

The gradual removal of tariffs will make intra-African trade cheaper in coming years. However, this needs to be supported by the reduction of non-tariff barriers and infrastructure bottlenecks that have been impeding trade on the continent in the past. It is frustrating to keep on talking about these issues year after year. The question is who should be dealing with these issues? Africa governments, regional bodies such as ECOWAS and EAC should be driving this as a matter of urgency.

Another critical building block for getting the most out of AfCFTA will be demand creation for African products and brands within Africa. This will be partly driven by the reduced cost of regional imports once tariffs are reduced or fully abolished. But it will require a mindset change by consumers towards local or African products and brands. By building attractive and competitive African brands that are sought-after by consumers on the continent, we can unlock a lot of economic potential and create a fully integrated and flourishing African market.

Or in the worlds of the late President of the Republic of Ghana, Kwame Nkrumah: “We all want a united Africa, united not only in our concept of what unity connotes, but united in our common desire to move forward together.”