AfCFTA Impacts different industries
Major industries to be impacted by this agreement includes Logistics and transport, manufacturing, energy services, financial services, construction, and communications. Industries will be provided with incentives to adopt digital technologies to make the most of the trade agreement. All required finances are going to be handled by the African Union.
AFCFTA and African logistics, supply chain
After five years of negotiations, and six months of delay caused by Covid-19, AfCFTA (African Continental Free Trade Area Agreement), the world’s biggest trade agreement, finally opened doors for Intra Continental trade in Africa from 1st January 2021.
The African Union began the negotiations in 2015 in Johannesburg to create a new free trade area. By 2019, 54 out of 55 countries of the continent signed the agreement. Eritrea is the only country to have not signed the deal. The main pillars on which the agreement has been established include-
- A unified rule of origin
- Removal of non-tariff barriers and electrical monitoring to enhance continent’s integration
- Establishment of digital payments
- A special secretariat governing the agreement
- An observatory for African e-commerce
The AfCFTA agreement is going to be implemented in phases. The first phase includes goods and services trade initiated from 1st January 2021 to 2023 and aims to double the intracontinental Trade compared to 2015.
Impact on Trade in the continent
One of the significant drawbacks of African countries is that the continent recorded the minimum percentage of intracontinental Trade (17%) in 2017 compared with other continents; 69% in Western Europe, 51% in North America, and 49% of intracontinental Trade in Asia. Some of the reasons behind this are the uncoordinated bureaucratic procedures, custom clearances, high transportation costs, etc. To overcome these issues, tariffs have been removed from 90% of the goods, thus reducing trade costs in the continent. Countries will be able to trade with other countries of the continent in the agreement without any cost. This is expected to grow intra-continental Trade to four times to 81% by 2035.
Impact on the Manufacturing sector
Currently, Africa is the major exporter of raw materials, like fresh vegetables, tobacco, sugar, wool, tea, groundnuts, etc., to foreign countries, outside the continent. Also, imports are much more significant than exports in the African nations. With the implementation of AfCFTA, African countries will be able to transport raw materials to other countries within the continent and will be able to manufacture products using these materials. The agreement also supports free movement of the public within the continent’s countries, thus enhancing the provision of human resources as per the talent requirement in different nations of the continent, boosting the manufacturing sector. Europe, especially, is going to be the export destination of textile and chemical manufacturing goods.
Impact on Trade with other countries
Currently, Africa contributes only 2% to global trade. With the growth in the manufacturing sector, exports are expected to increase by $560 Billion, China and Europe being the major trade partners with the continent. With the implementation of AfCFTA logistics supply chain, industries will benefit, as the global trading cost is expected to reduce by 14.3%, thus boosting international Trade. New trade routes are expected to emerge with an increase in air, sea, and road freight. In addition to that, the European Union’s “Comprehensive strategy with Africa” is supposed to provide digital assistance to the continent, helping them in business opportunities like in the manufacturing sector.
AfCFTA is an excellent opportunity for African nations to give a competitive edge to the world’s developed economies if implemented as promised. It could act as a great stimulus package to recover from the impact of the pandemic. With the reduction in the tariff barriers, free movement of people, Trade within and outside the continent will increase manifolds with the emergence of new trade routes with an increase in the assessment of digital maturity in freight forwarders, automated warehouses, specialized cold chain logistics, etc.
Thus, it has become imperative for the logistics supply chain industries to adopt digital solutions, reap the benefits of the agreement and contribute to the continent’s growth at a global level.
Article research by Nivedita, PGP student & summer intern from IIM Kozhikode
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