African governments should be ready for a brutal journey as the region prepares to implement a high profile deal known as the Africa Continental Free Trade Area (AfCTA) agreement. This is according to SAP Africa, a leading cloud company and market leader in enterprise application software.
The firm has warned that a number of challenges may make the deal difficult to follow through but is confident that the rewards will be well worth the battle.
Despite its warnings, the company has nonetheless affirmed that the Africa Continental Free Trade Area will likely turn Africa from an aid-dependent continent to an investment-grade powerhouse.
According to SAP Africa Managing Director for Central Africa, Pedro Guerreiro, AfCTA will mark a major moment in Africa’s history, as many leaders from across the continent have predicted.
When the Africa Continental Free Trade Area is implemented this year, it will create a single market for goods and services for the first time in the continent’s history.
The agreement will cover a geographic area with a combined gross domestic product (GDP) of $3.2trillion and a population of 1.2 billion people. It has the potential to drastically accelerate economic growth and exceed the African Development Bank’s current estimates for GDP growth from $1.7trillion in 2010 to more than $15trillion by 2060.
“A continental super bloc has the potential of creating an attractive value proposition for investors who are dealing with the fallout from Brexit, a US-China tariff war and a global economy that is falling short of projected growth targets,” Guerreiro explained.
He added that for African governments, businesses and citizens, the prospect of the Africa Continental Free Trade Area has prompted widespread excitement and optimism, especially among some of Africa’s leading business and political figures.
“Speaking with one voice as a continent will emerge as perhaps the most important provision of all for the success of the African Continental Free Trade Agreement,” Rwanda’s President Paul Kagame said.
South Africa’s President Cyril Ramaphosa publicly stated that this is a free trade area that has never been seen before anywhere else in the world.
“It’s going to be the largest integrated market on the African continent, which is a clear demonstration that indeed Africa is not only on the rise, but Africa is on the move,” he continued.
The World Economic Forum (WEF) notes that manufacturing only accounts for 10% of total GDP in Africa, well below the figure in other developing regions. A continental free trade area has the potential to reduce this gap and accelerate job creation, especially among young people.
“The continent’s reliance on agriculture, which according to some estimates accounts for 60% of all jobs, could also lead to greater regional coordination to ensure produce matches market demands,” said Guerreiro.
“Legacy infrastructure also poses a challenge, especially in terms of the effective movement of goods between countries that will form part of AfCFTA,” he explained.
“Supply chains are the circulatory system of the global economy, but Africa’s legacy of underdevelopment has left its road, rail and ports infrastructure lacking,” Guerreiro elaborated.
SAP noted that ports infrastructure struggle to keep pace with global standards. While 90% of African imports and exports are driven by sea, PwC estimates that, of the 72% of global container throughput in developing nations, only 1% travels via African ports.
Guerreiro said that effective export trade from AfCFTA to other regions will require a rapid upgrade of the continent’s main trade ports.
Nevertheless, he stated that the past few years have seen an acceleration in public-private partnerships driving youth skills development initiatives, with millions of young people trained in basic coding skills.
“By fostering greater regional and continental integration, efforts to equip Africa’s youthful population with appropriate and future-fit skills could be expanded. And by bringing in the private sector, who can lend training, technology and skills development support, in-country and pan-African initiatives aimed at upskilling Africa’s youth can be accelerated as we enter the Fourth Industrial Revolution,” he said.
“Africa is on the rise and on the move. We are entering a new era of free movement, collaboration, and mutual success among all 50 African countries that will form part of AfCFTA,” Guerreiro concluded.