What the Free Trade agreement in Africa means for the logistics sector
The African Continental Free Trade Area agreement, or the AfCFTA as it is known, is being seen as the world’s largest free trade zone since the establishment of the World Trade Organization. The trade deal will begin by cutting tariffs for goods traded and then eventually expand into other areas. Fifty-four African nations met in July 2019 to work out an agreement on the pan-continental free trade zone – and also signed on the largest economy to the Africa Free Trade agreement, Nigeria[1].
To simplify it further, it just means with the cutting of these tariffs, and, in future, the barriers of entry as well, trade between two nations previously unheard of, can now happen openly. For example, Kenyan coffee can now be shipped across the continent without worries that it will, a) cost too much because of duties, and b) be more expensive than the coffee that the other countries now have to import because Kenyan coffee would have been expensive before this agreement. The same can be said for Nigerian textiles manufactured within the region and can now be sold anywhere in the continent without attracting much resistance from the pricing.
As reported by CNBC, the International Monetary Fund believes eliminating tariffs could boost trade in the region by 15-25% in the medium term, but that could double if other, non-tariff barriers are reduced. Those include poor road and rail links, large areas of civil unrest, border bureaucracy, and corruption that have held back growth and integration. Even though export trade between African countries is quite low at the moment, a decent 42 percent of those intra-African exports are industrialised goods and this number is expected to grow under the new AfCFTA agreement.
It is unclear whether the AfCFTA will succeed in removing some of the complications and duplications caused by the overlapping memberships of the eight regional economic communities, which include the Southern African Development Community, East African Community and the Common Market for Eastern & Southern Africa. The hope was that the AfCFTA would standardise rules of origin and tariffs for the same goods so that firms would face less fragmented sets of rules when doing business across African borders.
While the absolute advantages of African Continental Free Trade Area will be realised in the long term, in the short term, it will lead to more open business within the continent. This will help grow many forms of direct trades as well a whole plethora of support services that will be needed to support these. One of the industries that will see a boom as a result of this accord is logistics. With the latest addition to Africa Free Trade agreement, Nigeria by virtue of being the largest economy in the continent, it will also be a crucial entry point for businesses to expand within the continent. Companies will need to move equipment, and people to various countries around the continent, and this will lead to better infrastructure and more structured border control.
The opportunity for service providers in the logistics sector will find more work as one of the first movers (pun intended), and as the enablers of building a network of connectivity within the continent. Most logistics providers will need to learn how to build and leverage the advantages of African Continental Free Trade Area and, as a result, build a precedent for new companies looking to expand their footing within the region
