By Kenneth Ashiagbor
The African Continental Free Trade Area (AfCFTA) offers tremendous opportunity for unlocking business potential across the continent and the world
Historically, Africa’s foreign direct investment (FDI), as well as its regional and global value-chain participation, has been consistently low, hampered by barriers to trade and competitiveness.
The AfCFTA removes many of these barriers and unlocks opportunities for Africa to join regional and global value chains and integrate with international businesses.
Specifically, the AfCFTA private-sector engagement strategy, through multi-stakeholder consultations, has identified four key sectors that have high potential for local and global business: automotive; agriculture and agro-processing; pharmaceuticals; and transport and logistics.
All of these sectors add value in different ways, including through job creation, inclusivity, contribution to GDP and potential for local value addition.
Benefits of AfCFTA
The adoption of the AfCFTA will accelerate intra-African trade and develop regional and local value chains, creating new business dynamics that offer investors access to a population of 1.7 billion people with combined business and consumer spending reaching $6.7 billion by 2030.
To better understand the opportunities available, four high-potential sectors were initially selected by the AfCFTA to analyse in its private-sector engagement strategy as sectors representing opportunities for companies looking to invest in Africa: automotive; agriculture and agro-processing; pharmaceuticals; and transport and logistics.
These four sectors are expected to see rapid acceleration in production and trade volumes under the AfCFTA, given that they have a high potential to meet local demand with local production.
Agro-processing has important implications for economic growth, food security, job creation and poverty reduction.
While African countries have accelerated their focus on agro-processing as a result of food insecurity caused by trade disruptions from global shocks, it will also be important as a way to transform economies from the current export of raw materials, which has much less benefit for a country’s economy.
As much as 80 per cent of food production on the continent is from smallholder farmers with historically low yields.
Agriculture and agro-processing have high potential for economic growth, employment and inclusivity, and could spur an increase in intra- African trade.
Currently, the continent imports about $50 billion of agricultural products per year but, by 2030, intra-African agricultural trade is projected to increase by 574 per cent if import tariffs are eliminated compared to a scenario without the AfCFTA.
Agro-processing is a way to add value to an already competitive agriculture sector.
Africa’s wide range of climates, high percentage of arable land and counter-seasonality to the northern hemisphere all contribute to the competitiveness of the sector.
Agro-processing specifically has unique strengths for investors and African countries alike. It is described as the most important sub-sector of manufacturing because of the greater stability of world prices for processed agricultural products compared to raw products.
It is also significant for its effect on the generation of new companies, its diversification of rural economies and its creation of new job opportunities.
Scaling agro-processing has important inclusivity effects as well, given that women make up 70 per cent of employment in the overall agricultural sector and the majority of the domestic agro-processing workforce is female.
The common market can use regional differences in the strengths and competitiveness of African countries in food value chains.
Increased intra-African trade through the AfCFTA will help reduce dependency on foreign agricultural inputs with positive effects for continental food resilience.
Each region has natural advantages that, if better coordinated to benefit African partners, can help create full regional value chains.
For example, South Africa’s integrated value chain, from inputs, equipment, packaging and specialised logistics to marketing and retail, is an example for other African countries, and showcases the great potential for investment in this sector in conjunction with the AfCFTA.
There is also a great opportunity for new businesses to meet the input and infrastructure needs of the agriculture sector.
Some major barriers to scaling agro-processing include the need for more local production of inputs.
For example, a major barrier to scaling fish production is the high costs and high dependency on foreign trade for fish feed.
Regional hubs can help increase intra-African trade of fish feed and allow for scaling up within what is now a highly fragmented market made up of small producers.
For agriculture more broadly, there is also a significant need for inputs and infrastructure to sustain higher levels of exports.
Participation in bilateral and multilateral free trade agreements such as the AfCFTA, standards regimes and related frameworks can help firms better mitigate their operating costs, barriers to market entry, compliance with non-harmonised standards and regulations across borders.
It will also enable them to grow their industries more effectively in support of local and regional economic development and transformation.
The writer is the Registrar, Chartered Institute of Agriculture Ghana