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Private sector holds the key to success of Africa’s trade deal

From left: Bank of Kigali CEO Diane Karusisi,  African Export Import Bank chairman Benedict Oramah, South African President Mr Cyril Ramaphosa, Equity Group CEO James Mwangi, and Gabriel Negatu, the African Development Bank Regional Director at the CFTA Business Forum in Kigali. PHOTO | FILE
From left: Bank of Kigali CEO Diane Karusisi, African Export Import Bank chairman Benedict Oramah, South African President Mr Cyril Ramaphosa, Equity Group CEO James Mwangi, and Gabriel Negatu, the African Development Bank Regional Director at the CFTA Business Forum in Kigali. PHOTO | FILE 

The recent signing of the Continental Free Trade Area (CFTA) protocol in Kigali heralds a renewed commitment to expanding the intra-African trade.

Sceptics are cautiously optimistic. But it is inexorable that African countries must increase trade amongst themselves. The CFTA, which rivals the European Union because of its sheer potential and scale is encouraging, despite countries like Uganda and Nigeria opting to further review the agreement.

With a unique geographic centrality, abundant resources, and a population of 1.2 billion people, the deal is potentially a game changer.

One of the notable objectives for the CFTA is the commitment to “enhance competitiveness at industry and enterprise levels through exploitation of opportunities for scale production, continental market access and better reallocation of resources.”

Africa’s intra-trade has suffered for long due to closed borders, market access bureaucracies and cross-border taxes that hamper market access for African corporations.

What $4 trillion can do!

According to a 2015 McKinsey Global Institute Report, Africa’s economic growth averaged 3.3 per cent between 2010 and 2015. And Africa’s consumption and businesses already total $4 trillion, annually and growing.

The report projected the value of Africa’s manufacturing output to grow to $930 billion by 2025 from $500 billion in 2015. Three quarters of this potential is expected to come from African-based companies meeting domestic demand.

“The rewards of accelerated industrialisation would include a steep change in productivity and creation of up to 14 million stable jobs in the decade leading to 2025,” the report says.

So, imagine what the CFTA can do in expanding and growing the African economy. As a continent we trade more with other continents than we do internally.

President Uhuru Kenyatta’s and the Kenyan government’s focus on the ‘Big Four’ is timely and manufacturing, employment and high quality locally made products should deliver the Buy Kenya Build Kenya objective.

Traditionally, the private sector thrives on market size and market access, stable environments, and the CFTA deal offers perfect opportunity for African companies, from cottage industries to large groups, to source materials and sell finished products in a 1.2 billion people market.

Why it took so long to implement

Given its huge potential, one might argue that the CFTA should have happened long time ago. But Africa has, since independence in the 1960s and 1970s, faced multiple challenges, including ideological disagreements that roped the continent into proxy wars of the world powers.

Still, regional economic blocs such as the East African Community (EACC), the Economic Community of West African States (Ecowas), the South African Development Community (SADC), the Common Markets of Eastern and South Africa (Comesa), among others have stayed the course with varied degrees of success, despite the political and economic challenges that have faced some nations.

Political will

However, the CFTA is likely to be faced by some delays and challenge such as full cooperation but the vision and markets remain exciting.

It is not a unique African problem. Even the European Union has its fair share of challenges, such as BREXIT and the unease among certain member states. The good thing is that many countries vote on the side of staying and perfecting the union.

Across the Atlantic, US President Donald Trump has been critical of the North America Free Trade Agreement promising to abolish it altogether. This has led to a renegotiation that America hopes will result in a better deal.

But Western and Asian leaders always have the will to resolve their issues. 

African leaders are showing the world that the intra-trade vision and implementation can be made a reality.

In recent times, more and more countries are acknowledging the need for closer collaboration in matters economic.

Last February, Mr Kenyatta and his Ugandan counterpart opened a One-Stop-Border-Post (OSBP) seeking to improve efficiency in moving goods and services at the Busia border.

Similar strategic collaborations are likely to be witnessed as Africa builds up towards the Continental Free Trade Area.

The challenges

Limited infrastructure, especially lack of functional trans-continental roads, security, challenges to fully integrated systems, corruption, limited connectivity of air transport and certain nations are facing political instability.

Thankfully and with the determination to grow and bring consumer excellence, countries are addressing these problems. There is a great infrastructural boom on the continent, with railway lines that run across the borders being built with funding from China. The South African president hinted at the need for a tradeable African currency that can help people to trade across borders effectively. While difficult to implement, it is good to start the discussion.

Secondly, most African countries continue to rank low in the World Bank’s ease of doing business list. Only Mauritius emerges in the top 25. Rwanda is at 41 and Kenya 81.

The list of challenges investors often cite includes availability and cost of power as well as heavy bureaucracy.

These problems need political commitment to resolve them. As the United Nations Conference on Trade and Development Secretary-General Mukhisa Kituyi observed, the CFTA deal must be backed with concrete actions.

“There are sometimes political statements of solidarity which are not matched by concrete action,” he said, citing the need to shame bad examples and countries that will not walk the talk.

Governments can find ways to partner with the private sector to thrive in the new environment. The last two decades have seen the growth of the African multinationals. The Dangote Group, Strive Masiyiwa’s Econet, Bidco Africa, South Africa’s Multi-Choice, Devki Group, among others have become the continent’s business authorities.

Part of the problem is protectionism, but even where there is no direct competition, investors find it difficult penetrating local markets. Structural bottlenecks do more harm than good to the countries that do not open their doors to investors. 

Africa’s largest economies will greatly support the growth of trade and development of a more robust private sector. Nigeria, more than any country, needs the CFTA. With a population of 180 million, greatly talented, and with its products enjoying a cross-continental appeal, Nigeria must grab this opportunity.

Diaz is a Trustee of Brand Africa and Director of Brand Kenya

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