Davos hosts launch of new report on how investors can benefit from implementation of the African Continental Free Trade Area (AfCFTA)

By Dean Ehrlich, 20 January 2023

On Wednesday, during this week’s World Economic Forum meeting in Davos, the World Economic Forum, AfCFTA Secretariat and Forum Partners released a new report on how public-private partnerships can support the implementation of the African Continental Free Trade Area (AfCFTA).

The report, AfCFTA: A New Era for Global Business and Investment in Africa, identifies Africa’s automotive, agriculture and agro-processing, pharmaceuticals, transport and logistics sectors as “high-potential sectors” and offers a roadmap for global businesses and investors “to understand the biggest trends, opportunities and strategies to successfully invest and achieve high returns across the continent.”

The report encourages global businesses and investors “to invest in the four priority sectors explored here (automotive; agriculture and agro-processing; pharmaceuticals; and transport and logistics)” which, together, represent $130 billion in goods and services imports.

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. As the report outlines:

  • Africa’s automotive industry is expected to grow to more than $42 billion by 2027 due to increasing domestic demand, rising incomes and high projections for intra-African trade.
  • If tariffs are eliminated under the AfCFTA, Intra-African trade in agriculture is expected to increase by 574% by 2030. So, agriculture offers opportunities for economic growth, job creation, poverty reduction and food security, with the potential for even more value added with agro-processing.
  • As a complex product with potential for more value to be added, intra-African trade in pharmaceuticals is expected to grow under the AfCFTA alongside more resilient health supply chains (only 3% of its demand is currently met by intra-African trade).
  • As an enabler of trade in goods, transport and logistics will be a crucial area for investment as intra-African trade increases. The AfCFTA is projected to increase intra-African trade demand by 28%, with demand for almost 2 million trucks, 100,000 rail wagons, 250 aircraft and more than 100 vessels by 2030.

“While the AfCFTA offers business opportunities in each of these four sectors,” the report explains that “companies will need to understand how the changing environments under the trade agreement will affect their strategies for success in the region.”

“Success under the free trade area”, however, will “arise from the private sector understanding, recognizing and acting on the initiative’s value” say Wamkele Mene (Secretary-General, African Continental Free Trade Area Secretariat) and Børge Brende (President of the World Economic Forum) in the report. But that success will not come “without disruption and change in business and production dynamics” and companies should anticipate and mitigate such events.

The World Economic Forum says it is “actively working towards implementing trade and investment tools that are aligned with the negotiation process of the AfCFTA [to identify] areas where public-private collaboration can help reduce barriers and facilitate investment from international firms.” It believes that “public-private collaboration can help remove obstacles in the supply chain, improve cross-border payments and access to trade finance, reduce the costs and delays of moving goods across borders, help to mainstream environmental sustainability, and tackle barriers to investment entry and expansion.”

The report includes the “on-the-ground” experiences of companies like Agility, the Africa Finance Corporation (AFC), Coca-Cola, DP World, Menzies Aviation, Novartis, the Office Chérifien des Phosphates (OCP), the United Bank for Africa (UBA), Volkswagen and Yara which reveal the main strategies that have led to their success in Africa so far.

“The promising gains from an integrated African market should be a signal to investors around the world that the continent is ripe for business creation, integration and expansion,” says Chido Munyati (Head of Regional Agenda, Africa, World Economic Forum) in the report.

These developments follow the announcement made at the 9th meeting of the AfCFTA Council of Ministers, on 25 July 2022, that seven countries had been selected to commence actual trading under the free trade agreement in a two-month ‘pilot’ phase. TAO’s report on that pilot phase is available here.

However, some uncertainty remains, especially regarding the implementation of the AfCFTA’s Protocol on Rules and Procedures on the Settlement of Disputes – modelled on the WTO’s Dispute Settlement Understanding.

As TAO observed in its article on the AfCFTA’s Dispute Settlement Mechanism here, the mechanism is limited to the settlement of disputes arising between States. So, despite the fact that most of the trade under the AfCFTA is likely to be undertaken by private exporters, importers and service suppliers, these fellow Africans all lack standing under its dispute settlement mechanism to resolve disputes in their own stead.

Whether that will discourage global businesses and investors from investing in the four priority sectors highlighted in the report, especially in light of the anticipated changes and disruptions, remains to be seen. Private parties will no doubt benefit from the increase in certainty and predictability in trade governance the AfCFTA promises.

The AfCFTA is the world’s largest free trade area (measured by the number of participating countries. It brings together the 55 countries of the African Union (AU) and eight (8) Regional Economic Communities (RECs). 54 AU Member States have signed the AfCFTA agreement as of June 2022. 43 have deposited their instrument of ratification.

The current number of states engaged in commercially meaningful trade under the AfCFTA stands at eight, with Tunisia recently joining Cameroon, Egypt, Ghana, Kenya, Mauritius, Rwanda and Tanzania. Together, they represent five African regions.

The AfCFTA entered into force on 30 May 2019 and was formally launched in July 2019 at the 12th Extraordinary Session of the AU Assembly of Heads of State and Government in Niamey, Niger.

Trading under the AfCFTA technically commenced on 1 January 2021.

The AfCFTA Secretariat is hosted in Accra, Ghana. His Excellency Wamkele Mene is the first elected Secretary-General coordinating the implementation of the Agreement.

 

URL: https://taobserver.com/news/327/davos-hosts-launch-of-new-report-on-how-investors-can-benefit-from-implementation-of-the-african-continental-free-trade-area-afcfta

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