3 years on: AfCFTA struggles to unlock Africa’s intra-trade potential
- Inter-African trade stands at 17%- Afreximbank
- Experts blame poor AfCFTA performance on divergent currencies, poor infrastructure, others
ONOME AMUGE
Africa, rich in resources, and brimming with a population of over 1.3 billion potential consumers, would appear to present lucrative opportunities for economic growth and development. However, intra-continental trade has remained sluggish, a glaring contrast to the excitement and optimism surrounding the African Continental Free Trade Agreement (AfCFTA).
The free trade agreement, launched in 2021 with great anticipation and widely touted as the largest free-trade area by the number of states, after the World Trade Organisation (WTO), had high hopes of bringing prosperity to the continent by liberalising economies and integrating markets, but it is yet to gain significant impact as shown by industry reports.
A 2024 report by the Economic Commission for Africa (ECA) titled: “Assessment of Progress on Regional Integration in Africa” brought to the fore the concerning fact that despite efforts to promote regional integration within the continent, African countries continue to favour trade with the rest of the world over intra-continental trade.
According to the African Export-Import Bank (Afreximbank), although the African Continental Free Trade Area aims to establish a unified African market, increase intra-African trade, and enhance regional economic integration, a mere 17 per cent of African trade is intra-continental, a stark contrast to the 68 per cent and 59 per cent of trade within Europe and Asia, respectively.
A recent report by the National Bureau of Statistics (NBS) on Foreign Trade in Goods for the third quarter of 2024, revealed that Nigeria’s exports to Africa amounted to just 12.13 per cent (N2.486 trillion) of the country’s total exports. In stark contrast, Europe and Asia accounted for a lion’s share of Nigeria’s exports, with 45.07 per cent (N9.23 trillion) and 25.31 per cent (N5.18 trillion) respectively.
A breakdown of the NBS report showed that while Nigeria’s exports to countries under the Economic Community of West African States (ECOWAS) totalled N1.54 trillion in the third quarter of 2024, major destinations within the African region included Ivory Coast (N662.71 billion), South Africa (N621.68 billion), and Togo (N574.93 billion). However, Spain trumped these nations as the top export location for Nigeria, accounting for N2.27 trillion, or 11.07 per cent of the country’s total exports during the same period.
The NBS report further disclosed that other non-African countries that topped Nigeria’s exports aside from Spain included the U.S (N1.67tn or 8.25 per cent), France (N1.59tn or 7.75 per cent), the Netherlands (N1.43tn or 7 per cent), and Italy (N1.37tn or 6.72 per cent).
These five countries alone were responsible for 40.79 per cent of the value of total exports during the quarter in review, dwarfing the relatively meagre 12.13 per cent attributed to Africa as a whole.
According to analysts, the failure to leverage the economic synergies and complementary resources within the region has resulted in a loss of opportunities for income generation, job creation, and overall economic growth. By not taking full advantage of the larger market created by AfCFTA, African countries are effectively undermining their ability to reap the full rewards of market integration.
Challenges confronting Africa’s intra-continental trade
Despite the promised benefits of regional trade and the recent launch of the African Continental Free Trade Area (AfCFTA), exporters and stakeholders are finding that the roadblocks to doing business within Africa remain very high, with logistics and policy barriers proving more challenging than those faced when exporting to other continents.
In recent roundtables at the Center for Global Development, a primary concern from DC researchers, policymakers, and civil society was the issue of Africa’s apparent inability to speak with one voice on crucial global policy matters.
The DC researchers, policymakers, and civil society members shared a palpable concern that African leaders had yet to develop and present a unified, consistent message on global financial architecture reform and potential adjustments to the African Growth and Opportunity Act (AGOA). Without a clear, unified stance on these pressing issues, they feared that Africa might struggle to exert its influence in shaping global policies that could greatly impact its economic and social development.
There is no denying that the AfCFTA holds significant promise in promoting industrialisation and boosting the manufacturing sector across Africa. However, the harsh reality of limited production capacities and heavy reliance on external suppliers has cast a long shadow over these aspirations, analysts observed. This is as the African continent’s manufacturing GDP remains disproportionately low, a stark reminder of the urgent need for comprehensive strategies that address local production capabilities and reduce dependence on imports.
The multiplicity of currencies in Africa, with more than 40 distinct currencies circulating on the continent, has also been identified as one of the roadblocks to the free flow of goods and services across borders.
This proliferation of currencies, according to the African Export-Import Bank, leads to a variety of challenges, such as increased transaction costs, inefficiencies, and complexities, which impede the seamless movement of trade and hinder economic integration within the continent.
Peter Njoku, deputy director of Market Access at the Nigerian Export Promotion Council (NEPC), in his assessment, identified non-tariff barriers and currency issues as two challenges to intra-African trade. He noted that many African countries use different currencies, which can create complications and hinder seamless trade, in contrast to other regions, such as Europe, where a single currency like the Euro facilitates trade.
Njoku further underscored the need for harmonized regulations across Africa, pointing out that the lack of uniformity in trade rules and guidelines contributes to the difficulties of doing business within the continent.
He observed that while traders dealing with other countries can typically follow a set of well-defined regulations to carry out their transactions, the absence of such clarity and uniformity in Africa makes cross-border trade more challenging and unpredictable.
Bosun Solarin, CEO of Dasun Integrated Farms Limited, in an assessment of the logistical challenges hampering intra-African trade, observed that in certain situations, it is more economical to ship goods to Europe or the US than to other African countries.
“I’ve sent goods to Liverpool in the UK in 24 hours, but it can take seven working days to Ghana. The cost is so much, and the delays at borders are frustrating,” she added.
Solarin recounted her personal experience travelling by road from Dakar to Lagos, which brought to the fore the poor state of infrastructure and lengthy delays at borders. She described the sight of trucks stretching from Senegal to Mali and then to Ivory Coast as disheartening, a stark testament to the inefficiencies plaguing intra-African trade.
The agricultural entrepreneur cautioned that while road transportation might initially seem economical, the associated risks and inefficiencies often outweigh the potential benefits.
Tony Nwabunike, former president of the Association of Nigerian Licensed Customs Agents (ANLCA), voiced apprehension over Nigeria’s readiness in intra-African trade, citing substantial deficiencies in its export capabilities, border security, and trade infrastructure.
Nwabunike emphasised these concerns during his address at the recent Association of Maritime Journalists of Nigeria (AMJON) annual conference, where he emphasised the urgent need for Nigeria to strengthen its trade-related systems and institutions to ensure that it can leverage the opportunities presented by the AfCFTA.
Nwabunike pinpointed the woefully outdated border infrastructure in Nigeria as a major obstacle to the country’s effective participation in the African Continental Free Trade Area.
He added that not a single border in the country meets the standards of a smart border – one equipped with cutting-edge technology and systems for efficient border management, ensuring smooth trade flows and enhanced security.
Highlighting the need for modernised border infrastructure in Nigeria, Nwabunike noted that the country has lagged behind its African counterparts such as Kenya and Rwanda, which have made significant investments in smart border systems to facilitate seamless cross-border trade.
He emphasised the urgency of Nigeria upgrading its border infrastructure, warning that without similar investments, the country runs the risk of losing its competitive advantage in intra-African commerce.
“As a country envisioning good volumes of trade, the federal government needs to modernise our borders for national security, economic protection, and proper monitoring of human and cargo movements,” he said.
The chief executive officer of freight forwarding service provider Mac Tonnel Nigeria Limited suggested that Nigeria can play a leading role in the African trade revolution facilitated by AfCFTA by investing in smart border technology, enhancing regional partnerships such as the Trans-Saharan Gas Pipeline, and fostering economic growth and cooperation in the region.
He also highlighted the importance of revitalising legacy ports and creating dedicated spaces for exports to stimulate maritime trade, along with a liberalised visa regime to facilitate travel and trade across Africa. He further emphasised the need for Nigeria to address its power challenges to support industrial growth and increase export capacity.