The African Continental Free Trade Area (AfCFTA) provides an opportunity to deepen economic integration of Africa. It is intended to establish a single, unified (duty-free and quota-free) market across the African continent, based on the free movement of people, business, and investment.
AfCFTA consolidates the entire African Continent comprising 54 countries into a single market. It has the potential to create the largest free trade area in the world. A trade area with a population that will grow from 1.3 billion to 1.7 billion in 2030, of which 35% are expected to be in the middle class.
By establishing a single Africa market, projections suggest that by 2030:
- Africa’s gross domestic product (GDP) will increase from $2.5 trillion to $3.4 trillion.
- Investments in Africa will rise from US$2.2 trillion to US$4.0 trillion.
- Intra-African trade will increase, with industrial products increasing the most, withoverall gains of between 25% to 30%.
The AfCFTA presents an opportunity to accelerate Africa’s development agenda. The expectation is that a single Africa market will promote a positively reinforcing cycle of increased international trade, greater international investment, and associated growth in employment and wealth generation opportunities. The main drivers of this change include a combination of economies of scope and scale and agglomeration effects. These are underpinned by better market opportunities, access to cheaper and more easily accessible raw materials and intermediate inputs, greater economic diversification, and structural transformation.
Highlighting the potential the single Africa market represents, Wamkele Keabetswe Mene, Secretary-General of the AfCFTA Secretariat, has previously said that “AfCFTA has the potential to be a catalyst for industrial development, placing Africa on a path to exporting value-added products and improving Africa’s competitiveness both in its own markets and globally. It also sends a strong signal to the international investor community that Africa is open for business, based on a single rulebook for trade and investment.”
The private sector will be one of the main beneficiaries of a single African market. The industry sectors expected to benefit most include financial and business services, e- commerce, transport and logistics, vehicles and transport equipment, energy production, metals, machinery, chemical products, industrial textiles, food and beverages, and milk and dairy. Businesses in these sectors can also expect to obtain increased benefits from improved conditions for regional value chains and better integration into global value chains.
The initial signs are promising. Private sector businesses appear positive about the potential benefits of a single Africa market. The recent PAFTRAC’s Africa CEO Trade Survey Report 2022 finds that “Business leaders are generally optimistic that the free trade area will benefit both their own companies and African economies more generally.”
The survey also indicates that 93% of businesses report that they are confident to some extent that a single market would have a positive impact, with 25% describing themselves as very confident. Businesses expect a single Africa market will open new markets for goods and services, while reducing the cost and bureaucracy associated with exporting.
To take full advantage of the advantage of the economies of scope and scale and agglomeration effects envisioned requires investment channelled towards higher value- adding industry sectors and activities. In this regard, governments across Africa, including in Ghana, are increasingly turning their attention to implement policy measures designed to improve their investment enabling environments. This includes a combination of:
- Improving infrastructure, both “hard” (e.g. generation and transmission of power, international transport and data corridor projects) and “soft” (e.g. easing regulations start-ups and new and foreign businesses, and updating competition and intellectual property legislation).
- Diversifying their economies into sectors beyond natural resources extraction.
- Enhancing sector and individual business productivity and competitiveness.
- Promoting and adopting research, innovation, and technology to driveindustrialisation in the Fourth Industrial Revolution.
While necessary, these measures will not be sufficient to increase investment, even if such investment is available. Unfortunately, Africa currently faces an additional challenge. It has a substantial domestic investment capital funding gap. This makes obtaining the full benefits of a single Africa market difficult. It also makes meeting wider Sustainable Development Goals (SDGs) almost impossible.
According to Global Infrastructure Outlook, estimates suggest that to 2040, Africa needs investment of US$240 billion each year for “hard” infrastructure alone. The current level of investment funding available for this infrastructure suggests a financing gap in the order of range US$68–US$108 billion per year.
For Ghana, the annual investment needed in infrastructure is US$4.7 billion. The current level of investment funding available, suggests the financing gap is in the region of US$1.8 billion per year.
Similarly, estimates suggest that the level of investment for Africa to achieve its SDGs by 2030 is of the order of US$0.5 trillion per year. The current level of investment funding available for suggests a financing gap in the order of US$0.2 trillion per year.
For Ghana to achieve its SDGs, it will need more thanUS$11 billion of investment a year. The current level of investment funding available for Ghana’s SDGs suggests a financing gap in the order of US$6 billion per year.
For both Africa and Ghana, the question then becomes how best to achieve the scale of investment funding needed to fill the gaps that can fully deliver the benefits of a single market?
Part of the answer to this question lies in Africa sourcing, mobilising, attracting, and retaining a combination of foreign investment and private equity and venture capital at an unprecedented scale.
Another part of the answer lies in ensuring that Africa, and especially its businesses, are ready for and can access and use investment funding, to improve their long-term productivity and international competitiveness.
Whether Africa can adequately answer these questions and unleash the full potential that the single market offers remains to be seen. It is a bold and challenging endeavour that will ultimately shape both its future and the wider world economy.
