AfCFTA outlook for African businesses

Thursday October 10 2019



Wambugu Wa Gichohi

Wambugu Wa Gichohi 

As countries consider ratifying the Africa Continental Free Trade Agreement (AfCFTA), the business community in Africa needs to understand this agreement at street level if they are to take measures that yield them long-term benefits from the engagement.

AfCFTA is a flagship project within Agenda 2063 of the African Union (AU), a 50-year master plan to transform Africa into the “powerhouse of the future”. The agreement covers all 55 countries in Africa, out of which only Eritrea has not ratified so far. AfCFTA came into force on 30th May 2019 after 27 countries ratified it and the operational phase was launched on 7th July 2019 at Niamey, Niger.

In January 2020 an African heads of state summit is scheduled to endorse a roll-out plan. The official launch of the free trade area is set for 1 July 2020.

AfCFTA has a goal to establish a single market for goods, services and movement of persons.

This goal is complemented by two important protocols - the Protocol for Free Movement of Persons, Right of Residence and the Right of Establishment and the Single African Air Transport Market (SAATM).

AfCFTA’s general objectives include creating a single market for goods, services and movement of persons and creating a liberalized market for goods and services through successive rounds of negotiations.

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It also aims to lay the foundations for the establishment of a Continental Customs Union, promote and attain sustainable and inclusive social and economic development and enhance competitiveness amongst African businesses.

Finally, it aims to promote industrial development and resolve challenges of country multiple and overlapping memberships to different regional economic blocs.

These general objectives have been reduced to specific objectives. These include progressive elimination of tariffs and non-tariff barriers to trade in goods, progressive liberalization of trade-in services, cooperation on investment, intellectual property rights and competition policies and cooperation on trade-related areas.

Others are cooperation on customs matters and trade facilitation, design of a dispute settlement mechanism and the establishment of an institutional framework for the Continental Free Trade Area.

The African Development Bank (AfDB) projects the impact of the full implementation of AfCFTA to accelerate growth of businesses and countries through a competitive continental market.

It will also allow Africa to be more competitive in global trade and value chains and allow industries to develop across borders, availing economies of scale for investors as they look at wider integrated markets.

The agreement will also foster inter-firm competition, raise intra-firm productivity, and support growth of small and medium enterprises and large African conglomerates.

It will also help eliminate monopoly positions while enhancing cross-border spillovers between coastal and landlocked countries. Finally, AfDB projects AfCFTA to improve regional security since the expansion of international trade often correlates with a reduced incidence of conflict.

All these intentions and projections are good for Africa but for true gains to accrue, businesses across Africa have to understand this important milestone and position themselves to take full advantage of its opportunities.

As stated in previous articles, current business models will need to be disrupted for our businesses to take full advantage, otherwise AfCFTA will remain a pipe dream for a majority of them.

Failure to do so will only benefit foreign businesses that see the potential and will soon be trooping to set up production bases in Africa to benefit from Rules of Origin. It is time for African businesses to seriously consider taking up franchising and manufacturing under license to quickly set themselves up for successes under AfCFTA.

The writer is the Project Promoter and Lead Franchise Consultant at Africa Franchising Accelerator Project aimed at achieving faster African socio-economic integration under AfCFTA.

We work with country apex private sector bodies to increase the uptake of franchising by helping indigenous African brands to franchise. We turn around struggling indigenous franchise brands to franchise cross-border. We settle international franchise brands into Africa to build a well-balanced franchise sector.

We create a franchise-friendly business environment with African governments for quicker African economic integration.

wambugu.wagichohi@worldaheadafrica.com, franchising@tpsftz.org

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