AfCFTA implementation: Africa’s logistics sector set to deliver results
The transport and logistics sector in Africa has struggled to support the continent’s increasing population and energetic private sector for far too long.
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But recent studies have suggested that that phenomenon is about to change and the benefits for the continent’s wider economy could be extremely transformative.
That change is being made possible through the African Continental Free Trade Area (AfCFTA), which introduces frictionless trade between countries on the continent.
This is because AfCFTA is a catalyst for rapid investment and expansion of the continent’s budding transport and logistics sector for the better.
For instance, a study jointly developed by the World Economic Forum and AfCFTA Secretariat showed that AfCFTA is projected to increase intra-African trade demand by 28 per cent, with requests for almost two million trucks, 100,000 rail wagons, 250 aircraft and more than 100 vessels by 2030.
It indicated that maritime trade is projected to increase from 58 million to 132 million tonnes by 2030, with the implementation of AfCFTA, and the growth in this sector will help, in particular, with a projected boom in agro-processing trade caused by AfCFTA.
The study projected that the automotive industry in Africa will grow to more than US$42 billion by 2027, due to increasing domestic demand, rising incomes and high projections for intra-African trade.
Intra-African agricultural trade is expected to increase by 574 per cent by 2030 if we eliminate tariffs under the AfCFTA.
The AfCFTA can increase intra-African trade in pharmaceuticals, of which currently only three of the demand is met by intra-African trade, leading to more resilient health supply chains.
Annual spending
A study recently released by McKinsey & Company and Brookings Institution, for example, estimated that annual spending by African consumers and businesses will reach US$6.66 trillion by 2030, up from US$4 trillion in 2015.
This trend is spurring growing markets in various sectors where the continent has unmet needs such as agriculture and agro-processing, pharmaceuticals, the automotive sector and transport and logistics.
Huge freight or logistics
African states currently import huge freight or logistics goods, from passenger freight and transport to parcel and courier services, every year from within and outside the continent.
Under AfCFTA, that amount is set to swell, and African companies can fulfill that demand.
As the largest continent in the world, and with a hitherto troubled intra-continental logistics network, the free trade initiative presents a major opportunity to invest in logistics and freight at a growth inflection point.
The overwhelming demand and need for logistics and transport services will only increase as the AfCFTA is implemented, intra-African trade increases and more small and medium enterprises require logistics providers to connect to larger markets.
Private sector inputs
As a result, the Secretary General of the AfCFTA, Wamkele Mene, at the just-ended AfCFTA Business Forum, indicated that the private sector should take advantage of the inadequate freight and logistics that have long hindered intra-African trade.
He said the private sector should be the core of the conversation around the implementation of the AfCFTA and its associated components.
He said the agreement seeks to create a market of 1.3 billion people, and the private sector needs to prepare itself to make the AfCFTA work for them.
This, he said, means that the private sector needed to expand businesses, strengthen competitiveness, boost innovation, and create jobs for the people.
“For us to see the results that we all desire to see, the private sector has to play a critical role in the implementation of the AfCFTA.
“Africa’s private sector is estimated to account for about 80 per cent of total production, 67 per cent of the investment and employ 90 per cent of the working-age population.
“As I have noted before, governments do not trade, the AfCFTA Secretariat does not trade, it is the private sector that drives trade,” he said.
Ratification so far
The Secretary-General said AfCFTA has been ratified by 47 countries; only one country in Africa has not signed the agreement establishing the AfCFTA.
It is a highly ambitious trade agreement deliberately designed. In order to overcome the challenges that the continent has been confronted with over the last five or six decades, bold and courageous interventions were required.
Over the last decades, the character of Africa’s economy has been a fragmentation of markets, the smallness of national economies, 42 currencies, an overreliance on the export of primary unprocessed commodities, colonial trade patterns and a lack of industrial capacity.
These factors are, in part, the reason intra-Africa trade is as low as 18 per cent and Africa’s contribution to global GDP is 3.1 per cent.
Conclusion
Governments in Africa must put in place the needed institutional and logistical support frameworks to ensure that they collectively reap the full benefits from the implementation of the agreement.
At the national level, there is a need for institutional structures and a programme of action for boosting intra-African trade to enable entrepreneurs to leverage the huge market provided under the initiative.
There should be mechanisms in place to provide the needed logistics support to ensure that traders can move their goods from one country to another successfully.
They must also take advantage of the vast opportunities that persist in the various critical sectors of their economies to place the continent on a path of long-term industrial development.
This would symbolise that AfCFTA is not just on paper but a reality.