What is at stake for Small, Medium Enterprises in single African market?

Production at Soroti fruit factory. For African countries like Uganda, SMEs must climb the value-addition ladder. PHOTO BY SIMON PETER EMWAMU 

By Ismail Musa Ladu

Local manufacturers must prepare to seize the opportunities in the African Continental Free Trade Area (AfCTA) that will take effect next year.

The AfCTA that will make Africa a single market once enforced on July 01, 2020, is expected to kick start the journey to the promise land of industrialisation.

As leaders gathered in Ethiopia’s capital, Addis Ababa for the World Export Development Forum 2019 (WEDF) last month, organised in partnership with Africa Industrialisation Week, there was some sort of assurance that the unified market presents growth opportunities for Small and Medium Enterprises (SMEs).
Senior government officials, notable speakers, representatives of businesses in the continent, Africa’s entrepreneurs, including women and youth are convinced that this journey will turn around Africa’s fortunes despite the fact that there is a lot to do for SMEs.
Tough times
In her speech, the executive director of International Trade Centre (ITC), Ms Arancha González, while opening WEDF, noted that Africa is taking prudent decisions at difficult times.
She said: “These are difficult times for trade. Protectionism is on the rise; unilateralism is on the rise. And the results are reduced trade growth, reduced foreign investment flows and reduced business confidence.”

As a result, she there are lower growth prospects for all regions around the world.
“Africa is sending a different message,” said Ms González, before adding: “After decades of market fragmentation, the continent has embarked on creating the largest integrated trade and investment zone in the world.”

According to Ms González, this development comes at a turbulent time for the world, considering the digital, social and ecological revolutions transforming production and trade in a manner unknown.

Importantly, she noted that there is a need to add more value to Africa’s economies, to ensure growth and better sharing of increased prosperity. For this to happen, “More goods and services need to be made in Africa and more trade needs to happen between countries across the continent,” she said.

She continued: “Manufacturing is a very important part of the value addition story. But its only one part. The goal must now be to achieve greater value addition and competitiveness across the board not only in industry but also agriculture and agro-processing and services.”

For African countries like Uganda, SMEs must climb the value-addition ladder. Mr González notes that for quality data and market intelligence to facilitate trade, proper investment facilitation measures and investments in the digital economy are required.

But first, President Sahle-work Zewde would want to see countries in Africa aligning their policies with AfCTA.

Uganda’s case
For Uganda’s case, the AfCTA presents an opportunity for Micro, Small and Medium Enterprises which already account for approximately 90 per cent of the entire private sector. With over 80 per cent of manufactured output employing over 2.5 million people, SMEs stake their claim in the continental trade arena.

While reporting the progress on the African Continental Free Trade Area Agreement (AfCTA) to Parliament thus far, Trade and Industry minister, Ms Amelia Kyambadde noted that Uganda has everything to gain from the grand continental free agreement.

Ms Kyambadde told the House that the African continent remains Uganda’s main export destination, accounting for an average of 47.2 per cent of the country’s total exports over the last five years (2014 -2018).

She said: “Our exports to the African continent have increased from $0.89 billion in 2014 to $1.6 billion in 2018; a trajectory that we intend to boost with the African Continental Free Trade Area Agreement,” adding, “We note that Africa’s annual imports for 2014-2018 average $ 524 billion, implying that measures aimed at boosting intra-African trade, such as the African Continental Free Trade Area, are a good step in the right direction given the size of the market.”

Already, she said: “Government has put in place a Cabinet Sub Committee to fast track Uganda’s penetration into the broader market and to ensure the country’s competitiveness in the market."

Although very much interested in the grand initiative, the country’s private sector apex body says the success of AFCTA and the extent to which SMEs can benefit from the grand deal will be dependent on the government’s commitment to come clean on its agenda to properly develop both the “hard and soft ware” infrastructure needed to facilitate regional and continental trade.

In an interview with Mr Paul Omara, an entrepreneur (SME) producing and adding value to organic and healthy cooking oil among other things in Uganda, said AfCTA is a blessing for SMEs in Uganda in a sense of the large market it provides. It will also allow leveraging of resources and knowledge with likeminded sector player.

But, issues of visa access, lack of common currency and harmonized tax regime, he believes are some of the major impediment to SMEs success. And in six or seven months when AfCTA goes “live” with current challenges it will be difficult for SMEs to realise quick gains.

In a session discussing Investing in one Africa, Minister of Small Business Development in South Africa, Ms Khumbudzo Ntshavheni, underscored the importance and role of SMEs in the grand continental economic integration agenda.

She said: “AfCTA is about SMEs and not big corporations.”

She continued: “We must demand participation of SMEs and local content. Our SMEs should be at the main suppliers of items with a view to eventually creating our own brands with the largest percentage of component coming from anywhere in Africa.”

Brand preference
Ms Ntshavheni wondered why South Africa one of the largest consumer of coffee in the continent consumes brands from elsewhere yet it can be sourced in Africa in processed form. This she says constraints Africa’s SMEs from growing and providing employment in Africa.

Hope, she says lies in continental collaborations in areas where countries and the regional blocs have competitive advantages. For in East Africa and South African could take charge of textile (fabrics) development and value chain as other complement the initiative and vice versa.

But while doing that (integrating markets), she caution that the process be must be what she referred to as organic so as to avoid BREXIT situation that the EU is grappling with at the moment. And while still at it she argues that African can start taking advantage of low hanging fruits.

‘Buy Africa, support Africa’
For SMEs benefit from the single market, there is need for continental patriotism.

‘Buy Africa, support Africa’ should be a mantra that is not just preached but put to action.

Then there is a need for continental financial institution which should also be able to provide real time digital banking services.

The continent must also act more and talk less for its time for action and not words anymore.
This should be backed with a master plan detailing proper coordination.

Global trade arena
Speaking at the World Export Development Forum last week, the President of Ethiopia, Sahle-work Zewde argues that the continent is now ready to firmly participate in the global trade arena, considering its immense economic potential. While pursing the AfCTA, she affirmed that industrialisation and export development are interdependent.

She said further to endorsing the AfCTA, its implementation should be expedited to unleash a “complementary economic ecosystem” among African nations to use the continent’s potential to become the leading exporter in international trade, with SMEs taking the lead role.

According to ITC data, removing tariffs alone across the continent, which is one of the main component of AfCTA, could add 13 per cent to intra-African trade.

Local consumption
Offer quality products
Mara Phones chief executive officer Ashish J Thakkar says true social impact for SMEs will be accomplished if they provide quality and affordable products. Before that, SMEs must add value across the value chain.

But Africans should also begin consuming their brands.

“We have ability to create our own brands and should start consuming our own brands. Whether it is Europe or Asia, they have no exclusivity to export across the world. We can do it as well,” said Mr Thakkar.

Changing the tide
The CEO of Islamic Trade Finance Corporation, Mr Hani Sonbol said Africa not only requires financing but also capacity in areas such ICT.

In addition, the Ambassador, EU Delegation to Africa Union, Ranieri Sabatucci, urged against taking unilateral decision, describing it as a challenge.

Creating a single market is a process. But we still need to make progress in standards and public procurement.”

Africa must learn to adopt. “While undertaking this process, you need to be flexible and progressive,” he said.