Equip SMEs to tap into all-Africa trade

A trader at a market in Nairobi. FILE PHOTO | NMG

By PAMELA HAMILTON
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Summary

• The Covid-19 crisis has also triggered a reality check. It has exposed the challenges and inequalities of ‘business as usual’ and magnified the risks inherent in a business model, which often does not have inclusivity and sustainability as priorities.
• It is now more evident than ever that the way we produce, trade, organise our supply chains, and consume must change if we want to mitigate short-term impacts and better prepare ourselves for future crises while building the resilience of our economies.
• One just has to look at the case of commodity producers who often depend entirely on a single income stream associated with export markets. Any shift in demand has a trickle-down effect.

The economic downturn caused by Covid-19 has sent shockwaves across the sub-Saharan African economies. The Africa Continental Free Trade Area (AfCFTA) secretariat reports that for the first time in decades, there has been a contraction of GDP of between 2-5 percent in sub-Saharan Africa. This is directly attributable to the pandemic.

The Covid-19 crisis has also triggered a reality check. It has exposed the challenges and inequalities of ‘business as usual’ and magnified the risks inherent in a business model, which often does not have inclusivity and sustainability as priorities.

It is now more evident than ever that the way we produce, trade, organise our supply chains, and consume must change if we want to mitigate short-term impacts and better prepare ourselves for future crises while building the resilience of our economies.

One just has to look at the case of commodity producers who often depend entirely on a single income stream associated with export markets. Any shift in demand has a trickle-down effect. As this shift is often a decline in demand, it has concrete impacts on the real economy. With Covid-19, demand in both export and local markets has changed as unemployment rises, consumer incomes fall, and economic recession takes over.

Can AfCFTA help to future proof African economies? I believe it certainly can. From it will flow benefits to the private sector — and primarily the micro, small and medium-sized enterprises (MSMEs) that account for about 80 percent of Africa’s businesses.

Given the International Trade Centre (ITC) survey finds that two-thirds of African companies are strongly affected by the pandemic, it is clear that any agreement that seeks to make it easier for these MSMEs to trade across borders has an immediate contribution to make.

ITC focuses on helping the African private sector recognise and take advantage of business opportunities that will come with an operational free trade area. The World Bank predicts that implementing AfCFTA will grow Africa’s exports by $560 billion, mostly manufacturing. Simply removing tariffs on goods in the region could increase the value of intra-African trade by more than 20 percent by 2040.

AfCFTA will stimulate industrial development and value addition as companies exploit economies of scale and access cheaper raw materials due to reduced tariffs. In turn, this will have an impact on prices and consumer choice. And given that many imports in the future will be inputs for re-export, it also helps drive greater diversification in the region.

Wisely, the architects of AfCFTA used Africa’s existing regional economic communities (RECs) as the ‘building blocks’ of the new continental arrangement. The integrity of its constituent parts strengthens the new superstructure.

For example, the East African Community (EAC) has made steady progress in putting in place common standards, rules of origin and a common external tariff. The bloc is one of the most integrated RECs in Africa, creating a common market in January 2010 that allows free movement of goods, services, capital, labour and people, and establishment and residence rights.

The EAC’s remarkable strides include harmonising monetary policy frameworks and exchange rate operations, rules and practices governing bank supervision, and integrating payment systems, financial markets and financial reporting. There is much to learn here as we plot the implementation of AfCFTA.

Using digital technologies has created new revenue streams and expanded efficient platforms such as mobile banking and digital data management. Nevertheless, this development remains out of reach for too many MSMEs in Africa. The level of digital penetration, especially in rural areas, remains far too low. The recovery must spur a redoubling of efforts to get more businesses online and more people connected.