In 2018, 44 African countries signed the African Continental Free Trade Agreement, which was brokered by the African Union (AU). The AfCFTA aimed to create a single market for goods and services, facilitate the movement of persons, promote industrial development and sustainable and inclusive socio-economic growth, and resolve the challenges of multiple and overlapping memberships in regional economic communities. Under the African Continental Free Trade Area, over 1.3 billion people are connected into a single market, unlocking novel opportunities for African and global businesses in critical industries, projecting a combined GDP of 16.2 trillion dollars by 2035. From advanced technology to healthcare, the question remains, how can countries leverage the potential of frictionless African trade to become a major player in global supply chains?
Since 1971, the World Economic Forum (WEF) has brought together leaders from the public and private sectors, as well as civil society, to discuss and address global issues such as this. This year was no different. During a live session titled An African Economy of Scale, at this year’s Annual Meeting in Davos, Switzerland, WEF brought together African economy leaders to discuss the potential of frictionless African trade as a major player in global supply chains. The roundtable conversation included Wamkele Mene, Secretary-General, African Continental Free Trade Area Secretariat, Kashim Shettima Vice-President of Nigeria, Office of the Vice-President of Nigeria, and Mary Vilakazi Chief Executive Officer-designate, FirstRand Ltd and Fernanda Lopes Larsen, Executive Vice President for Africa and Asia, Yara International.
Mene highlighted the continent’s potential to be the 7th largest economy in less than 20 years. Last year seven countries took part in the pilot of trading under the rules of the AfCFTA. Mene shared how one exporter in Ghana is exporting ceramic tiles to Cameroon. Before the AfCFTA, the exporter was trading on the basics of global routes, which meant no competitiveness. The AfCFTA enabled a 20% reduction in duty, which translates to 20% competitiveness as of the start of trade. Also, boasting a 2 million-litre annual dairy surplus, Uganda has carved out a surprising niche in the global market, exporting milk to Algeria, a nation previously reliant on imports from Latin America. “We have seen the start of trading. Goods moving across borders. Not in the volume that we would like to see because it is in its early stages. Nonetheless, we have developed the rules and the legal contract that enables a single market to be effective through the private sector participation,” he said.
Agriculture as an integral part of Africa’s economic scale
One sector that holds enormous potential for Africa is agriculture. The sector employs about two-thirds of the continent’s working population and contributes an average of 30 to 60 percent of the gross domestic product and about 30 percent of the value of exports for each country. Still, the sector is predominantly made up of smallholder farmers, and that comes with a myriad of challenges. According to Fernanda Lopes Larsen, the Executive Vice President for Africa and Asia at Yara International, one of the recurring challenges is the fertilizer application rate. Africa applies 5 to 6 times less fertilizer per acre than the global average rate. As a consequence, this not only depletes the nutrients from the soil but also affects crop productivity for a long time. “Yet just increasing fertilization is not enough,” Larsen said. “We need to increase yield more sustainably. We need to focus more on nutrients rather than over-fertilizing the soil. Today, a smallholder farmer in Africa is not applying more than 2 nutrients. That is not enough. We need to tailor solutions for farmers, as we did in Yara, where we developed something specifically for maize farmers that gives them at least 4 to 5 nutrients at a price point they can afford.”
Larsen further highlighted what can be done to enhance African agriculture. “It is not only about the product but also about the farmers,” she said. “A knowledge gap still exists among them, and we need to bridge it. How can we help them learn more about new practices, such as regenerative agriculture? Today, many farmers are still practising agriculture like their parents and grandparents did. There needs to be a paradigm shift”. There is an urgent need to teach farmers how to grow crops and mitigate emissions at the same time; how to manage their soil resources better; and how to use their inputs efficiently, not only nutrients but also water. “Most of the agriculture in Africa is rain-fed, so we need to find better ways for them to conserve and utilize water, and also protect biodiversity. All that we do is improve the livelihoods of farmers. If they are not winning, we are not winning,” Larsen added.
Harnessing the potential of Africa’s human resource
Vice-President of Nigeria, Kashim Shettima, believes that Africa’s human resource has the potential to scale its economy. “The beauty of Africa, besides the tremendous natural resources, is our human resource. We are the youngest continent in the world. For example, the average age of the Nigerian population is 19. Africa’s youth bulge can be transformed into a demographic dividend,” he said. Shettima’s optimism stems from a projected global talent deficit of 65 million by 2035. Even India, the outsourcing kingpin, will only have a million-strong talent surplus. “Africa,” Shettima declared, “is perfectly positioned to capitalize on the digital revolution.” To further underscore the power of human capital, he points to India’s projected $100 billion windfall from outsourcing talent in 2024. “Yes, Nigeria is an oil giant,” he pointed out, “but our peak oil revenue, in 2011, was a mere $35 billion.”
However, Shettima acknowledges the need for transformation and partnerships. Transforming Africa’s youthful population into a productive force requires investments in education, skills development, and digital infrastructure. Addressing these, will not only drive Nigeria’s economic growth but also contribute to the prosperity of the entire continent. As Shettima aptly stated, “If Nigeria works, Africa works.”
Mary Vilakazi, Chief Executive Officer-designate of FirstRand Ltd, concurs with the importance of structure and reforms within the continent. “There are a lot of structural reforms that have been necessary for a while that have not received enough attention. Now, one can say they are getting the attention they deserve. You look at some of the structural reforms that are underway in South Africa. We are one of the most industrialized countries on the continent, but we know the impact of not having energy and what that has done to our economy.”
Leveraging the potential of frictionless African trade in 2024
“One way to lift the growth of any economy is to relieve trade,” Vilakazi rightly commented on the potential of frictionless African trade. This year, the AfCFTA aims to accelerate implementation. 31 countries will be participating in the guided trade initiatives, applying the rules of the AfCFTA for trade. Mene further highlighted that this year, the intensified effort will be on the services sector – sectors like tourism, and banking- within the framework of the guided training initiative and its enabling tools. One is the enabling tools intended to accelerate the AfCFTA is the pan-African payments and settlements system, a system launched by the African Export-Import Bank (Afreximbank) and the AfCFTA Secretariat to enable businesses and individuals in Africa to make and receive payments in their local currencies across the continent. “If you are in Ghana and you want to buy from Kenya, you have to buy a third currency. That cost of currency convertibility has constrained growth in Africa,” commented Mene.
The second tool is digital trade. According to Mene, “It will further enhance the competitiveness of African trade. As we all know Africa has an advantage with digital innovation. The protocol will harness that potential and provide that regulatory framework to enable Africa’s digital economy to continue to power ahead.” Mene further stated that the ministers of trade across the continent will complete the protocol on digital trade soon. “So far we have learned that the private sector is ready to take advantage of the AFCTA. Governments have to move faster,’ he said.
Vilakazi sees plenty of reasons for optimism about the next decade. “There is a lot that one can look at and be encouraged as to what the next ten years would be,” she noted. While referring to an incident that happened in 2000, when the global magazine The Economist had a map of Africa on the front cover with the inscription The hopeless continent (although they have tried to redeem themselves since then ), Mene said, “What they projected is completely different from what every African believes. And that is the enormous potential that Africa has.”