Africa Is Open For Trade
Shared Value – the gateway to a better, more inclusive future
25 January 2021 – COVID-19 aside, the US and UK certainly monopolised the global stage last year, but 2021 promises to be different. For starters, it is Africa’s turn to shine, with the African Continental Free Trade Area (AfCFTA) ushering in a new era of trade relationships.
Indeed, the operationalisation of the trade pact on January 1 is a giant leap forward in the region’s much vaunted economic integration and, more specifically, in enabling trade as an engine of recovery and stability in the aftermath of COVID-19.
With only 10 years left to implement the 2030 Agenda for Sustainable Development, 2021 also signals the start of a decade of action that demands transformative economic, social and environmental solutions to deliver on the Sustainable Development Goals (SDGs).
Unlocking AfCFTA’s potential for all of Africa’s people, however, is not an overnight event and future payback depends largely on an inward-looking development agenda – one that must be devoted equally to sustainable and inclusive socio-economic development, as well as economic diversification.
By far the biggest opportunity for the continent as a whole is the ‘proudly African’ potential inherent in the more than 50% projected increase in intra-African trade. This upside, of course, is dependent on Africa’s ability to prioritise industrial development and reduce high trade dependence on non-African partners.
While there are some exceptions, African companies in general have not achieved economies of scale in manufacturing, as they have not benefited from the synergies with companies located in other countries in the region.
As a direct result, Africa has also not been able to position itself more strongly in the face of future global shocks. It is also severely constrained in its ability to handle the pandemic-induced human and socio-economic crisis.
Now is the time for African business to rise to the challenge to deliver the SDGs by 2030 and answer the rallying call to transform our world, not through isolated interventions but through cross-sector coordination and inter-regional collaboration.
More to the point, the AfCFTA presents Africa with a one-of-a-kind opportunity to re-invent itself and realise far bigger socio-economic gains, through the advancement of Continental Shared Value Chains and borderless economic value creation.
What exactly does this mean? With heightened uncertainty in global markets due to trade wars and the pandemic, regional value chains (RVCs) are gaining in favour over their global counterparts. RVCs not only provide developing countries with alternative routes to a global market, but also present a chance to diversify their export baskets through hyper-specialisation in fragmented production processes.
By integrating the principles of Shared Value into regional value chain thinking and embracing more market-based solutions to development challenges, Continental Shared Value Chains represent one of the most powerful ways regional economies can enable positive societal impact at scale.
The ultimate goal is to support the simultaneous creation of both intra- and inter-regional economic and societal value through reconceiving products and markets, redefining productivity in the value chain, and building supportive industry clusters.
In practical terms, this means that Creating Shared Value will help integrate poor and low-income communities into the leading companies’ value chains. In doing so, it will increase income levels, improve living standards and create a competitive value chain and long term economic value for all participants.
Shared Value thinking will also drive new relationships between key players in the supply value chain in addressing social issues. Already, leading businesses worldwide are accelerating their efforts to apply innovation to solve societal development challenges and de-risk their value chains from increasing limitations on resource use and carbon emissions.
By adding a shared value dimension to continental value chains, AfCFTA not only raises the bar for economic value creation but also leverages the inherent potential of Shared Value to identify new needs, open up new markets, and enable new value chain configurations.
As pointed out by Mark R. Kramer and Marc W. Pfitzer in their Harvard Business Review article on The Ecosystem of Shared Value: “Companies that pursue shared value and engage in collective-impact efforts recognise that their long-term profitability depends on a healthy society. They aim their strategies at achieving social outcomes that mesh with public priorities, such as the UN’s Sustainable Development Goals.”
Yes, the potential of AfCFTA – to reshape markets across the continent and broaden economic inclusion – is indeed enormous and the numbers bandied about are impressive. Even more so now, considering that pandemic-induced output losses in Africa last year are pegged at $79 billion, according to the World Bank.
In the final instance, however, expectations must be tempered with realism. Market integration is a process that started on 1 January 2021 and one that necessitates significant policy reforms and trade facilitation measures to be put in place.
Similarly, before either regional or continental value chains can be implemented, optimally designed regional policies, particularly around the ‘rules of origin’ for key product groups, must first be agreed and put in place – a process that will take time.
The road ahead will not be without obstacles and challenges, and no one makes light of the gigantic efforts that will be required to reduce trade costs and, simultaneously, create an efficient, continent-wide market.
For now, the only message to the world is that Africa is committed to a single, integrated market. As of 16 January, 35 of 55 countries have ratified the free trade agreement and 54 have signed the Free Trade Area agreement, which culminated in a commercially meaningful start of trading on January 1, 2021.
In the words of South Africa’s president Cyril Ramaphosa: “The African Continental Free Trade Area will fundamentally change the economic fortunes of our continent. I call on the entrepreneurs of our nation to seize the abundant opportunities that this historic development will present to explore new markets and build new partnerships.”