Africa’s Continental Free Trade Area: A Shared Value Accelerator?
As the main engine that will deliver AfCFTA’s economic dividend, perhaps it is time for African companies to reaffirm their purpose to serve the societies from which they derive revenue and address the Shared Value opportunities unwrapped by the free trade agreement.
By John Bee, until recently Nestle Regional Head, Regulatory and Scientific Affairs, Sub Saharan Africa
25 JANUARY 2021 – As the Africa Continental Free Trade Area (AfCFTA) opens for business this month, it signals considerable economic promise for a continent of 1.2 billion people with a GDP exceeding $2.5tn.
According to a World Bank report in July 2020, $ 450bn income will be added to continental economy by 2035, with growth ranging from 2% to 12-14% depending on member state. The report predicts total exports to increase by almost 29% by 2035; intracontinental exports by 81% and exports to non-African countries will rise by 19%. It states that 30 million people will be lifted from extreme poverty (1.5% of the continent’s population) and 68 million people from moderate poverty.
The Bank and others point out that it is not the reduction or removal of tariffs per se that will bring this about. Using AfCFTA to address the current burden of Non-Tariff Barriers (NTBs) and Technical Barriers to Trade (TBTs) will deliver the greatest benefit. NTBs and TBTs create administrative burdens today that result in delays in raw materials and finished goods transportation and attendant extra cost. One observer commented that currently, moving a container from Holland to Durban can cost 30% the price of moving the same container on to Harare. Further complications in the FMCG sector include many vertical product or material standards, together with complex product registration protocols, with little harmonization or mutual recognition in practice even at Regional Economic Community (REC) level. Other commentators have noted instances where national restrictions have made it easier or cheaper to go outside the continent for ingredient supplies – tariffs notwithstanding – even though the right quality and quantity of raw materials were available in neighbouring countries.
Most agree that it will take persistence and consistent commitment from the AfCFTA secretariat, the RECs and the member states to address these and many other challenges, so that the economic benefits of AfCFTA can be enjoyed across the continent within the shortest possible timeframe.
At the same time, other observers (for example the United Nations Economic Commission for Africa – – UNECA – in a 2017 report), are cautioning that insensitive liberalisation could provoke a race to the bottom, with scant regard for the rights and needs of the most vulnerable members of the societies who are meant to benefit from AfCFTA. These are challenges that are brought into relief as a result of the impact of COVID 19 on the continent’s health and economies.
With this in mind, does AfCFTA present a moment of opportunity for Africa’s private sector to consciously and systematically address the Shared Value opportunities that lay before it? As the main engine that will deliver AfCFTA’s economic dividend, is it time for the continent’s businesses to reaffirm their purpose to serve the societies from which they derive revenue?
The motivations to implement responsible business and Shared Value strategies are already there, both from within and beyond the continent. Because at the same time as Africa prepares to trade more intra-continentally, it cannot afford to neglect its traditional export markets.
Through the EU Green Deal and additional national measures underway or under discussion in France and Germany, future market access could be conditional on at least due diligence on key Environmental, Social and Governance (ESG) topics such as deforestation and child labour being undertaken. In this way, as Africa opens up to increase trade at continental level, markets beyond the continent may be demanding more of its companies in respect of their societal engagement.
Nestlé has been involved in providing solutions and is fully engaged in West Africa, with a specific focus on deforestation and child labour monitoring and remediation. We issued a comprehensive report on child labour at the end of 2019 and addressed one of the key factors, access to quality education, in 2020. On deforestation, apart from a comprehensive plan announced in 2019, in 2020 we committed to a programme of forest restoration in Côte d’Ivoire.
In addition to external impetus for companies operating in Africa to build Shared Value strategies, as with AfCTA, the greater opportunity will almost certainly come from within the continent, especially as it prepares to emerge from the COVID pandemic.
A common theme in COVID-related market research from UNECA in mid-2020 reveals that: “brands and companies demonstrating empathy to the communities they serve are thriving”. That is mirrored in other studies and the call to “build back better” has echoed around the world, not bypassing Africa.
The response from the private sector in Africa and beyond has been outstanding: Nestlé alone has provided COVID related donations at an unprecedented scale, worth in excess of $4.2m in Sub Saharan Africa to date.
But as we look forward to emerging from COVID (and the World Bank again states that AfCFTA can cushion negative effects of COVID-19 on economic growth, supporting regional trade and value chains by reducing trade costs), corporate largesse alone does not constitute a viable and longer-term Shared Value strategy that will create longer term societal benefit – and hence consumer, customer or constituent loyalty for the businesses who engage.
Those embarking on the Shared Value journey have first found it necessary identify the areas of focus where the needs of society most closely intersect with a business’s unique abilities to provide solutions and grow simultaneously. This is distinct from philanthropy, where the societal need and business focus are not necessarily related.
Because it makes business sense for the company and has greatest societal impact, Nestlé concentrates on delivering affordable nutrition in Africa, along with a series of global commitments to net zero carbon emissions by 2050. The organisation is committed to sourcing more raw materials from within the continent and has made a comprehensive commitment to employability and entrepreneurship opportunities for young people in Africa, as well as elsewhere in the world.
Zeroing in on this last area, to address the challenges and opportunities of Africa’s demographic dividend, Nestlé concentrates on kick-starting entrepreneurship and enhancing employability.
Working with a coalition of other leading companies across the continent, the Alliance for Youth brought access to employability of economic opportunity for 6,000 young people in Central and West Africa in 2020; with a further 11,000 scheduled to benefit in 2021. This complements a long standing programme for entrepreneurs – most of them young and at the base of the economic pyramid – called MYOWBU (short for My Own Business), which currently reaches more than 4,500.
Meanwhile, reliable supplies of quality raw materials for the company’s factories are enhanced through Youth Agripreneurship programmes, reaching 25,000 farmers and 50 SMEs in Cote d’Ivoire, Ghana and Nigeria; AGRA in partnership with IDH; while a partnership with the Alliance for a Green Revolution in Africa (AGRA) are adding a further 2,000 young farmers.
Nestlé is by no means the only company with a long-term societal strategy that leverages its core competencies at the point of congruence with societal needs. But it is possible that the confluence of AfCFTA with heightened consumer and constituent expectations of the private sector, as the continent emerges from the pandemic, bring with them a need and opportunity for Africa’s businesses to show the societies they serve that AfCFTA is a journey they are taking together.