African Continental Free Trade Area: enabling trade facilitation through liberalization of transport & logistics services

Trading under the AfCFTA has begun on January 1st, 2021, with the goal of gradual reduction to zero of tariffs on a range of products. Progressive liberalization will affect all services sectors, starting with business, communication, financial, tourism and transport. What are the operational mechanisms for boosting intra-African trade, and what challenges need to be overcome on the way to Africa’s transport and logistics growth?

Composed of a framework agreement and three Protocols (on goods, services, and dispute settlement), the AfCFTA seeks to expand intra-African trade. To Africa’s economy and businesses across the continent, the AfCFTA is considered a catalyst for growth: it aims to create a market environment that promotes certainty, predictability, and transparency, and that leads to reduced trade and transaction costs.

Africa’s market of 1.2 billion people and $2.6 trillion in GDP is expected to grow to as much as $16 trillion GDP and 2.75 billion people by 2060. This market is becoming steadily middle class, young, increasingly educated and will by 2050 account for more than a quarter of the world’s working population.

Inadequate transport infrastructure hampers trade

However, intra-African trade has largely been constrained by the state of transport infrastructure across the continent. Roads are the main mode of transport in Africa, carrying at least 80% of goods and 90% of passengers. And yet, 53% of the roads are unpaved, isolating people from basic education, health services, transport corridors, trade hubs and economic opportunities.

Another issue is air transport in Africa, which remains expensive by international standards. This is mainly because of lower passenger traffic, limited liberalization of air space (despite the launch of the Single African Air Transport Market SAATM), high passenger and airport taxes, safety issues, and limited infrastructure (airports, runways, and safety systems). African airlines have also lagged in terms of technological upgrades, notably surveillance equipment and fleet modernization.

On a similar note, the African continent has a sixth of the world’s population but accounts for only 4% of global containerized shipping volumes. This is due to insufficient port capacity - Africa operates 64 ports, many of which are poorly equipped and uneconomically operated. Delays are often caused by long processing times and poor shipment handling rates. Handling costs on average 50% more in Africa than in other parts of the world. Thirteen African countries have no operational rail networks, and only a few countries in Southern and Northern Africa have an adequate density of operational rail ranges.

Boosting intra-African trade by boosting investments in transport services

This is the starting point from which Africa seeks to trade with itself. As enormous as these challenges appear, on a closer look, they present significant opportunities for investment. They can lead to improvements in port security, streamlined cargo handling procedures, implementation of one-stop border posts, development of inland container depots and improved intermodal handling throughout Africa’s corridor networks.  

This infrastructure is urgently required to unlock Africa’s trade potential under the AfCFTA. So, it is very helpful that transport and logistics are being negotiated in the current round of services negotiations. Specific commitments in transport services undertaken by State Parties would go a long way to address infrastructure bottlenecks among African countries. 

Industrialization and development of regional value chains (RVCs) are truly the core focus of the AfCFTA. The opportunities provided by the agreement for increased trade in manufactures and agri-business means growth in economic activities and in job creation, through rising trade in services associated with such industrialization.

The majority of the African private sector is small and medium-sized enterprises (SMEs), but where do they fit into continental value chains? What are their specific needs, in terms of access to finance, access to knowledge, and access to the necessary infrastructure to help their businesses? Certainly, transport and logistics services are crucial parts of any RVC, and in this way, these services provide an important means for facilitating trade. For instance, increasing investments in vital infrastructure will help African entrepreneurs, who trade in agricultural and food products and medicines requiring cold chain, storage, and long-distance transportation, to access the markets of their trading partners on the continent.

The liberalization of transport and logistics services as a trade-facilitating tool presents a game-changer for Africa’s trade. If the opportunities for investment in such critical infrastructure can be captured, the continent will be transformed beyond expectations.

Disclaimer: This article was written by an external expert contributor to CEVA Insights. The perspectives and ideas are the contributor's and do not necessarily reflect the views of CEVA Logistics. The views and opinions contained in this article belong solely to the author and do not necessarily represent the view and opinions of the Secretariat of the African Continental Free Trade Area.