What does the African Continental Free Trade Area mean for African SMEs?

The African Continental Free Trade Area (AfCFTA) represents a significant step forward from previous regional agreements in Africa. But how will it translate into local economic realities? What are some of its impacts on local entrepreneurship and intra-African trade? A testimony by Noël N’guessan, the CTO of LONO, a hardware AgTech startup based in Côte d’Ivoire, West Africa.

Free movement of people and goods: building on existing arrangements

Over the years, I witnessed how costly it is to move raw materials and finished goods by road across the national boundaries in West Africa, and that even for low-value goods. Prior to the price changes caused by the COVID-19 restrictions and their aftermath, the cost of shipping from Rotterdam to the harbor of Abidjan was less than the cost of moving the same container from Abidjan to neighboring Burkina Faso. And that is only one part of the picture because moving goods across borders is as much a financial transaction as an administrative procedure. The required paperwork is rarely obtainable without physically going to the different administrations involved. As a result, we would need a dedicated employee or outsource this administrative process to export our product regularly.

The case of Côte d’Ivoire is particularly interesting. As a regional power, the country is already part of a free trade zone called ECOWAS (Economic Community of West African States), where, in theory, people and goods can move freely. The ECOWAS is made up of fifteen member countries and aims at more integration between their citizens, for example, to fuel regional development through workers’ movement to dynamic economies. This strong economic integration of neighboring member countries, such as Mali and Burkina Faso, has not reduced the cost of logistics. This is because market forces of supply and demand are not transparently allowed to play out, and the unpredictable road quality and wait time at the border. It has, however, positively influenced the administrative burden; today, we can definitely see a clear difference in the administrative load for movement on these two routes.  

Our markets are small, with just a fraction of the population consuming high-value goods. Therefore, moving goods is a necessity as companies go through their growth stages. This is why harbors are at the center of the economies of most coastal countries in West Africa and why the quality of the road systems matters immensely.

Logistics companies drive the entire expansion of industrial production, and this expansion unlocks investment opportunities and an entire ecosystem of support services for the industries concerned. As a founder of a company selling AgTech hardware, I expect the AfCFTA will encourage the development of a platform where logistics service providers can make their prices available to promote transparency and reduce costs. In addition, waiting time at the borders also needs to be well monitored so that it can be minimized or fairly included in the cost of logistics.

AfCFTA: going the distance to reducing the burden on SMEs

Industrial SMEs are looking to reach higher value addition. Understandably, they want to consider new markets for their end products based on cost and competitiveness, without having to factor in the hardships of cross-border trade. For these companies, the AfCFTA represents a unique opportunity for growth. It will take time, but ultimately, the administrative burden will be a thing of the past to leave only the financial considerations.

From my vantage point, the AfCFTA is a dramatic extension of the existing ECOWAS advantages that we have in Côte d’Ivoire. For us, it is not a question of being able to move our goods without having import and export duties, because it is already a reality in the 15 ECOWAS member countries. However, other hard reality barriers exist, such as road quality, security, and political context. And that is where the AfCFTA will be a game-changer. In recent cases of closed borders (for example, between Benin and Nigeria and between Senegal and Guinea), we have seen that ECOWAS could only go so far and that a broader free trade area is necessary. The political will remains the principal obstacle as specific sectors are likely to remain guarded for national interests. Besides these strategic considerations, companies that provide innovative hardware solutions are going to have much easier access to regional and continental markets with a more predictable co-revenue model for scaling.

Weighing the potential and realities, it is my view that the AfCFTA is an undeniable step forward. It will, over time, completely change the way manufacturing companies can plan their growth strategy and estimate their market potential in Africa. Countries and sectors will probably not benefit from this development evenly, but overall, consumers are likely to be better served. And as we have learned from the COVID-19 pandemic, we need to manufacture essential goods closer in order to lessen our dependence on external factors.

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.