African Trade Gets Further Boost With Free Trade Agreement

African trade has been a key part of many investor conversations for a few decades now. I’ve been aware for some time of the huge disparity between retained and exported profits across sub Saharan Africa, which is why through the initiatives supported by the The Caban Group I hope in time to even those out in favour of local producers.

And I’m delighted this ambition has now been made easier by the new AfCFTA Trade treaty.

It has a very real potential for securing resilient and robust increased growth, better infrastructure and logistics and more opportunities across the Continent. From a South African venture Capital perspective there will be significant upsides to the opportunities this will bring.

I for one will certainly be supporting its commendable work and objectives.

Adding to the recent news from the World Bank that Foreign Direct Investment into Africa Increased by 11% this past year and that the US is increasing its investment into the African continent to counter similar strategies from Beijing, it was announced that the African Trade agreement will be one of the biggest and most impactful globally

Some of the numbers around this agreement

Continental Free Trade Agreement (AfCFTA) is about to eliminate up to 90% of internal tarrifs in sub Saharan Africa. This is by no means a small thing when you bear in mind many of Africa’s smaller countries are entirely landlocked. Both for them and the Continent as a whole, the imminent and wholesale removal of tarrifs is a matter of truly historic significance. And that’s not all…

AfCFTA, now the biggest Free trade Area on the Planet, will also create major new economies of scale. The signatory countries together command a combined GDP of $2.5 Trillion and an aggregate population of more than a billion, most of them are less than 25 years old and anyone with teenage children will need no persuasion of the terrifying consumer potential of a listless adolescent with a smart phone and a credit card. Bringing that scale of demand together in a single unified trading block brings unprecedented opportunities for growth.

Even the normally curmudgeonly IMF have broken cover in Washington and predicted the new Trade Treaty is likely to increase aggregate GDP across sub Saharan Africa by up to 4% next year. That’s nearly four times the United Kingdom’s projected growth over the same period, with or without welsh lamb on the menu…

A connected Africa will have significant global trade leverage and is certain to have employment benefits for the continent.

Bear in mind too that over recent years a mere 15% of goods and services produced in Africa have been consumed in other African states: a whopping 85% of it is sent abroad as is the lion’s share of divided yields and profits from the subsidiaries of scores of foreign companies dotted over the continent. No other market worldwide suffers from that level of encroachment and the problem is most indigenous African companies are too small to compete head to head with the multinationals and unlike the multinationals they suffer disproportionately from the historic limitations of Africa’s infrastructure. For example, not all railway gauges across the Continent are the same so it’s often necessary to unload and re-load goods in transit when they arrive at internal borders, an added delay and expense that can make the difference between surviving and shutting up shop for a small business.

Infrastructure barriers and blockages of this kind means it costs as much to send a box of spanners from Nairobi to Accra as it does to fly engine parts from Moscow to New York.

This too will now be addressed by AfCFTA: the Treaty will align regulatory and logistical systems so as to make intra territorial trade more efficient (and cheaper). Even the grouchy old IMF is predicting inter African commerce will increase as a result by as much as a third and the beneficiaries of that will be the African business who have lost out historically so keeping more of Africa’s wealth in Africa.

,The Caban Group has compiled a significant infrastructure of service providers who support entrepreneurs with access to business finance, support with restructuring, access to grant funding and support in improving cashflow challenges. Our ,Corporate finance team in the UK supports the South African head office to ensure you have the best possible chance of securing the support your business requires. Contact the team at Caban through the contact form on the website or by emailing Info @ Caban.co.za