Cross border trade and the African entrepreneur
Currently, Africa accounts for just 2% of global trade. And only 17% of African exports are intra-continental, compared with 59% for Asia and 68% for Europe.
Most African countries, and this includes entrepreneurs, need to look beyond their domestic markets to grow their businesses and economies. Trading with neighbours should present some of the best prospects for economic growth, given the advantages of proximity. Yet African countries currently trade more with the outside world than with each other. In fact, Africa’s intraregional borders rank as some of the most restrictive globally when measured by the cost of cross-border trade. Those costs typically stem from burdensome regulatory procedures and poor infrastructure, transport, and logistics. Reducing them would spur the flows of goods, services, capital, and people that are so vital for development.
Inclusive intra-African trade is a prerequisite to accelerate structural transformation and sustainable development in Africa. The AfCFTA can help Africa diversify the Financial Direct Investment (FDI) it attracts beyond natural resources, reducing its vulnerability to a commodities-driven boom and bust. This diversifying beyond natural resources can open FDI for small organisations. The AfCFTA could lure more export-oriented efficiency-seeking FDI into new sectors of trade in goods and services. By unifying the African market, the first phase of the AfCFTA should attract increased investment from outside the region. As AfCFTA increases the size of the market that foreign investors can access by locating in an African country. It may also increase the attractiveness of Africa for efficiency-seeking external investors by facilitating access to inputs from throughout the African region. The provision of services in most cases requires proximity to consumers through domestic market–seeking investment and this type of FDI may also increase.
For the AfCFTA to become a game changer for SMEs and MSMEs, opportunities for markets and value chain integration must be identified. A deeper understanding of the AfCFTA instruments, rules and regulations will be critical, especially rules of origin and trade facilitation, certification requirements, services regulations, licensing and certification of service suppliers and modalities of liberalisation of trade in goods and services. Important tools for SMEs and MSMEs to prospect regional and continental markets will be participation of trade fairs, trade exhibitions and conferences.