SMEs expanding under the AFCFTA

The Ghanaian business environment is dominated by Small and Medium-Sized Enterprises (SMEs) representing 85% of businesses and contributing 70% of Ghana’s Gross Domestic Product (GDP) according to the Association of Ghana Industries (AGI). However, this very important business segment continues to face a myriad of challenges including access to finance.


 It’s a busy day at the GIDDINS shoe factory, a machine whirls softly as it knits clean stiches in a beautiful pair of brown sandals. The small factory is quite new, recently acquired by the owner Gideon Denzo as a step to expanding his business and increasing production in anticipation of capturing new markets through the African Continental Free Trade Area (AfCFTA) agreement. Gideon’s excitement mimics that of a colony of other small-scale local businesses hopeful of a bigger market with the implementation of the AfCFTA.

News of the implementation of the Free Trade Agreement has dominated the headlines for several months now for all the good reasons. Aside it being touted as the world’s largest trade bloc by number of participating countries, the AfCFTA holds huge prospects for lifting 30 million people out of extreme poverty.  Even more stirring is that, the pact will connect 1.3 billion people across 55 African countries with a market size of $3 trillion- significantly boosting intra Africa Trade, and that’s the part that intrigues Gideon and other small local businesses that form the chunk of African economies.

These Small and Medium scale Enterprises (SMEs) according to the World bank represent about 90 percent of businesses worldwide and in Africa creates around 80 percent of the region’s employment, while fueling demand for goods and services. The sectors expansion when it comes to trade has however been stifled by numerous constraints including tariff and non-tariff barriers that hinder their growth into newer markets and in some cases increase the prices of their inputs. But with a Free Trade Agreement of such magnitude as the AfCFTA, SMEs like GIDDINS may now look forward to more easy access to external markets.

Benefits for SMEs

With the elimination of up to 90 percent of tariff lines and non-tariff barriers under the AfCFTA, SMEs belonging to member states can now produce and sell in other markets aside their home countries much easily. This access will mean an increase in sales and hence improved profitability. In fact, the World Bank puts it that, the AfCFTA will see intra Africa export to some member states including Ghana rise exponentially, with exports doubling or tripling with the full implementation of the pact.

Other than an increase in intra-Africa exports, Local SMEs could stand a chance of venturing into markets beyond Africa. This owes to the fact that the AfCFTA would make room for better trade deals and negotiations with other trade blocs and countries.  Quoting analysis from previous examples, when the Free Trade Agreement (FTA) between Colombia, Peru and the European Union (EU) entered into force, preferential conditions in that market were equaled for Mexico and Chile (that already had an FTA with the EU). Similarly, as the AfCFTA begins to negotiate new deals with developing countries and trade blocs, whatever benefits and preferential gains that will be arrived at, will accrue to our local SMEs due to Ghana’s affiliation with the AfCFTA.

Of other issues bedeviling the local SMEs and their participation in international trade, the lack of harmonized rules was also identified as one that kills the interest of many. “When I try to send my shoes to neighboring Togo or Nigeria, its often less cumbersome but when you go further east or even to the central parts like Congo, the rule changes so I’m unable to send my stuff there” lamented Gideon.  But luckily for these SMEs, the nature of the AfCFTA is such that, all rules regarding trade among member states will be harmonized across board. This will guarantee the SMEs some predictability and comfort with regards to trade laws to enable proper planning for growth and expansion.

Meanwhile, as the various clauses under the Free Trade pact such as the rules of origin and rules regarding investments etc. continue to be fine-tuned and implemented, other benefits such as a reduction in the cost of inputs, skill sharing and technology transfers will be part of gains made by local SMEs within Ghana and other member states.


The GIPC’s role in helping SMEs scale up

Generally speaking, it has been proven that SMEs that scale up to export to other countries have obtained more benefits from the implementation of Free Trade Agreements than other sectors engaging in trade. As such it is imperative that local and small-scale businesses prepare while government provides the necessary policy support to harness the full benefits of this African Continental Free Trade Area agreement.

For this purpose, the Ghana Investment Promotion Center as the lead Investment Promotion body in the country will play diverse roles in equipping SMEs to become more competitive in the continent-wide market. The Centre’s hands-on efforts will include the sensitization of SMEs through conferences and webinar sessions, Business to Business pairings, exposing the SMEs to Investors as well as assisting SMEs and entrepreneurs to identify viable and worthwhile investment opportunities.

“As an Investment Promotion Agency, we are looking at how to get foreign investors to partner our local businesses to enable them scale up and improve their productivity so that they can take advantage of the wider market under the AfCFTA” said the CEO of the Ghana Investment Promotion Center.

Other government agencies such as the Ministry of Trade, the Ghana Export Promotion Authority and the National Board for Small Scale Industries will be playing diverse roles in terms of financing and sensitization of local businesses and SMEs to empower them to participate effectively in the continent’s liberalized market.

There’s no denying the liberalization of Trade across the continent will transform the local business and SME landscape in many favourable ways. However, trade analysts are quick to point out that completely harnessing the benefits of the agreement will take a dint of hard work and effective collaboration among member states to efficiently implement the AfCFTA.

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