Trading has already commenced under the AfCFTA, with Ghana taking the lead. Trading began on the 1st of January 2021, with two Ghanaian companies exporting their products within Africa under the AfCFTA framework. So companies that have been waiting for AfCFTA to take effect can now take advantage.
There are two critical criteria or conditions at the moment for companies to export under AfCFTA, and that is:
The rules of origin (products must be wholly produced in Africa, significantly transformed within Africa, or value-added up to 30 – 60% more in value within Africa.) So companies wishing to export under the AfCFTA framework have to ensure the products meet the rules of origin and get a certificate.
Liberalized tariffs. Liberalizing tariffs will be a gradual process, with 90% of goods traded across Africa going down to zero. That means no paying of duties for exports and imports across the AfCFTA party states. Most countries that have signed on to AfCFTA have agreed on a gradual progression towards the zero percent tariffs. Some will take five years, and some will take ten years, but what is in place are preferential tariffs within some of the party states. Companies have the opportunity to look these up with the AfCFTA secretariat or the AfCFTA desks within their respective Ministries of Trade and Industry or State Departments of Trade.
When we speak of Trade, we have two aspects. Services and Trade in products.
Trading in services is as simple as going online, finding out requirements to open up a business entity in a party state, and going ahead with it. It is also possible to engage an advisory firm to help you get registered, go in and commence Business. Another option would be to partner with a company offering similar or complementary services in either country and come to a revenue share agreement taking advantage of opportunities in both countries.
An exciting area of opportunity in services is Digital solutions – payments, e-commerce, data, and cyber security.
These are services that can expand into new markets with minimal physical investment. Estimates show that Africa loses close to 30 Billion USD in Intra-Africa transaction cost. Such as exchange losses changing the Ghana cedi to the dollar before changing it back to Kenya/Uganda or Tanzanian shillings. Innovative solutions to cut back these transaction costs stand to profit highly from AfCFTA.
The AfCFTA secretariat is also working on a Pan African Payments and Settlements platform, an opportunity to partner collaborate or plugin. Other services projected to do well include healthcare, insurance, and finance. SMEs will be looking for affordable financing. Thus financial institutions have an opportunity to step in.
A distinct area of potential lies when it comes to trading in products is logistics. Though there are still some regulatory steps, the Africa Standards Organisation is on the verge of harmonizing standards across Africa. Eventually, there will only be one standards certificate needed to acquire, and your product can land anywhere within the AfCFTA party states.
The sooner SMEs distribute their products into other African countries, the better placed they will be.
We have already seen a rush by manufacturers outside Africa coming to set up in Africa so that their goods will meet the Rules of Origin criteria to Trade under AfCFTA. Volkswagen and Toyota have already set up assembly plants in Ghana. They are bolstering the automotive Trade by having some of the 13,000 parts that make up their vehicles manufactured in Ghana. Herein lies an opportunity for an African SME to set up a manufacturing plant in an African country of choice and begin value-adding available raw materials. Once tariff liberalization takes full effect, such SMEs will benefit from a first-mover advantage.
One great way of taking advantage of these opportunities would be to use the collective power of business membership organizations and Entrepreneurship support organizations such as GrowthAfrica. I watched an interview where the Canada – Africa Chamber of Commerce had signed an agreement with the AfCFTA secretariat to educate its members on benefits coming up from AfCFTA. African SMEs must leverage such organizations and associations to keep updated on developments that present opportunities within the AfCFTA.
There is a wealth of information available from the AfCFTA Secretariat, respective Ministries of Trade, and High commissions. Both offline and online. According to the World Bank, SMEs account for around 90% of businesses and over 50% of employment globally. AfCFTA presents a phenomenal opportunity for African SMEs; we are just scratching the surface.
Leah is an SME Growth Advisor – GrowthAfrica and Co-Founder of the Kenya Trade Expo Ghana