trade economy

AfCFTA: African firms to access 1.2bn markets

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Posted on November 9, 2018

The need for all African nations to come onboard to sign and ratify the African Continental Free Trade Agreement (AfCFTA) was reiterated on Thursday as the African Export-Import Bank (Afreximbank) said the deal would allow African firms access into over 1.2 billion strong markets and a growing middle class available within the continent.

Out of 55 countries in Africa, only 44 has signed with Nigeria, Zambia and eight others among the reluctant nations.

The Director & Global Head, Communications and Events Management, Afreximbank, Mr Obi Emekekwue who made the disclosure in Casablanca, Morocco on Thursday at the ongoing annual Structured Trade Finance Seminar and Workshops said the Agreement also comes with cost advantages and a robust chance to benefit from economies of scale. According to him, expanding markets offer important opportunities to develop regional value chains that can enhance diversification and competitiveness and consolidate and integrate production infrastructure and processes across borders.

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He said: “Constrained access to markets limits the growth of firms. Therefore, for domestic firms, getting rid of local market constraints may improve growth prospects and access to finance and technology in the global economy.

“There are, however, notable challenges. If large firms gain a dominant position in the African market, they may crowd out small and medium-size firms. This suggests a need for complementary policies, including consumer protection and competition policies, to ensure a smooth transition.

“Full implementation of the AfCFTA would require the diverse countries in Africa to create shared institutions to provide public functions. There are clear economies of scale advantages in spreading these costs across the AfCFTA area”.

Emekekwue added that higher heterogeneity and political costs can be expected as a result of countries’ diverse cultural, political and economic arrangements, especially if some countries’ preferences for public goods and policies are incompatible with the preferences of other countries or sub-regions on the continent. “Heterogeneity can also be source of value in the AfCFTA area if differences across the continent stimulate economic agents to specialise in the production of different rival goods and services, whiles simultaneously learning from each other. And when there is little heterogeneity, conflict may arise because interest groups may have similar preferences for particular rival goods.

“To reap the enormous potential benefits of the AfCFTA, it is necessary that all African countries join. The sooner that the remaining nations join the AfCFTA, the sooner all countries will be able to realise these benefits”, he stated.

He also said the deal is also tied to the Boosting Intra-African Trade (BIAT) action plan, which forms part of broader initiatives under the African Union’s Agenda 2063.

“All these fall within the limited scope of intra-African trade, which at 15 percent compares unfavourably with Europe (67 percent), Asia (58 percent), North America (48 percent) and Latin America (20 percent).

“Intra-African trade and industrialisation are crucial to the prosperity and inclusiveness agenda articulated under the African Union’s Agenda 2063 development strategy and moving away from commodity and natural resource dependence is an indicator of success and transformation under the AU Plan.

“It is also in line with Afreximbank’s Fifth Strategic Plan which emphasizes the promotion of intra-African trade as well as industrialisation and export development”, he added.

Emekekwue said it is important African nations have a good understanding the extent of vulnerability and in designing the appropriate policy for promoting value addition and export diversification.

“The removal of tariffs and trade barriers to free up trade and deepen intra-African trade and regional integration is an important tenet of the AfCFTA”, he said


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