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Supply chain analysis of AfCFTA

Punch -24 August 2022

Supply chain analysis of AfCFTA

Free trade is an economic and trade policy that removes restrictions and barriers to imports and exports. Creating free trade systems dates back to sixteenth-century Spain, but it wasn’t until 1860 that the first free trade agreement called the Cobden–Chevalier Treaty was signed between Britain and France. Over the years, free trade agreements have become one of the effective policies for driving international trade and developing emerging economies.

Two centuries after the first FTA was signed, many countries have signed either a bilateral, regional, or continental trade agreements with one another. In 2018, forty-four African nations signed the agreement establishing the African Continental Free Trade Area, which was launched in 2021 to facilitate trade in goods, services, and movement of the people.

Modelled after the European Union, the AfCFTA is an ambitious continental union that offers jobs and business opportunities throughout the entire supply chain, can reduce poverty, and improve consumers’ living standards.

Despite seeing its fastest growth in the last decade, African countries account for just 3% of global trade in goods and services. When you think about the tremendous resources on the continent, you’ll understand how hard this is to believe. Intra-African trade, which is around 13 per cent compared to approximately 60, 40, and 30 per cent of intra-regional trade achieved by Europe, North America, and ASEAN is also meagre.

Africa is a resource-rich continent. It has 40 per cent of the world’s gold and 90 per cent of its chromium and platinum. We have the world’s largest cobalt reserves, diamonds, platinum, and uranium. Africa holds 65 per cent of the world’s arable land and 10 per cent of the planet’s internal renewable fresh water source, agricultural products such as coffee, tea, and cocoa beans. That’s not all because I haven’t even mentioned petroleum or other rare metals.

With all these resources, imagine if Africa could increase its share of world trade from two to 10 per cent in the next 10 years and improve intra-African trade to about 25 per cent. That would be an incredible source of income for the continent. I believe this is part of what the AfCFTA hopes to achieve, but something is missing in the puzzle. It appears that stakeholders and advocates of free trade are looking at trade alone, leaving the supply chain management that underpins it, which would cause issues because trade alone does not move the needle. In trade, the supply chain is the executioner. Without it, trade is just a theory.

It will be hard to look into African trade without its supply chain. Many people have forgotten that Africa’s strength is trade. Our first interaction with the explorers was through trade, and the supply chain has always been in the DNA of African trade. Unfortunately, we never really look at it from that standpoint. The pyramids in Egypt didn’t just get there. The stones and all the logistical components that helped shape that masterpiece of architecture is all supply chain-related. Yet, everyone is so focused on trade today because of the AfCFTA that they have neglected the supply chain that makes it happen. For this reason, we must run a supply chain analysis of the African free trade agreement.

To make the AfCFTA work for the benefit of Africa and the global economy, we need to revamp the African supply chains that drive goods outside the continent to the supply chain that looks inward. An African supply chain that makes it difficult to move goods by water from Cameroon to Nigeria but easy to move goods from Cameroon to China and other countries is a threat to the regional integration plan.

The adoption and effective implementation of the continental trade agreement will create a regional value chain that would enable African countries to develop economies of scale using their comparative advantages to serve the over 1.4 billion people on the continent. But to achieve this goal, we must restructure the supply chain infrastructure. And how can we do that?

 source: Punch