Africa is on track to return to its GDP surge recorded in the earlier part of the millennium as the continents’ leaders move with speed to open up regional and global markets.
According to a new report written by The Economist intelligence unit titled “Promise and perils: Scaling up businesses in Sub-Saharan Africa”, the ambitious African Continental Free Trade Area (AfCFTA) agreement could be the catalyst for growth and structural transformation across the continent.
With about 1.2-billion people on the continent, the AfCFTA is set to create one of the largest free-trade markets in the world.
The authors of the report highlight that for companies to truly scale, the continent’s fragmented regulatory landscape needs to be tackled — including cross-border trade rules, nontariff barriers, customs processes and commercial bureaucracy.
More than half of the countries in Sub-Saharan Africa rank in the bottom 70 (out of 190 countries) in the World Bank’s 2019 Doing Business report. While the World Bank study ranks SA 84 out of 190 economies in the world in terms of the ease of doing business, marginally down from 82 in 2018, it highlights that the country has made strides in implementing reforms to promote business activity.
President Cyril Ramaphosa, who has been on a drive to attract investment and boost economic growth, has set his sights on improving SA’s ranking to the top 50. The president has made reducing red tape one of his main priorities. Red tape has been blamed for impeding the competitiveness of businesses and hampering economic growth.
The Economist intelligence unit examines the factors enabling businesses in the region to scale up. It reviews the policy environment, state of technology and infrastructure, and financing options that allow businesses to access markets in other countries on the continent and beyond.
The authors of the report highlight that policy improvements, including trade and customs unions, financial harmonisation, and transport integration, are helping companies build regional footprints.
“Regional integration policies are helping to provide greater access to other markets and improve the operational environment ... the long-standing dream of a ‘United States of Africa’ could benefit all citizens as they are able to trade more with each other (bearing in mind the challenges of a political union),” the report states.
Across the continent, seven regional economic communities and the AU itself, are leading the push for integration.
According to the report, the East African Community (EAC) has progressed furthest and fastest, implementing a free-trade area, customs union and single market, increasing exports from members.
The EAC allows the free movement of labour for citizens across three of its five member states, with plans for a regional electronic passport. The East African tourist visa, launched in 2014, allows visitors to the region’s safaris, beaches and hotels to move freely between Rwanda, Uganda and Kenya.
Two other blocs in the southern and eastern parts of Africa also have free-trade area agreements, and have agreed to create a single enlarged market through a tripartite free trade area, the report highlights.
Trade harmonisation must emphasise non-tariff barriers too.
The authors of the report note the proposals from the West Africa monetary zone to create a common currency, the Eco, by 2020 saying it could improve monetary stability and eliminate exchange-rate volatility, a concern that executives have raised.
Streamlining payment systems is yet another approach. The most successful example comes from the Southern African Development Community (Sadc), where the integrated regional electronic settlement system settles transactions for 82 participating banks in 14 countries. Furthermore, by supporting the growth of the fintech industry, businesses can deliver solutions to address payments challenges, the report states.
Data show that cutting trade costs would make a difference to growth in the region. Eliminating import duties between African countries alone would increase regional trade by a third, according to UN Conference on Trade and Development.
Melanie Noronha, editor of the report, said: “Africa’s growth recovery offers hope the continent can return to its GDP surge in the earlier part of the millennium — but only if its businesses can scale within and across borders. Setting up the environment to enable businesses to scale up is no easy feat but done right, it can create a launch pad for the world’s next global company”.
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