Despite the effect of the Covid-19 pandemic, the African Continental Free-Trade Area (AfCFTA) has been ratified by 37 AU member states after seven months of the agreement’s commercial use.
AfCFTA is a key component of the AU’s Agenda 2063, which aims to boost the continent’s socioeconomic growth. It would do so by accelerating the industrialisation of Africa, integrating regional markets, stimulating growth and supporting the welfare of its people. Underpinning that is the role of faster, easier, more economically viable trade and trade networks.
After the World Trade Organization, AfCFTA is the world’s largest trade agreement, with 54 signatories. This holds great promise, not only for the continent but for the automotive sector. This optimistic outlook is informed by my experience in helping broker the Tshwane Automotive Special Economic Zone (Tasez), Africa’s first facility of its kind.
The Tasez is designed to maximise the R15.8bn investment in Ford’s SA operations that would boost its annual vehicle output to 200,000 vehicles as the base to supply chain development. It also supports the inception of a high-capacity rail freight corridor between Tshwane and Gqeberha, and significant infrastructure upgrades at the port of Gqeberha, increasing SA’s export capacity.
Strategic components of the Tasez suggest the AfCFTA holds great potential. Regarding economies of scale, our modelling shows that for every job at an original equipment manufacturer (OEM) such as Ford, eight to 12 jobs are created in the value-chain operations supporting the OEMs.
In terms of social development, woven into the Tasez DNA is the development of a middle-class, specifically in the areas of Mamelodi, Eersterust and Nellmapius. We see how access to sustained livelihoods and dignity enables thousands to move from an income of necessity to an income of sustainability, and how that benefits those working not only in the automotive supply chain but all economic activity in the area, from filling-stations to shopping centres.
Tariff-free exports
The relevance of this to the rest of Africa is clear. In its full iteration, the AfCFTA has the potential to unlock the establishment of automotive hubs, for example, located in East and West Africa, with supply chain localisation operations in neighbouring states. This hub-and-spoke configuration would enable diversified operations: upholstery, wheel assembly, sheet-metal and stamping components.
An OEM could be established in a West African country under the auspices of a regional economic community such as the Economic Community of West African States, with supply chain operations in the 15 member states. This complementary partnership between assembly country and component-manufacturing countries would ensure tariff-free exports of fully built vehicles throughout the region. This further fosters economies of scale and contributes to regional economic growth.
What is needed for this to take effect? There are challenges to overcome: states need to agree on rules of origin to enable the eventual duty-free trade within the AfCFTA. While African countries advocate a 10- to 15-year duty-free phase-down, countries interested in participating within the automotive sector should be permitted to exercise a five-year duty phase-down period.
An infrastructure deficit in some countries presents investment opportunities that would in itself deliver an economic boost to the continent. Just how much potential could that unlock? UN Economic Commission for Africa forecasts indicate that just 18% of Africa’s overall GDP is from intra-African trade, compared with the 68% of EU trade that takes place within the union, and the 58% in the Association of Southeast Asian Nations.
Investment stimulus
Doubling intra-African trade still presents trade levels below that of intracontinental trade elsewhere in the world. With a 2% share in international trade, Africa’s potential for growth is vast. That potential is important in the context of the socioeconomic impact of Covid-19. African states lack the muscle to launch fiscal stimulus as other more developed states have done.
AfCFTA presents as the best investment stimulus by creating an integrated market for goods and services and the free movement of people and capital. Recently the World Bank warned that Covid-19 could reverse a decade of economic progress for young people in Sub-Saharan Africa, with setbacks in progress on indicators such as literacy, employment, poverty and gender parity. Entrepreneurship among young people that is regularly cited as a driver of economic growth in Africa has been dealt a hammer blow by Covid-19.
In our work with the AU and the AfCFTA secretariat, we see a deep desire to deliver its full potential. With strong intergovernmental partnerships and an enabling legislative environment that allows ease of business, Africa can compensate for those setbacks and chart a course for sustained economic growth, driven by industrialisation and trade. We can leverage economies of scale, volume and improved skill sets to facilitate Africa as an automotive powerhouse.
• Vanmali is executive sales operations director for Ford Motor Company of Southern Africa.
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