Roadmap for more growth
Plans are for a massive free-trade zone in Africa are underway. Africa expert Heiko Schwiderowski explains what this means for German companies and how far the plans have progressed, writes deutschland.de.
Mr Schwiderowski, the major “African Continental Free Trade Area” project could soon become a reality. What’s the current status?
After 17 years of intense preparations, in early July 2019 the African Continental Free Trade Area (or ACFTA for short) got underway. It regulates setting up an African free trade zone on the basis of which a single internal African market will be created. A total of 54 countries have signed the treaty, and only Eritrea refused to attach its signature to the document. Almost 30 countries have since then ratified the treaty at the national level. With a market of some 1.2 billion people it would be the largest free trade zone world-wide. Now the agreements need to be implemented.
Why is the initiative so important and what potential does the free trade area offer African countries?
At present, trade between the African countries amounts to a mere 16 percent of their total trade. By comparison, in Europe intra-continental trade accounts for about 69 percent of all trade. So there’s a lot of room for improvement. Whether the countries are successful in tapping this potential will depend on how quickly the treaty is implemented by all the signatories and whether it covers all sectors in the field of commerce and the service industry.
What opportunities and potentials does the ACFTA offer trading partners in Germany?
According to World Business Outlook, an international survey conducted by the German Chambers of Commerce abroad (AHKs) in November 2019 of 3,700 German corporations, 58 percent of the companies expect better business on the African continent in the coming 12 months. This strong percentage is well above average and points to the high potential African markets offer German firms. Nor should one underestimate the symbolic importance of the agreement on the free trade area: From the viewpoint of German companies, the prospects of a single market strengthens hopes of more competitive African economies, for example thanks to stronger African direct investments or a better cross-border division of labour.
What obstacles still need to be overcome?
The German Chambers of Commerce in Africa tells us that experiences in regional integration have hitherto been anything other than encouraging. Take East Africa as an example: A German company based in Nairobi still requires a great deal of effort to make deliveries to business partners in Tanzania or Uganda – even though the East African Community has now existed for 20 years and woos investments as a unified market. A good example, by contrast, would be Southern Africa: There Namibia has successfully established itself as the gateway for goods deliveries to the entire region – with a modern and powerful transportation system and swift processing at the border checkpoints with its neighbours, for example South Africa. German corporations benefit from this, too.
Alongside the tariffs that will exist as part of the ACFTA, from a business angle the emphasis must be on improving the cross-border infrastructure between the African countries: Exemption from customs duties and other non-tariff trade obstacles do not help much if trade in the cross-border segment has to rely on poor transportation routes. There’s a lot still to be done in most African countries in this respect.