- Office 215, Block B, The Junction Business Hub, Calebasses, Mauritius
- +230 245 9773
AfCFTA – Making it easier to do business in Africa
It was 58 years in the making, and the African Continent Free Trade Area (AfCFTA) is now well positioned to create a truly common market for goods and services, the largest in the world in terms of number of participating countries. When the journey started in 1963 with the Organization for African Unity (OAU), the predecessor of the African Union (AU), little did the founding members know it will take more than half a century to achieve one of their objectives of having a tariff-free trade area.
The African continent was, at that time, at the dawn of a new era fuelled by optimism from the decolonization drive that had infectiously gripped the continent and a new sense of belief that Africans were masters of their own destiny. The OAU laid the foundations, but bringing together 55 countries, with different cultures, languages, and geo-political allegiances together was no easy feat. Europe took 41 years from the creation of the European Coal and Steel Community (ECSC) in 1951 to what subsequently became the European Union (EU) in 1992, a journey with fewer countries involved and a common history.
Current Reality
The combined GDP of the entire African continent is about $3.4 trillion (source: AfCFTA) and accounts for approximately 3% of the world’s GDP. This is disproportionate to the size of the continent, the natural resources available and the number of people living on the continent. The relatively low output of the continent is very much due to a lot of inherent factors such as:
- Market fragmentation
- Disconnect of regional markets
- Lack of industrial capacities
- Lack of production base
- Smallness of certain national economies
- Continued reliance on exports of primary commodities
The list can go on and other political factors are also to blame. All these subsequently lead to a very low rate of intra-Africa trade – 18% only per the latest report from AfCFTA. In addition, the continued reliance on primary commodities creates a lot of volatility to those African countries gifted with abundance of such resources, given the direct correlation between the prices of these commodities and the world economic health.
A Common Market
38 countries (including Mauritius) in the African continent have, to date, ratified the establishment of the AfCFTA through their local laws, meaning the governments of these countries have accepted all the legal obligations to:
- Reduce barriers to trade; and
- Reduce the barriers to African intra-investments.
The AfCFTA’s goal is to more than double the combined GDP of Africa to $8 Trillion by the year 2035. To achieve this lofty goal, the continent needs to accelerate industrial development and connectivity of regional value chains in order to move to value-added productions and trade specializations based on regions and countries. This should logically lead to an increase in intra-Africa trade, with value-added products and services available at the doorstep and significantly reduced importation from outside of Africa. Increase in intra-Africa trade will result in an increase in investments in various sectors, riding the wave of opportunities unlocked by the AfCFTA.
There will, of course, be challenges, especially where local African economies try to protect certain industries from competition from African countries. This is especially true for smaller African countries that will face increased competition from bigger and more advanced African countries. It is critical for the smaller economies to identify industries and sectors where they have a competitive advantage and re-allocate resources to those sectors. At the same time, inefficient sectors would need to be ditched or discouraged. All these will lead to local and regional incubation hubs on the continent.
The Mauritian Advantage
“Through its global business sector, Mauritius has firmly established itself as the gateway for channelling investments into Africa. The AfCFTA will further add to the attractiveness of Africa as the continent to do more business and bring in investments from other parts of the world. These can be channelled through Mauritius, which can play a leading role to make it easier for companies to do business in Africa whilst ensuring their investments are safe. The ease of doing business, investment protection guarantee, stable economic and political climate, connectivity, skilled workforce, presence of international banks and professional services firms, are just to name a few things that will be on top of many companies’ mind when they make the decision of which jurisdiction to use for structuring their investments.
The continent of the future
Africa is often portrayed as a continent of hope, promise and vast potential. For far too long we have failed to live up to the expectations, with very limited success in unlocking the inherent potentials. This is to a large extent due to the instability, inequality, injustice, and poverty prevalent on the continent. The AfCFTA provides a unique opportunity to get it right for the African continent, by bringing the whole continent together, as one single market and in so doing, lift 100 million people out of poverty. This should be a good enough reason for the governments of African countries to set aside their differences and work together to make the common market a reality. With a land mass bigger than India, China, the US and EU combined, a steadily growing population heading towards 2 billion, the future is bright, the future is Africa…..and the destiny of Mauritius is closely linked to this Africa strategy.
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- Office 215, Block B, The Junction Business Hub, Calebasses, Mauritius
- (230) 245-9773