Africa: How Can AfCFTA Grow Africa’s Manufacturing and the Resultant U.S.$560 Billion in Exports Earnings?

By Simon W. Nderitu

With the right policies and support, manufacturing can single-handedly transform the continent’s outlook in the shortest possible time.

The promises brought about by the African Continental Free Trade Area (AfCFTA) are immensely appetizing and very appealing. It’s not surprising, therefore, that most African countries quickly accented to the agreement within the first two years of its introduction. The agreement holds tangible benefits for the continent, but successful implementation is pegged on several factors, including political goodwill.

AfCFTA is the world’s largest free trade agreement, bringing together no less than 55 countries with a GDP valued at $3.4 trillion. There are 1.3 billion people in the continent whose lives will be directly or indirectly impacted by the agreement.

The singular focus of AfCFTA is reducing trading barriers amongst themselves and the larger global market. This is truly a noble approach to tackling some of Africa’s most pressing challenges, and the agenda holds great transformational potential for the continent.

The appealing part of AfCFTA is about the data, the potential and the impact it’s likely to have on the peoples of Africa. The hard work, however, is translating these ideas into practical solutions with real, direct and indirect impact on the continent and its people. Manufacturing is undoubtedly among the foremost beneficiaries. Let’s explore the place of manufacturing in the AfCFTA puzzle.

The place of Manufacturing in the AfCFTA Dream

Whereas all sectors of the African economy will feel the effects of AFCFTA, manufacturing is among those that will be greatly impacted by the agreement. It’s also a key pillar in achieving the AfCFTA dream. With the right policies and support, manufacturing can single-handedly transform the continent’s outlook in the shortest possible time.

The continent’s manufacturing sector is expected to hit $666.3 billion by 2030, signifying a great potential for a continent that’s well endowed with a natural resources, and a youthful population to provide the requisite work force.

How will AfCFTA support Africa’s Manufacturing?

Value addition is the key

According to Brookings Institution, a nonprofit public policy organization based in Washington, DC, intra-African exports increased from 10 percent in 1995 to around 17 percent in 2017. This performance is still low, compared to regions such as Europe where intra-regional trade stands at about 69 percent, while in Asia, and North America, it’s at 59 percent and 31 percent respectively.

Increased manufacturing across Africa has the potential to tilt the scale in favour of the continent. Better manufacturing infrastructure and polices would automatically lead to more products being traded across the continent, enhancing the greater vision of AfCFTA.

The 2017 African Economic Outlook by the African Development Bank (AFDB) confirms that low manufacturing and processing capacity is a major limiting factor to trade among African countries.

The best point best point to kick start robust manufacturing in the continent, perhaps, is laying emphasis on value addition. The AFDB report notes that little processing takes place before goods are re-exported, citing the example of petroleum products.

“Petroleum exports from Africa to the rest of the world stood at US $85 billion, yet Africa’s fuel imports from outside the continent ranged between US $63 billion and US $84 billion from 2010 to 2015,” the report observes.

Thus, the potential for success in manufacturing starts with value addition. This shouldn’t be too difficult to implement given the numerous natural resources across the continent.

The continent is well endowed with great resources including minerals and agricultural products with the potential to create a robust manufacturing sector.

Agriculture as Driver to Manufacturing

The United Nations Economic Commission for Africa (ECA) reported that in 2015, African countries spent about $63 billion on food imports, mainly from outside the continent. The Commission projects that by 2040, agricultural products will account for 20 to 30 percent of intra-African trade. The products accounting for the bulk of this trade include; sugar, vegetables, fruit, nuts, beverages, and dairy products.

Agricultural commodities such as cocoa, coffee, cotton, tobacco, tea and spices have traditionally been the prominent exports from Africa to the rest of the world. AfCFTA ought to take advantage of existing mechanisms to enhance, support and enforce manufacturing within the agricultural sector to enhance increased trade within member countries.

Luckily, the Food and Agriculture Organization (FAO) in collaboration with the African Union Commission launched a framework aimed at boosting intra-African trade in agricultural commodities and services. The framework, which is part of the United Nation’s support to AfCFTA, aims to guide policymakers and other stakeholders in developing and expanding sustainable resilient intra-African trade. It is a significant milestone in support of agricultural development in the continent.

Agriculture contributes 15% of the GDP in sub-Saharan Africa and employs more than 60 percent of the work force in the continent.

With the anticipated elimination of more than 90% of tariffs on intra-African agricultural trade by 2030, trade volume in agricultural trade is expected to rise by over 500 percent. This will cause a ripple effect in other sectors, with manufacturing standing to be among key beneficiaries.

Focus on both domestic and foreign markets

As AfCFTA focuses on opening up intra-African trade, the contribution of the wider global market in developing the continent has to be maintained. AfCFTA is a good local deal, but the continent cannot depend entirely on its own market; it must trade on a global platform.

“The future of (this) manufacturing renaissance depends on the capacity of Sub-Saharan African countries to expand manufacturing production beyond their domestic markets,” states Industrial Analytics Platform (IAP), an online project of the United Nations Industrial Development Organization (UNDIPO).

Indeed, AfCFTA offers a springboard for African countries to succeed in their quest to industrialize. Nonetheless, countries will individually need to make more effort in developing their domestic industries for them to serve the market efficiently. This calls for renewed evaluation of the strengths and endowments of each country and channeling the required investments to grow these industries.

At the same time, support must be given to the growth of both small and large manufacturing firms, if AfCFTA is to make the desired impact in the continent.

Reports have indicated that small manufacturing firms have contributed more in employment, as opposed to bigger and more formal manufacturing branches. The kind of jobs being created are in production of processed food, clothing and wood products, all meant for the domestic market.

AfCFTA is a Game changer

If Africa sufficiently trades within its borders as envisioned in the AfCFTA agreement, the continent would climb the development ladder within a very short time. AfCFTA is a game changer, and it’s exciting to see that many countries have given the deal the attention it deserves.

As of October 2022, 54 countries had appended signatures to the agreement and more than 40 of them had deposited instruments of ratification. The agreement is thus on course to change the fortunes of the continent.