What does the Africa Continental Free Trade Agreement means for businesses, particularly players in the online space? Will e-commerce be a solution to the integration?
By Siyanda Makhubo
The current nature of international relations, which demands the mobilisation of collective capacities of states and non-state actors (enterprises and individuals), to find a durable solution which would help to improve the living standard in African countries, marks the founding reasons for the Africa Continental Free Trade Agreement (AfCFTA).
This aligns with agenda 2063 of the African Union, which seeks to build the “Africa we want”, promoting intra-regional connectivity between capital cities by creating a unified market, borders, and air transportation network.
The AfCFTA is not only central in providing Africa’s blueprint but also a master plan for transforming Africa into the global powerhouse of the future. But what does that mean for Africans and businesses, especially e-commerce players?
Before this initiative, Africa counted over 14 economic blocs with eight recognised regional communities by the African Union (AU). These include but are not limited to the East African Community (EAC), Economic Community of West African States (ECOWAS), and the Southern African Development Community (SADC), to name a few.
For too long, these regional blocs have failed to bring high growth businesses to the fold. In reality, it is difficult for sellers or enterprises of the EAC, for instance, in Kenya, to easily trade with nations belonging to ECOWAS in Nigeria. Regional blocs have different trading laws and agreements, using different currencies with different levels of development and gross national products. That is why some pundits view the existence of these regional economic blocs as a hindrance to the development process of the African continent in its entirety on a continental level.
Opportunity for Africa
Kenya is among the countries that have already ratified the agreement, which provides an opportunity for Africa to create a free trade area with the potential to unite more than 1.2bn people in a $2.5trn economic bloc and usher in a new era of development. It is also interesting to note that the East African country was among the first to deposit its instruments of ratification in May 2018, when the AfCFTA idea was born.
Economic blocs are always there to ensure a continuous trade among their members and promote diplomatic ties and security, among others. However, certain issues still hinder the potential economic growth of the continent. And one of the most hit is e-commerce services – under normal circumstances, e-commerce has delivery capacities of 24 hours to three business days on national territories where they operate depending on their operation sites and land surface of the given country.
This means that one can expect their goods in a relatively short period of time for a much cheaper price compared to someone found in a neighbouring country and worst still one found in a different regional economic community.
If an e-commerce platform operates in Kenya and an online customer from Nigeria wishes to make transactions from their platform, they will generally receive their purchase after a relatively long period and with expensive constraints. Or, maybe never (if there is no air connection) than if they were in Kenya. The difference exists due to economic blockages put in place by regional economic communities. They include custom duties, tax, and bureaucracy, to cite a few.
Since the producer cannot incur the cost of custom duties, these costs are pushed down to the final consumer. Consumers can see themselves purchasing a good for 1.7 times its original price in nations where value-added tax exists. This is especially true for the 17 African States using the Organization for the Harmonisation of Business Law in Africa (OHADA) accounting system. It has devastating effects on consumers who spend more in economies that earn much less. Companies also find themselves shutting down due to lots of bureaucracy to follow and the high cost of existence in some
regional blocs.
In partnership with the AU, the Africa Regional Integration Index (ARII) has a composite index that assesses how countries and regional economic communities are making progress towards their integration agendas based on 16 indicators, grouped into five dimensions.
The ARII also measures the state of regional integration of the continent with finality to make Africa more connected for businesses and persons. The five dimensions are free movement of people, infrastructure integration, macroeconomic integration, productive integration, and trade integration. They are all pivotal for the success of e-commerce in Africa in particular and development in general.
Free movement means people will move faster and more efficiently, thus promoting tourism and interculturalism. Infrastructure integration means more route connectivity between countries (roads, railways and ports) and fewer custom duties and bureaucracy.
Macroeconomic integration takes into consideration the stabilisation of economies, currencies and international conventions guiding the laws of trade. Productive integration supposes quality and quantity always to equalise demand and supply concerning each country’s desires.
Trade integration also means eliminating taxes, embargoes, and the eventual increase in government subsidies to adapt to international trends and requirements.
Looking ahead
Experts argue that regional integration expands markets and trade, enhances cooperation, mitigates risk, and fosters socio-cultural collaboration and regional stability. Regional integration has also been shown to maximise the benefits of globalisation while countering its negative effects and stimulating development in least-developed countries by improving productive capacity and encouraging investments in those pieces of infrastructure that hold the most economic potential.
This also means an opportunity for e-commerce to leverage profit margins and improve supply chain management on the continent. It is also an opportunity to foster African industries, making African produce more available and accessible to all.
Moving further, the continental agreement coupled with the continent’s internet penetration will exponentially propel e-commerce, as more Africans are beginning to cherish online shopping and home delivery services.
According to the UN International Telecommunication Union’s study “Connecting Humanity”, this is a representative market of over 700 million people connected to the internet. A joint African market will also make Africa the largest free continental free trade area globally, with an investment of about $97 billion in internet infrastructure.
The case made is that Africa will be a thriving market for e-commerce and e-commerce companies that will have to make available the necessary infrastructure for business.
It is of pivotal necessity that states accelerate the implementation of the AfCFTA for a sustainable Africa that is peaceful, economically viable, and competitive in the international arena.
E-commerce as a solution to free trade
While the AfCFTA offers the solution for an integrated African market through trade through economic regions and countries, inter-trading through e-commerce platforms fosters countries and economic regions to have common regulatory frameworks, policies, and laws that will speak to a coherent African market.
It is also true that digitalisation and the AfCFTA will offer new and existing Small and Medium-sized Enterprises the opportunity to expand nationally and throughout the continent beyond existing digital divides as a result of existing laws and regulations. Therefore, legislators in each country have a responsibility to align with the AfCFTA to bridge these digital divides.
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