The African Continental Free Trade Area (AfCFTA) launched January 1, 2021, has successfully rallied all members of the African Union except Eritrea to create the world’s largest free trade area.
AfCFTA is hailed by its secretary-general Wamkele Mene as “a strong signal to the international investor community that Africa is open for business, based on a single rule-book for trade and investment.”
Africa is home to 17% of the world’s population and the largest percentage of youth in the world with 30% of the world’s oil and mineral endowment. Intra-African trade is the lowest of all the regions of the world. According to the United Nations Conference on Trade and Development (UNCTAD), Intra-African exports stood at 16.6% of total exports in 2017 compared to 68.1% in Europe, 59.4% in Asia, and 55.0% in America. Intra-African trade, during the period 2015–2017 was around 2% while that of America, Asia, Europe stood at 47%, 61%, and 67%.
Given the above facts, a change was needed to cause progressive growth on the continent. AfCFTA is the response to that required change. Africans are the only ones who can change their circumstance hence, the need/importance to boost the intra-Africa trade.
The importance of intra-Africa trade
Source: PWC, 2019
In a webinar by Invest in Africa and The Mastercard Foundation on the theme “Biting a Piece of the AfCTFA Opportunities for Business Growth,” Oheneba Kwame Darko, a Business Development and International Trade Consultant, and Franklin Owusu KariKari, Director of Business Support NEIP explained:
- “The business opportunities and potential benefits of the AFCFTA for Ghanaian MSMEs, and how they can take advantage of the free trade agreement for business growth.
- Some of the anticipated challenges that the MSMEs will face because of increased trade, and how they can play a part as the market progresses.”
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The Uniqueness of AfCTFA that Ghanaian businesses can benefit from
According to Oheneba Kwame Darko and Franklin Owusu KariKari, AfCFTA provides several unique opportunities that Ghanaians can exploit.
Phasing out tariffs on 90% of goods will allow Ghanaian entrepreneurs and business firms to export their goods to other countries in the region at a relatively low price making their products competitive. Business owners will typically transfer the hefty price they have to pay for the export of their commodity to the final product making their products expensive and unable to compete favourably with products from other regions. AfCFTA helps to eliminate that burden and ensure Ghanaian products also enjoy a fair share of competitiveness in the other regions.
Moreover, Ghanaian businesses and entrepreneurs have the opportunity to present their products or service to a population size of over 1.2 billion. Thus, Ghanaian businesses and entrepreneurs have the opportunity to generate more sales, increase their revenue base as well as profit margin and expand their business capacity.
How to tap or expand into another market
According to Oheneba Kwame Darko, to expand your business into another market, you must:
- Ensure your product is certified by any of Ghana’s certification authorities such as the Food and Drugs Authority or the Ghana Standards Authority.
- Research into the market you wish to enter with your products. Adequate research is needed on the market you are entering into since certain products may be in excess and thus render your product of a similar nature uncompetitive.
- Get local certification by the region’s local certification authority to certify your products.
- Get a local distributor to help you penetrate the market. According to Oheneba Kwame Darko, local distributors have a better understanding of the market and have a rapport with consumers.
Oheneba Kwame Darko and Franklin Owusu KariKari further stated that if the process of entering into a new market seems cumbersome, seeking aid from a successful consultancy firm is the way to go. Franklin Owusu KariKari highlighted the need for Ghanaian businesses to be “willing to pay for consultancy.”
With over 1,000 languages spoken on the continent, language, will certainly be a barrier to the Free Trade Area. Ghanaian businesses may find difficulty relating to the locals in Cote d’Ivoire or Tanzania whose language are French and Swahili respectively. This brings about a gap in communication for a smooth transaction of business. There are however some online tools to mitigate this problem. A local distributor who can bridge the language gap may also be sought to ensure your products penetrate the market.
- Lack of a unified standards authority
According to Oheneba Kwame Darko, since AfCFTA doesn’t currently have a unified standards authority, Ghanaian businesses will have to certify their products both in the country and in the region in which they wish to sell their products.
COVID-19 has had a negative impact on African economies which may slow down the entire rollout of AfCFTA. As a result of COVID-19, the original deadline for trading under AfCFTA was pushed back from 1 July 2020 to January 2021.
Also, with over 53% of Africa’s exports that go to other regions of the world, particularly Europe, that are also suffering from the pandemic, AfCFTA is sure to face some setbacks. However, with the vaccines coming into play, the smooth rollout of AfCFTA may still see some glimmer of hope.
How the entrepreneur is protected?
According to Oheneba Kwame Darko, entrepreneurs that have new and innovative products can patent them quite easily under AfCFTA. He mentioned that with the location of the AfCFTA Secretariat in the country, and a department that ensures intellectual property rights, Ghanaian entrepreneurs can easily ensure the protection of their innovative product.