We commend the African Union (AU) for its milestone achievement of establishing and implementing the African Continental Free Trade Area (AfCFTA) as one of the flagship projects of AU Agenda 2063 for the promotion of intra-African trade. The AfCFTA brings together fifty-five (55) countries of the AU and eight (8) Regional Economic Communities (RECs) to a single continental market for goods and services with free movement of business, persons and investment.

The AfCFTA creates the largest single market measured by the size of participating member countries. This single market is created by the protocols eliminating trade barriers and promoting cooperation among the Member States on investment and competition policies, intellectual property rights, settlement of disputes, and other trade-liberating strategies. This allows a person in Ghana, for example, to easily do business in Nigeria or any part of Africa without trade restrictions.

The AfCFTA entered into force on May 30, 2019, after twenty-four (24) AU Member States deposited their “Instruments of Ratification” following a series of continuous continental engagements since 2012. The commencement of trading under the AfCFTA took place in January 1, 2021.

Here are some benefits and challenges perceived under the AfCFTA implementation and proposed practical tips for avoiding or minimising these challenges for a smooth intra-African trade.

Benefits Under the AfCFTA

The benefits of the AfCFTA for the African economy and that of the AfCFTA Member States cannot be overemphasised. Notable among them include:

a. No Tariffs – The AfCFTA protocols require that the Member States remove up to 90% of tariffs imposed on goods and services traded among the Member States. This means that there shall be nearly no duties imposed on the import or export of goods within Africa;

b. Expansion & Growth in Business – Small and medium-size businesses have the potential for growth under the AfCFTA since they can easily import and export goods and services across Africa with no duty and fewer restrictions. With the AfCFTA implementation, we anticipate an increase in production and the number of businesses springing up in Africa;

c. Collaborative Structures for Enforcement – Member States have pledged their commitment to implementing the AfCFTA protocols to ensure that enforcement is smooth and widespread within the Continent; and

d. An Enhanced Business Environment – With the mechanisms in place for the settlement of disputes, industrialisation boost, and promotion of women’s trade among others, the AfCFTA implementation set to promote an enhanced environment for trading and doing business within Africa.

e. A Centralised Financial Market Infrastructure – The Pan-African Payment and Settlement System (PAPSS) has been created under the AfCFTA is a centralised Financial Market Infrastructure enabling the efficient and secure flow of money across African borders. The platform minimises risk and contributes to financial integration across the regions. PAPSS is an African Union infrastructure developed in collaboration with the African Export-Import Bank (Afreximbank) to complement trading under the AfCFTA.

Despite the many benefits, there are some challenges that hinder the ease of doing business under the AfCFTA.

Challenges for Doing Business Under the AfCFTA

1. National Regulatory Restrictions

Despite the absence of tariffs, several laws and regulations apply to doing business in the different Member States. For example, a manufacturer or distributor of food products must comply with registration requirements with the Food and Drugs Authority (FDA) in each jurisdiction. Additionally, several permits and licences need to be obtained with different applicable product standards that need to be complied with. These become burdensome as compliance with national laws and regulations increases costs and causes undue delays.

2. Payment of Taxes

Income taxes continue to apply to businesses trading in different jurisdictions in Africa with complex tax systems and no double tax agreements among the African States.

3. Finance Difficulties

There are currently no active financing opportunities under the AfCFTA. Although an Adjustment Fund has been established by the AfCFTA Secretariat to provide support to the Member States and their respective private sector businesses through the provision of financing, technical assistance, grants, and compensation funding, its main aim is to help mitigate revenue losses and competitive pressures that may result from a reduction in tariffs and liberalisation of markets. It is unclear at this stage whether the AfCFTA will be financing business expansion by providing operational capital for the acquisition of equipment, etc. Businesses are, therefore, required to seek out funding sources within their respective jurisdictions which is not readily available.

4. Global Market Challenges

In addition to the above challenges, price differentials, unfair competition, cost of doing business, trademark infringements, and many more, are but a few of the global market challenges that persist with the AfCFTA implementation.

While we look forward to strong structures being implemented under the AfCFTA protocols, there are some basic ways the private businessman can adopt to avoid or reduce the impact of these challenges.

Practical Intra-African Trade Guidelines

While the above challenges remain at the macro level, private sector businesses may adopt the below strategies to minimize the challenges with intra-African trade and enjoy the full benefits under the AfCFTA:

1. Strong Business Structures

Engaging and succeeding in intra-African trade requires strong business structures and sustainable practices. Businesses should reduce wasteful use of resources, institute good procurement structures, be ethical, automate business processes, outsource part of operations where necessary, be strict on risks and compliance, have a strong online presence to promote the business brand while keeping the systems efficient and resilient.

2. Know & Shuffle National Laws for Maximum Benefits

The goal of every investor is to make the most returns/revenue/profits from any business in full compliance with the applicable laws. Once the investor knows the laws that apply in each jurisdiction of the intra-African trade, the investor will be better equipped and able to structure its business within the confines of the law for maximum profits.

3. Avoid But Not Evade Taxes

Investors and businesses are permitted under law to arrange their business affairs so as to reduce their tax burden. It is therefore a cardinal strategy to know all applicable laws in each jurisdiction of operation and structure transactions in the best way to reduce or remove the applicable taxes. Actions taken to evade taxes are however unlawful and cannot be justified.

4. Assess & Access Non-Traditional Finance Options

Investors may make use of other funding opportunities outside the formal banking system with fewer burdens such as partnerships and collaborations, crowdfunding, leasing, factoring, franchising and, and strategic partnerships to finance business projects under the AfCFTA. Grants and support from governments and development partners are also available for an investor’s consideration.

5. Reduce Employment Burdens

Businesses and investors can avoid the cost, responsibilities, and liabilities of complying with the obligations of an employer under law by outsourcing workers or engaging workers on fixed contract terms to reduce permanent employment costs. The employer, however, needs to be fair in all such arrangements to avoid legal consequences.

6. Don’t Overlook the Power of Social Projects

Businesses and investors may undertake social projects that meet the approved environment, social and governance (ESG) standards to promote their business brand and give investors leverage to lobby or negotiate with the Government for favourable investment conditions. One of the best ways is to identify Government projects that will have great social impact and lend your support.

7. Doing Business the Right Way

This requires that investors do not “cut corners” by paying bribes, using illegal proxies, disregarding national laws, signing shady deals, etc. Legal processes in such cases do not only affect the business’ reputation but are lengthy and costly.

Conclusion

The AfCFTA implementation is a good initiative for Africa with the huge potential of promoting economic growth and reducing poverty. We, therefore, call for the support of the Member States and all stakeholders to make the AfCFTA implementation a reality with the right legal and structural reforms. We also encourage private businesses and foreign investors to take advantage of the AfCFTA opportunities as a sure strategy for business growth and expansion. No, matter the challenges we perceive, we are positive that a smooth intra-African trade is possible.