Why AfCFTA needs to prioritise the SMEs for its success.
With
the launch of the African Continental Free Trade Area (AfCFTA) on the
1st of January 2021 the long wait was over and it was the start of a new
era. The AfCFTA will cover a market of
1.2 billion people and a gross domestic product (GDP) of $2.5 trillion, across
all 55 member States of the African Union. In terms of numbers of participating
countries, AfCFTA will be the world’s largest free trade area since the
formation of the World Trade Organization.
It comes against a background of COVID-19 which has disrupted the normal
trading routine leaving industries hanging on the balance across Africa. The
new business normal brought in by the effects of COVID-19 will result in the
AfCFTA having to be adjusted to ensure that its intentions and objectives are
realised.
Most
African economies are sustained by Small and Medium Enterprises (SMEs) which
are mostly owned by Africans. Research have shown that SMEs constitute the
greatest proportion of the continent’s industrial fibre, accounting for about
80% of businesses and employing not less than 70% of the continent’s workforce.
The SMEs operations have been immensely affected by COVID-19 devastating
effects which have seen some of them winding off. To achieve the main goal of
African creating an economic community of self-sustenance and self-reliance,
there is need for AfCFTA to ensure the SMEs are well supported in the
continental free trade. Without SMEs, Africa will continue to rely on Foreign
Direct Investments (FDIs) especially from the developed world who continues to
use Africa as a source of raw materials with value addition being done from
their originating countries. The recent surge in investments from China has
seen the business as usual approach from the Asians as they continue to export
semi processed minerals and agricultural produce from the African continent
without investing in value addition.
The success of the AfCFTA depends on how
governments will invest in policies and programs which allows the SMEs to seize
the opportunities being brought in by the AfCFTA. Studies has proven that
only those governments making
SMEs a priority are the first ones to derive the benefits of regional
integration which among others are
creation of employment, increased exports and economic development. Existing Regional Economic Communities (RECs)
in Africa have failed to stimulate growth of SMEs with promotion and support
having been relegated to national level.
Their cross border transactions have continuously been classified under
the informal economy. This requires a business unusual approach from the
continental free trade area to ensure the SMEs are brought to the core of
continental trade mechanisms and result in the increase of intra African
trade.
The
SMEs requires initiatives which deals away with the constraints and barriers
they face faced for a prolonged time.
1. Access to lines of credit -The
governments need to ensure that the SMEs are adequately funded especially those
in the manufacturing and services sector. As a start African governments needs
to promote the SMEs in the agro-processing to assist them in getting
international certification to enable their products to meet international
standards and be ready for exports. The lines of credit and loans need the
governments to provide collateral to ensure that all SMEs are taken aboard and
financial inclusion is achieved. This has costs in near future but has long
term benefits as studies have shown that benefits outweigh costs of such
policies.
2. Access to information – there is need
for taking advantage of the 4th Industrial revolution by governments in
ensuring that the information about the continental trade area is disseminated
to all constituencies. The major challenge faced by SMEs has been on information
despite being in the digital era. This requires governments to partner with
private corporations on establishment of adequate infrastructure in terms of
Information and communication technology (ICT) with the capacity of ensuring
that all people are covered. This has to be followed by establishment of
incubation and information centres which are to be decentralised to cover rural
areas with untapped resources. The information centres should be able to
accommodate the needs of SMEs requiring information about customs and
international trade.
3. Access to markets- the establishment of
the AfCFTA creates a bigger market; however the creation of market itself
doesn’t guarantee the SMEs to benefit.
In most cases research has shown that
the opening and creation of larger markets tend to choke the SMEs who in
most cases are not prepared to go beyond their borders. The governments needs to take upon themselves to ensure that
the cost of accessing markets is borne by state and organisations that assist
in trade at both national and regional level.
4. Reforming the thick borders- Africa
needs to invest in both physical and virtual border infrastructure if the
AfCFTA is to be a reality. The failure by existing RECs has been as a result of
existence of non-tariff barriers especially at around the borders which
increases the costs of doing business across borders. Africa remains of the
continent with very thick borders which if not addressed it will remain cheaper
for some markets to trade outside the AfCFTA.
Levious
Chiukira
+263773065062
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