Challenges that need redress for SMEs flourish under the AfCFTA.

By Levious Chiukira

 

Small and Medium Enterprises (SMEs) continue to face unwarranted barriers in cross-border trade under the current trading regime. Unless specific measures are taken to eliminate these barriers under the African Continental Free Trade Area (AfCFTA), SMEs will continue to face the same challenges. The World Bank estimates that if the AfCFTA's goals are fully realized, 50 million people could escape extreme poverty by 2035, and real income could rise by 9 per cent. Under deep integration, Africa's exports to the rest of the world would go up by 32 per cent by 2035, and intra-African exports would grow by 109 per cent, led by manufactured goods. However, these predictions were made without adequate policy interventions to facilitate SMEs to benefit from the establishment fully. Research by International Trade Centre (2022) highlighted that despite the excitement in capitals and overseas about the AfCFTA, only some African firms are aware of the regional agreement.

 

 According to the research, only 25 per cent of SMEs in the Francophone were familiar with or had heard or read about the African Continental Free Trade Area. SMEs make up almost 90% of all enterprises, significantly contributing towards inclusive economic growth in Africa and Sub-Saharan Africa alone has 44 million MSMEs. SMEs provide an estimated 80 per cent of jobs across the continent, representing an essential driver of economic growth. Formal SMEs contribute up to 40 per cent of national income (GDP) in emerging African economies, and these numbers are significantly higher when informal SMEs are included. Thus, the lack of awareness of SMEs on the AfCFTA and its operational tools, such as the Guided Trade Initiative, Pan African Payment Settlement System, AfCFTA Adjustment Facility Fund, AfCFTA Private Sector Engagement and Rules of Origins Manual and E-Tariff Book undermines the sector's role towards the acceleration of the implementation of the agreement,

 

The AfCFTA agreement and its mechanisms need more explicit policy frameworks towards the Technical Barriers to Trade (TBTs) faced by SMEs across the continent. These barriers include language differences, high transportation costs, different currencies, product registration, varying regulations or standard, restrictions on the freedom of movement and overlapping rules of origin (RoOs). Due to TBT complexities in Africa, the average cost to transport a container within west and central Africa is US$ 2.43 per kilometre, which is 1.5 and 2.2 times the freight rates applied in South Africa and the United States, which delineates SMEs from participating primarily in intra-African trade. These excruciating costs have been attributed to poor and underdeveloped physical infrastructure, lack of regional and international transport connectivity, inefficient logistics services, piracy, mutual mistrust among operators, cartels of transport providers, freight-sharing schemes and access to shipping services. 

 

Other Non-Tariff Barriers (NTB) affecting the SMEs from effectively partaking in the AfCFTA or intra-African trade bureaucratic pathologies, long queues, unnecessary delays, lack of market or demand information, gender-based violence, sexual harassment, and gender-digital gap. According to UN Women (2022), limited access to affordable funding and financing because the current commercial bank loans are not designed for SMEs also disadvantage their active participation in the AfCFTA. The loans have high-interest rates backed with collateral requirements. Payroll-backed loans are typical, and only SMEs owned by women who work in the government can access them. Suppose the AfCFTA Secretariat and governments need to provide the frameworks, tools and facilities to alleviate such barriers. In that case, it could further enhance the existential inequalities experienced by SMEs, especially those owned by youth and women. 

In addition, the existing operational tools, such as the Pan African Payment Settlement System, may provide solutions like creating new financial flows, reducing transactional costs, and facilitating trade and other economic activities among African countries. Research has shown that a significant number of SMEs still need Internet connectivity or digital access in Africa. The advent of COVID-19 proved that most SMEs needed to be digitally savvy, which resulted in the closures of SMEs owned by women entrepreneurs. Most SMEs practice cross-border trade physically because they lack digital skills to buy or sell using online platforms vital for facilitating trade during the pandemics like COVID-19, which can force countries to close borders and restrict people's movement. Thus, capacity-building programmes to empower women-led SMEs that focus on providing market-driven information and technical, trade and business knowledge are critical aspects for the conduct of intra-regional trade under the AfCFTA. There is also a need for AfCFTA, Trade Support institutions and governments to translate and localize the agreement into local languages with a focus on reaching youth and women-owned SMEs.

 

Conclusively, there is still a massive lacuna within the AfCFTA agreement, which needs to be bridged to ensure that SMEs meaningfully benefit and participate in the AfCFTA. The deal still needs facilities and protocols that alleviate the barriers specifically affecting small businesses because addressing these issues is necessary for the elite and beneficial to most Africans primarily employed through SMEs. AfCFTA can either be a source of redemption for SMEs post-COVID-19 or a source of inequality enhancement between businesses, women and youth in Africa.

 

Chiukira Levious (PhD) is a an international trade expert  and contactable on lchiukira@gmail.com +263773065062