A brief overview: Supply chain analysis of AfCFTA
Free trade is an economic and trade policy that removes restrictions and barriers to imports and exports. Creating free trade systems dates back to sixteenth-century Spain, but it wasn’t until 1860 that the first free trade agreement (FTA) called the Cobden–Chevalier Treaty was signed between Britain and France. Over the years, free trade agreements have become one of the effective policies for driving international trade and developing emerging economies.
Two centuries after the first FTA was signed, many countries have signed either a bilateral, regional, or continental trade agreement with one another. In 2018, forty-four African nations signed the agreement establishing the African Continental Free Trade Area (AfCFTA) agreement, which was launched in 2021 to facilitate trade in goods, services, and movement of the people.
Modelled after the European Union (EU), the AfCFTA is an ambitious continental union that offers jobs and business opportunities through the entire supply chain, can reduce poverty, and improve consumers’ living standards.
Global supply chain and African trade
Despite seeing its fastest growth in the last decade, African countries account for just 3 percent of global trade in goods and services. When you think about the tremendous resources on the continent, you’ll understand how hard this is to believe. Intra-African trade, which is around 13 percent compared to approximately 60, 40, and 30 percent of intra-regional trade achieved by Europe, North America, and ASEAN, is also meager.
The pyramids in Egypt didn’t just get there. The stones and all the logistical components that helped shape that masterpiece of architecture is all supply chain-related
Africa is a resource-rich continent. It has 40 percent of the world’s gold and 90 percent of its chromium and platinum. We have the world’s largest cobalt reserves, diamonds, platinum, and uranium. Africa holds 65 percent of the world’s arable land and 10 percent of the planet’s internal renewable fresh water source, agricultural products such as coffee, tea, and cocoa beans. That’s not all because I haven’t even mentioned petroleum or other rare metals.
With all these resources, imagine if Africa could increase its share of world trade from 2 to 10 percent in the next ten years and improve intra-African trade to about 25 percent. That would be an incredible source of income for the continent. I believe this is part of what the AfCFTA hopes to achieve, but something is missing in the puzzle. It appears that stakeholders and advocates of free trade are looking at trade alone, leaving the supply chain management that underpins it, which would cause issues because trade alone does not move the needle. In trade, the supply chain is the executioner. Without it, trade is just a theory.
It will be hard to look into African trade without its supply chain. Many people have forgotten that Africa’s strength is trade. Our first interaction with the explorers was through trade, and the supply chain has always been in the DNA of African trade. Unfortunately, we never really look at it from that standpoint. The pyramids in Egypt didn’t just get there. The stones and all the logistical components that helped shape that masterpiece of architecture is all supply chain-related. Yet, everyone is so focused on trade today because of the AfCFTA that they have neglected the supply chain that makes it happen. For this reason, we must run a supply chain analysis of the African free trade agreement.
Supply chain analysis of the AfCFTA
To make the AfCFTA work for the benefit of Africa and the global economy, we need to revamp the African supply chains that drive goods outside the continent to the supply chain that looks inward. An African supply chain that makes it difficult to move goods by water from Cameroon to Nigeria but easy to move goods from Cameroon to China and other countries is a threat to the regional integration plan.
The adoption and effective implementation of the continental trade agreement will create a regional value chain that would enable African countries to develop economies of scale using their comparative advantages to serve the over 1.4 billion people on the continent. But to achieve this goal, we must restructure the supply chain infrastructure. And how can we do that?
Read also: Achieving prosperity in Africa through supply chain management
Restructuring of supply chain infrastructure is necessary
Infrastructure is critical to the smooth running of supply chains. This could mean the physical and informational assets required to run a supply chain. When we think of a supply chain, it is easy to think about the processes and activities taken to move goods from suppliers to customers.
The supply chain infrastructure involves transportation, communication, utilities, and technology. As a matter of fact, there are tangents and essential issues that accompany those basic elements. These include security, risks, value, legal considerations, contracts, insurance, customs, and payment. For the AfCFTA to excel, Africa must rejig its infrastructural issues to aid logistics, purchasing, operations, and market channels.
Synchronize supply chain and logistical corridors by land, water, rail, and air
Africa is the continent with the most landlocked countries. For instance, it can take up to 60 days to import goods into Burundi from other East African countries. This highlights the need for investment in creating more transportation networks.
The lack of suitable transport infrastructure and alternative routes like good roads and rail networks put pressure on African seaports. An example of the required infrastructure is the Maradi rail line the Nigerian government is constructing to connect Nigeria from Kano to the Niger republic. This could be instrumental in facilitating trade routes between the two countries.
The Logistics Performance Index, which measures the ease, speed, and simplicity of moving goods and services across the continent, ranked African countries between 1.77 and 3.38 out of 5. The lack of road networks hinders intra-African trade, but with the AfCFTA, African leaders can tackle the 53 percent of unpaved African roads. They will require public-private partnership (PPP) agreements to achieve this goal because many African governments still struggle to get funds for critical infrastructure.
Besides the inadequate transportation infrastructure and investment needed, African countries must adopt technology to aid logistics within the regional value chain and regulate cross-border customs clearance.
Adjudicate the implementation of a continent-wide supply chain system
A single African market is a lofty goal that can transform the continent. For this reason, we must analyse the value chain of the free trade area to see the problems, identify the opportunities it presents, and push the conversations about what should be improved.
Creating a borderless Africa is ambitious, and it is incredibly possible. However, to avoid having a cog in the wheel of our expectations, we need the professionalisation of supply chain in Africa. This means the AfCFTA regulator and government should use policymaking to institutionalise a body that will ensure the implementation of a continent-wide supply chain system. Of course, there’s an enormous investment required for that, but we understand that an efficient supply chain infrastructure is the backbone of prosperous free trade areas.
Africa is creating a solid regional value chain that can easily fit and boost the global supply chain. Still, we must ensure that we do this correctly because Africa is the new frontier, and the world is waiting for us to get it right.
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