At a recent summit in Kigali, Rwanda, 44 African heads of state signed a new free-trade agreement aimed at changing the way the region does business. If every African Union country were to join the Continental Free Trade Area (AfCFTA), the resulting single market would be one of the world’s largest – covering 54 countries that account for roughly $4 trillion in combined spending.
But full implementation remains uncertain. Ten countries have refused to sign the deal, including Nigeria, one of Africa’s largest economies and its most populous country. If AfCFTA is to appeal to protectionist holdouts, it must be structured in such a way that all participants benefit. To accomplish that, the bloc’s supporters should look to Amazon, the e-commerce giant, for inspiration.
Since its founding in 1994, Amazon has revolutionized how producers and consumers interact. With its “platform strategy” approach to retail trade, the e-commerce giant has connected companies and customers in mutually beneficial ways.
Shoppers can easily access products and services, and businesses can reach more of them cheaply. By breaking down barriers to access, Amazon’s platform ecosystem has even spawned new companies and services.
Africa needs its own platform strategy, and the new single market can deliver it. But five key changes will need to happen first.
For starters, the continent’s businesses must integrate tools like big data, algorithms, and cloud computing into their operations. These technologies helped Amazon build a platform with global reach and appeal. Africa’s companies need a similar commitment to innovation if they are to connect with one another other and remain competitive in the global economy.
Second, Africa requires greater access to capital markets to help sustain manufacturing and technological innovation. But investment is being hampered by a dearth of economic data. To lure African and foreign funds, Africa’s governments, businesses, and industries must commit to improving and making more accessible statistical information across all sectors, so that investors can assess market conditions with the necessary degree of confidence.
Third, African economies must commit to extending the benefits of trade beyond urban tech “bubbles.” If the new trading regime is to be fully embraced, a Cape Verdean must be able to purchase fresh Ethiopian or Kenyan roses, and a Swazilander should have the choice of eating fufu or attiéké made of Ghanaian or Ivorian cassava. But the only way to achieve this level of integration is for regional and continental supply chains to be supported by reliable transport and communications infrastructure.
Fourth, just as Amazon did when it launched a quarter-century ago, Africa should focus on what it does best. And in much of the continent, that means agriculture. Because many businesses in Africa are tied to agriculture, the sector should serve as the backbone of any expanded trading regime. If Africa’s smallholder farmers had easier access to markets, economic growth would naturally accelerate, and industrialization would eventually follow.
Lastly, as Africa’s parliaments work out the details of the single-market framework, negotiators must keep the needs and interests of consumers and producers firmly in mind.
That means focusing first on small and medium-size enterprises (SMEs), which account for 80 per cent of all African businesses. As other countries have demonstrated, improving market access for small firms helps long-term economic stability. For example, in the United States, SMEs account for about two-thirds of all new private-sector jobs, while in China, SMEs account for roughly 60 per cent of GDP.
As for consumers, Africa’s single market will take off only if it takes demographics into account. This means engaging women and young people, many of whom are unemployed. For the AfCFTA to gain wide acceptance, goods and services must reach these groups, and young people must benefit from increased employment opportunities.
One of the biggest challenges that Africa’s economies have always faced is overcoming exceptionally low volumes of intra-continental trade in value-added products. The AfCFTA could address this imperative. By opening these economies to the free flow of people, products, and services, the AfCFTA could help drive Africa’s future growth. Getting to that point will require an Amazon-like “platform” approach to business, and the recognition that after decades of sub-regional protectionism, the continent’s future will be brighter if it is one of shared openness. - Project Syndicate