The AfCFTA and the Future of African Logistics
African logistics have been under-performing for years now, and the continent and nations who possess such natural wealth and resources are barely exporting goods. Kuteyi and Winkler (2022) note that “Africa’s merchandise export contribution to the global market has steadily declined since 1948 from 7.3% to about 2.2% in 2016.” Thus, Africa is hardly pulling a fraction of their weight when it comes to global exports. However, this could change as a new era of African logistics is emerging with the ratification and development of the African Continental Free Trade Area (AfCFTA).
What is the African Continental Free Trade Area?
The AfCFTA brings together 55 African Nations and eight regional economic communities to create a single African continental market. The goal of this mandate is to increase intercontinental trade among nations by eliminating trade barriers, such as tariffs and non-tariff trade barriers. By eliminating such barriers, the AfCFTA hopes to formalize the regional and continental value chain, increase industrialization, foster job creation, and spur investment into the logistics sector and industry. To realize how important this Free Trade Area is, let’s look at some graphics and statistics.
The expanse of the Free Trade Area is vast and covers almost the entire continent with 46 of the 54 signatories having deposited their instrument of ratification. According to official AfCFTA sources, its estimated that the AfCFTA could increase inter-African trade by 52.3% by eliminating import tariffs and double this if non-tariff barriers are reduced as well. Furthermore, the AfCFTA will progressively eliminate the average 6.1% tariff that businesses face, allowing the AfCFTA to expand Africa’s economy to $29 trillion by 2050 (au-afcfta.org). According to further AfCFTA sources, “the Forum expects an increase in intra-African freight demand of 28% translating to additional demand for almost 2 million trucks — used primarily for the expected growth in trade of automotive parts and pharmaceuticals — 100,000 rail wagons, 250 aircraft and more than 100 vessels by 2030.” Additionally, its written in the World Bank’s The African Continental Free Trade Area: Economic and Distributional Effects that “the pact connects 1.3 billion people across 55 countries with a combined gross domestic product (GDP) valued at US$3.4 trillion. It has the potential to lift 30 million people out of extreme poverty, but achieving its full potential will depend on putting in place significant policy reforms and trade facilitation measures,” and “AfCFTA would significantly boost African trade, particularly intraregional trade in manufacturing. The volume of total exports would increase by almost 29 percent by 2035 relative to the baseline. Intracontinental exports would increase by over 81 percent, while exports to non-African countries would rise by 19 percent.” Thus, the economic effects of rolling out the Free Trade Area could be monumental for the African logistics sector and African people more generally.
Current Logistical Issues Facing Africa
While the era of the AfCFTA brings about great promise for a revamping of the logistics sector in Africa, there are still many challenges to solve in the industry. Of the many troubles facing the industry, the standouts are generally known as:
- Physical Infrastructure Deficiencies: Much of Africa’s logistical costs come from the fact that transporting items on poor roads and railways adds cost. Africa suffers from widespread infrastructure issues such as difficult and poor roads, outdated railways, and inefficient ports. Landlocked nations with poor road qualities face even higher transportation costs without maritime options.
- Lack of Skilled Workers in the Industry: Unskilled laborers in the logistics sector are often inadequate to deliver on many of the challenges facing an already difficult operating industry. Investment in human capital will have to be one of the driving forces for an overhaul in African logistics.
- Tariff and non-Tariff Barriers: High tariffs and other forms of non-tariff barriers make trading among nations more expensive and capital intensive. This is why the great reform of the AfCFTA is to progressively remove tariffs and facilitate the removal of non-tariff barriers.
- Lack of Information and Visibility: The African logistics industry faces the problem of limited information and data about the supply chain with which they’re operating. Many supply chain operators and suppliers don’t have quality information about market conditions or information about the location or status of cargo or freight. This lack of information and inefficient tracking can lead to higher expenses and bottlenecks in the value chain.
A Way Forward: Private and Public Partnerships
As we’ve discussed that Africa’s logistical dilemmas are by no means trivial, it does not follow that they will be impossible to overcome. Increasing efficiency and creating more value in the supply chain and logistics sector will take investment and reform in both the private and public sectors. Each of the difficulties that we’ve mentioned can be addressed by either public entities, private firms, or a combination of both. Physical infrastructure issues across Africa will likely be the most difficult challenge to address, and it will be spurred by public investment primarily. Importantly, however, is the fact that the problem is obvious and addressing it will take more investment than figuring out what the actual problem is. Additionally, inadequate human capital can be addressed by both private and public actors – whether it be publicly subsidizing the training and education of unskilled workers in the logistics sector, or the creation of a firm dedicated to this sort of training – it can and must be addressed. Tariffs and non-tariff barriers will also be decided by governing bodies, but it is important to note the great work that has already been accomplished on this front by those participating in the AfCFTA. The elimination of these barriers alone will stir great demand for logistical services. Finally, the lack of visibly and information is a great area for private enterprise and investment. Startups and firms that can address the technological issues facing logistics firms will reap their reward as it is an issue across all of African logistics.
The development of the AfCFTA has great promise for the development of Africa. Its commencement can spark great amounts of demand from the logistics sector. Because demand will be stoked, it is the right time to be active in investing in and enabling those who are building efficient, scalable solutions that will meet the great amounts of demand that this sector will soon meet. Governments and public sector actors certainly have their role to play in meta-issues regarding the infrastructure at play, but there is a great opportunity to supplement this industry with leading technology solutions that can create efficiencies in this inefficient sector.
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