Trading under AfCFTA: market linkage opportunities for agribusinesses

The agriculture sector constitutes 35% of Africa’s Gross Domestic Product (GDP) and is a source of livelihood for about 50% of its population. According to the World Bank, the sector is expanding rapidly with projections indicating that the continent’s agriculture and agribusiness industry will grow three times more to hit a $1 trillion market value by 2030. The transformation witnessed over the years in the sector has been catalyzed by adoption of continental initiatives, among them the Comprehensive Africa Agricultural Development Programme (CAADP) by the African Union (AU) in 2003 and the 2014 Malabo Declaration. These policy frameworks have been at the forefront of promoting agricultural transformation, food security and nutrition, economic growth, and prosperity for all. The Food and Agriculture Organization (FAO) paints this as an opportunity to boost trade in food and non-food agricultural commodities and services and enhance food security on the continent.

Despite the transformation and the massive potential that the sector has, Africa only accounts for 2.7% of the world’s trade in goods and 5% of the world’s agricultural trade. The advent of COVID-19 pandemic, the unprecedented Russia- Ukraine war and the underlying climate change witnessed in the recent times have exposed the sector to more vulnerabilities endangering its output. Also, as a net importer of food and agricultural products estimated to consume at least $60 billion a year to meet the demand that is often surpassed by the domestic supply, the continent’s overdependence on extra-African resources is troubling.  African countries trade very little amongst themselves with their share of intra-African trade estimated to be below 20% which compares poorly to other intraregional agricultural trades such as Europe and Asia estimated to be over 60%.

Site 1 (Arusha Blooms).Farmer’s name: Janet Jackson (orange shirt) & Raymond Mollel.Farmers Group: Kibo Farmers Group.Location: Arusha Blooms.Crop(s): Sweet peppers, packing facility; other people in field are misc people working at Arusha Blooms

The African Continental Free Trade Area (AfCFTA)

To address this gap and poise itself for the opportunities ahead, the AU developed the AfCFTA agreement. The agreement was launched in March 2018 and entered into force on 30 May 2019, covering 54 of the 55 AU Member States (except Eritrea), with 47 having ratified the agreement. In the history of Africa’s regional integration, AfCFTA stands tall as a landmark achievement in recognizing the importance of intraregional trade as instrumental in deepening Africa’s market integration through trade liberalization. AfCFTA is aimed at creating the single largest market with a combined GDP of $3.4 trillion and a population of about 1.3 billion people.

The agreement covers protocols/legal instruments establishing the free trade area, classified into 3 phases. Phase I tackles Trade in Goods, Trade in Services and Dispute Settlement Mechanisms. Phase II addresses Competition, Intellectual Property Rights (IPRs) and Investments while Phase III encompasses Digital Trade and Women and Youths in Trade. Currently, negotiations for Phase III are ongoing. Other disciplines covered include tariffs, Non-Tariff Barriers (NTBs), rules of origin, harmonization of sanitary and phytosanitary (SPS) measures, Trade facilitation among others. Trading under AfCFTA commenced in 2021. A year later, a guided trade initiative was launched to test and refine the processes, procedures, and infrastructure necessary for effective intra-African trade under the AfCFTA framework. The initiative saw Kenya which was among the select pilot countries export its first goods of locally made car batteries and tea to Ghana.

According to the World Economic Forum, with AfCFTA in place, intra African trade can be boosted by 52.3% resulting to a 574% increase in intra African agricultural trade volume by 2030, a $212 billion increase in total production by 2035 and an expanding size of the Africa economy to $29 trillion by 2050. Agricultural food value chains in the region are expected to deepen at continental level while contributing towards global value chain trades thus reducing the dependence on export of raw materials to foreign nations for value addition. The agriculture sector through the AfCFTA will have a strong footing in supporting climate change initiatives and food security from lowered food prices, increased nutrition, and food access. Currently, the 54 signatories have undertaken commitments to progressively eliminate tariffs on 90% of over 5,000 tariff lines on goods traded among member states which could result in welfare gains of up to $16 billion, and growth in intra-African total merchandise trade up to 33%.

Opportunities for Agri Businesses

Over 44 million Small and Medium Enterprises (SMEs) carrying out business in the continent (accounting for approximately 80% of jobs in Africa), will be the biggest beneficiaries of trading under AfCFTA. Top among the list are Agribusinesses working with smallholder farmers who are responsible for 80% of Africa’s food production employing significant numbers of women, and youths. Under AfCFTA, they can access market linkages to regional and global value chains, by leveraging its operational instruments among them Rules of Origin (RoO), Pan African Payments and Settlement Systems (PAPSS) and Africa Trade Observatory (ATO) portal to be export ready. RoO determines preferential tariff treatment for goods originating from AfCFTA member states, thus promoting local production and value addition, and protecting nascent industries. PAPSS facilitates trade by enabling direct payments between African countries in their local currencies, significantly reducing transaction costs and increasing the efficiency of cross-border payments. ATO portal provides real-time trade data, statistics, and insights specific to the African continent, which is critical in making informed decisions, identify trade opportunities, and navigating the complexities of intra-African trade.

However, achieving export readiness can be a struggle for agribusinesses looking to tap into the opportunities under intra African Trade and beyond. Typically, an agribusiness will need to carry out an export readiness assessment to determine its operational capacity and resources needed to deliver for the market, then develop an export plan detailing the business expectations, human resource requirements, a route to market, financial and legal resources, marketing strategies etc. With the export plan, they will then need to conduct detailed market research to understand competitive landscapes and customer preferences, navigate the legal and regulatory requirements, manage logistics and distribution, develop a robust marketing strategy and secure appropriate financing. Additionally, they will have to establish valuable partnerships and networks at regional, continental, and global levels to see the plan through.  With all these factors in consideration, many agribusinesses would be reluctant to take on export opportunities, even when they would increase their profitability exponentially.

Over the years, Agri Frontier has played a critical role in supporting agribusinesses in their export readiness journey. From carrying out feasibility studies, developing market entry strategies, securing capital to finance the export plan, building partnerships and networks, developing monitoring and evaluation tools for tracking performance. With the intra African Trade as a low hanging fruit for agribusinesses, Agri Frontier is keen on leveraging its networks across its countries of operations which include Kenya, Nigeria, Ethiopia, Malawi, Ghana, Côte d’Ivoire, Zambia, Malawi, Tanzania, and Uganda to get these agribusinesses starting to export at regional and continental level before transition to the international markets. By supporting agribusinesses in trading under AfCFTA, Agri Frontier is contributing towards removing 30 million Africans out of extreme poverty and boosting the incomes of nearly 68 million others who live on less than $5.50 as projected by World Bank.

This article was initially published by Agrifrontier.