As Africa’s exports approach $1 trillion, political will and policy alignment are critical for sustainable and inclusive growth

Sunil Kaushal Co-Head, Corporate & Investment Banking

15 Jan 2024

At current compound annual growth rate (CAGR) of 3%, African merchandise exports could reach $952 billion by 2035. But implementing the African Continental Free Trade Area (AfCFTA) could see this leap to 30% — provided the political will exists.

New research from Standard Chartered suggests that at the current compound annual growth rate (CAGR) of 3%, African merchandise exports will reach $952 billion by 2035, highlighting the significant potential for the continent. But with the political will and a fully implemented African Continental Free Trade Area (AfCFTA), a World Bank analysis[1] suggests exports could be further boosted by as much as 30%.

Underpinning Africa’s current export potential are key international export corridors linking many of the continent’s economies to South Asia and the Middle East. These are also expected to grow in the coming years, with CAGR’s of between 5.1% to 7.1% – higher than the global average of 4.3% over the same period. Furthermore, with the African Union becoming a permanent member of the G20, the continent faces a bright socio-economic future. But despite the promise, there are multiple political and structural hurdles to overcome.

Intercontinental governance and alignment

One of the continent’s greatest trade challenges is to the lack of industrial and trade policy alignment and objectives. Standard Chartered’s research shows that 63% of business leaders cite complex and uncertain trade rules as a key challenge to intra-African trade. Greater trade alignment on reporting mechanisms and joint trade initiatives can accelerate trade between African countries. This is where the AfCFTA plays an important role in advancing alignment.

Operational since July 2019, the AfCFTA’s remit is to create a single and liberalised market to achieve the vision of an integrated, prosperous, and peaceful Africa. Woven through many of its objectives is a core focus on trade policy alignment and the development of new industrial and value chains. This includes the creation of a continental customs union that would eventually eliminate tariff and non-tariff barriers – a transformational goal that has delivered historic opportunities for continent-wide growth within the European Union (EU).

Similar to the EU, the AfCFTA aims to lay the foundations for pan-African administrative frameworks and institutional mechanisms in areas such as dispute settlement. The World Bank suggests that if such policy infrastructures are fully implemented, total exports from AfCFTA markets in 2035 could potentially increase by 28% over the baseline year of 2035, and total intra-AfCFTA exports could almost double over the same period. This huge potential also offers companies untold opportunities for new market entry, innovation, and the enrichment of national and intra-African value chains.

Enriching value chains

Having created the world’s largest free trade area, connecting 1.3 billion people with a combined GDP of $3 trillion, the impact of AfCFTA trade policy alignment on consumer choice could be historic. For SMEs, entrepreneurs, and emerging industries, free markets with little or no tariffs offer scalability and a virtual petri dish for invention, product development, risk-taking, and investment. Moreover, as African value chains mature and diversify, the continent will gain greater leverage from its natural resources and commodities.

Africa’s economies export raw materials around the world for further processing and, in return, import finished goods for consumption at many times the price. This means they lose out on value-added and wealth-creating activities and are exposed to balance of payment problems and volatile commodity price fluctuations. Removing trade barriers will make it easier for goods to flow across the continent – and more attractive for foreign investors. A liberalised African trading bloc with common standards for trade alignment and zero intra-African tariffs would be extremely attractive to global investors and multinationals.

Transfer of skills and technology

Foreign direct investment (FDI) is particularly important in the context of value chain formation because it not only brings capital and jobs but also introduces new technologies into local industries. In every economy that has succeeded in attracting FDI – the GCC countries, for example – manufacturing capabilities are becoming more sophisticated by facilitating the development of knowledge and skills. Similarly, the adoption of digital finance platforms such as digital supply chain finance solutions can help democratise access to trade finance and unlock up to $34 billion in export value in five key African markets by 2035.

In addition, digital solutions can help Africa to leapfrog traditional trade barriers, enabling African markets to reduce trade costs by digitising customs and border procedures, reducing the time spent on manual processes and making trade more efficient. For Africa’s businesses, digitised information can increase transparency and lead to a smoother flow of information, boosting cross-border connectivity between vendors and-buyers.

None of these outcomes is impossible. In fact, with shared ideals and a willingness to cooperate, policymakers and bodies like the AfCFTA have everything they need to transform Africa’s potential and unleash a new era of sustainable and inclusive growth for generations to come. Here is the full report: Future of Trade 2023 | Standard Chartered (sc.com)