By Robin van Puyenbroeck
Economic growth in Africa and intra-African trade are on a fast track, spurred by an alignment of critical factors and initiatives never seen before.
One factor is pure demographics. Africa has the youngest population in the world, with 70% of sub-Saharan Africa under the age of 30. The continent’s population is expected to double to 2.5 billion by 2050, adding 800 million people to the workforce, according to a recent McKinsey study.
Africa is also the fastest-urbanising place on earth, with more than 500 million people expected to leave the countryside for its cities in the next 20 years.
Intra-African trade is dwindling at around 15% of total African exports, compared to 60% and up in other regions around the world, indicating tremendous room for growth. The current push for industrialisation and intra-African trade by both private sector and government actors will accelerate growth and create much-needed jobs.
Five missing pieces
To turn this potential into tangible progress, five pillars of critical infrastructure must be in place. First, there is a massive need for physical infrastructure, from roads, ports and sanitation to industrial parks and digital infrastructure. The African Development Bank (AfDB) estimates that there is an annual funding gap of $100 billion (R1.8 trillion) for infrastructural development.
Second, there is a need for adequate energy infrastructure to power growing economies, industrialisation, and more urban consumers. The continent is rich in renewable resources, such as geothermal, wind-power and hydro-electric, and can develop stronger regional energy markets by developing inter-regional interconnectors. Countries such as Ethiopia and Kenya already generate most of their energy from renewable sources such as hydropower and geothermal.
Third, none of this can develop without proper access to finance, both for large capital projects and small and medium-sized enterprises (SMEs). Organisations such as Afreximbank and the AfDB are taking a leading role, developing an impressive offering of trade information tools and financial products to help companies grow and venture across borders. Afreximbank recently hosted the Intra Africa Trade Fair in Cairo, bringing together almost 30,000 participants from business and government, where $43bn of trade and investment deals were announced.
The fourth component is the need for a pan-African regulatory infrastructure and the political will to allow intra-African trade to develop. The Africa Continental Free Trade Area (AfCFTA), which commenced operations in 2021, is a potential game-changer. Some 54 countries (and counting) have already signed the AfCFTA agreement and committed to a regulatory framework that will allow a true African free trade area to take shape. The UN forecasts that by 2045, the bloc could increase intra-African trade by 34%.
There are already eight countries participating in the Guided Trade Initiative to test the AfCFTA’s operational, legal, institutional and trade policy environment.
The fifth piece of critical infrastructure, perhaps a more intangible one, is the need for interconnected business networks. If companies cannot find each other to do business, then all the above is futile. Here, networks such as those provided by the World Trade Centers Association can play an important role.
Potential versus reality
Challenges remain, though. Having a trade agreement signed is one thing, sustained political will is another. The political commitment to implement the AfCFTA will need to endure, which can prove difficult especially in times of dire public finances due to rising interest rates. Access to finance is a real challenge, especially for SMEs, and a failure to create much-needed jobs for so many young people may unsettle domestic priorities. A lack of information and knowledge about Africa, and about what it is like to do business on the continent, makes foreign investors hesitant to engage. The president of the AfDB, Akinwumi Adesina, is adamant that much of the concern about Africa is based on perceived risk, not real risk.
However, from my recent conversations with senior leadership from Afreximbank and the AfCFTA secretariat, the determination to widely implement the trade bloc and make the future African is real and unprecedented. The continent is very much open for business.
Robin van Puyenbroeck is the executive director of business development at the World Trade Centers Association and serves as co-chair of the US Exim Bank advisory council on small business.
BUSINESS REPORT