This time lucky for regional integration? by Nurmara

“Posterity will recall this day.” So said former African Development Bank president Donald Kaberuka in April, marking Gambia’s ratification of the African Continental Free Trade Agreement (AfCFTA).

The West African country became the 22nd to ratify the agreement, launched in March 2018, reaching the minimum threshold needed for it to come into force.

The AfCFTA is Africa’s most ambitious attempt yet to kick-start regional integration and trade. Its objective is nothing less than to unify the continent’s eight regional economic blocs into a single market of 1.2bn people, worth up to $3tr.

The first phase is a commitment by the 52 countries that have signed the AfCFTA to remove tariffs on 90% of goods.

Doing so could add up to $70bn to Africa’s GDP by 2040 according to the Economic Commission for Africa. Meaningful implementation could boost regional trade by 40% in the same period.

It is slated to become operational in July, fuelling hopes that it will transform the continent’s woefully low internal trade volumes of around 17%.

It’s a major milestone - on paper.

For one, ratification is not implementation.

A recent International Monetary Fund study on the agreement’s potential impact correctly points out that much more is needed than tariff reductions.

Improving trade logistics, developing infrastructure, and investing in human capital are all prerequisites for the AfCFTA to have a meaningful impact. These are core development challenges most of the continent is already struggling with.

The agreement’s ambition - while laudable - is also cause for concern. Harmonising trade across 54 countries is a daunting challenge - to put it mildly - and Africa has a poor track record when it comes to implementing cross-border initiatives which often fall flat due to a lack of political commitment.

The potential perils of lacking political support have already been demonstrated. Nigeria, Africa’s biggest economy, has yet to sign the agreement.

In short, the AfCFTA faces an uphill struggle. This doesn’t mean it can, or should, be dismissed. Africa only stands to gain from more meaningful integration, but policymakers must be honest about the enormity of the task ahead.

Let’s hope they’re prepared.

Scaling for Impact: Where next for tech in Africa? by Nurmara

Jumia, the Africa-focused e-commerce startup, listed on the New York Stock Exchange this month, becoming the continent’s first big stage tech IPO.

It’s a major milestone for the company, and a good example of Africa’s burgeoning tech industry. On the back of the mobile revolution and better connectivity the continent is going beyond mobile money into the mainstream of investing.

The continent’s startups raised a total of $1.163bn in 2018, a 101% increase on the previous year, according to venture capital firm Partech Ventures.

This includes big names like private equity giant TPG, which made headlines last May with its $47.5m investment into Kenyan fintech startup Cellulant. Even Facebook’s Mark Zuckerberg has invested, backing software developer training startup Andela.

They are just part of a growing stream of investments into everything from e-commerce to drone delivery services.

Africa’s technology potential is not in doubt, but realizing it will take much work.

In global terms investment levels are minuscule, with Africa accounting for just 0.39% of total venture capital funding last year. Indian tech startups raised almost ten times as much.

Just three countries - Kenya, South Africa and Nigeria - accounted for 78% of all fundraising in 2018. Investment is also going into a limited number of sectors, with fintech alone accounting for 50% of funding.

Few startups achieve scale, hamstrung by tough business environments and practical constraints like poor infrastructure.

This year’s Annual Debate will address the challenge of harnessing Africa’s technology potential as one of its core topics. The event brings together leading experts to consider the risks and opportunities of investing in tech in Africa, and where the industry goes next.

What does sustainable industrialisation look like in Africa?

According to the UN General Assembly we are in the Third Industrial Development Decade for Africa (IDDA III). But Africa’s share of global manufacturing is smaller now than it was in 1980. Unlike the Asian Tigers, Africa’s economic growth has not been based on industrialisation. Future growth, however, may need to be if it is to be sustainable and create employment opportunities for a booming population.

A recent study by the UN’s Economic Commission for Africa shows that when African countries trade with themselves they exchange more manufactured and processed goods. In 2014 manufactured goods made up a mere 14.8% of exports leaving the continent compared 41.9% of regional exports. It is no wonder then that the Kenyan FMCG giant, Bidco Africa’s, strategy has been to ‘grab, grow and sustain market share in African markets’. An approach that has earned the company a place on BCG’s list of 75 African companies pioneering regional integration.   

But, as Bidco’s Chairman, Vimal Shah, has emphasised logistics remain a major challenge. With sixteen different free trade zones compared to Europe’s four and North America’s one, Africa is a particularly fragmented market. Industrialisation is not an automatic nor a ‘one size fits all’ process. The Director General of the United Nations Industrial Development Organisation, Li Yong, has pointed to the development of infrastructure and logistical frameworks alongside economic integration as the keys to sustainable industrialisation in Africa.

The continent is moving in the right direction with the African Continental Free Trade Agreement reaching the 22 signatories needed for ratification this week. This move towards regional integration has been underway for some time and Bidco’s expansion has relied on the Common Market for Eastern and Southern Africa (COMESA), which gives it access to markets stretching from Tunisia to Zimbabwe. Investment in infrastructure is on the rise with governments and Development Finance Institutions committing capital to major projects. Ethiopia’s commitment to building $2.5 billion railway line connecting Addis Abba and Djibouti and DEG’s $85 million investment in Mubadale Infrastructure Partners this month are testament to this.  

This is not the first time that industrialisation has been hailed as the key to unlocking Africa’s potential and many challenges remain. But, if the private sector’s desire to expand through regional trade can align with the political will to facilitate economic integration, this could be a key moment in Africa’s industrial development story.

Franziska Hollmann from DEG will be at The Annual Debate 2019 to bring to discuss investment and trade opportunities in Africa.