While the launch of the AfCFTA has the potential to transform Africa’s intra-regional trade, it is essential to deepen trade and development ties with other regional bodies and global economic powers such as the UK. A new raft of agreements is designed to multiply trade volumes between Africa and the UK for mutual benefit, as the UK Prime Minister’s Trade Envoy to Uganda, Rwanda and DRC Lord Dolar Popat explains.
The launch of the African Continental Free Trade Area (AfCFTA) on 1 January 2021 was a historic event with the potential to transform the continent. To realise this potential, policymakers will need to confront many challenges to successful implementation, continuing to work closely alongside regional trade groups.
For decades, the idea of a common African market has been a major goal for the continent’s leaders. Relative to other continents, trade between African countries is woefully low. The launch of the AfCFTA on 1 January marks a significant moment for the continent, the start of the road towards frictionless trade in goods and services between all African countries.
The agreement creates the largest free trade area in the world by number of countries, incorporating 1.3bn people with a combined GDP of $3.4trn. By reducing, and eventually eliminating, tariff and non-tariff barriers to trade between African countries, the agreement promises to create business opportunities, jobs and reduce prices for consumers. According to the World Bank, this could lift 30m people out of extreme poverty. If implemented fully, it could boost Africa’s GDP by 7% – almost $450bn – by 2035.
Benefits of trade flow out of Africa
African countries and businesses do too little trade with each other. This has sacrificed the myriad mutual benefits of intra-continent trade and left African countries overly reliant on external trading partners. The Covid-19 pandemic and its disruption of supply chains, particularly for medical equipment, has shone a light on these issues.
Only 16% of Africa’s trade is intra-regional, compared with 68% for Europe and 60% for Asia. In simple terms, the benefits of trade for African countries are overwhelmingly flowing to China, the US and other external countries, rather than staying within Africa.
Africa is where the future lies, arguably the most rapidly developing and innovative region in the world. The continent accounts for 17% of the world’s population, but only 3% of global GDP. There is good reason why many call it the ‘Last Frontier’. It is not too late to harness Africa’s abundant opportunities.
By 2050, more than a quarter of the world’s population will be African. And this population will be overwhelmingly young and middle class: the continent is experiencing the fastest growth of the middle class in the world, with 24m people added to its cities each year. GDP for the whole of Africa is nearly $7trn and among the fastest-growing in the world.
Business opportunities are soaring at an unprecedented rate, currently worth nearly $6trn. Digitisation, improvements in infrastructure, and political reform are taking hold. One thing is clear: Africa offers a lot of opportunities.
For the UK, having finally left the European Union, we can fully open doors to trade with key emerging markets such as Africa. Our relationship with Africa goes back a long way. This includes the commonality and shared values we possess of freedom, rule of law, democracy and of course the English language. This soft power can make a huge difference in our trading relationship with Africa.
UK export finance a game changer
One of the game changers in revitalising Britain’s trade with Africa has been the emergence of UK Export Finance (UKEF). It helps UK companies by providing direct lending and insurance to exporters and guarantees to banks to share the risks of providing export finance.
Having recently increased its total limit to £42bn to support exports for businesses of all sizes, it has helped create a number of trade opportunities for British businesses. In countries like Rwanda and Uganda, the coverage has been increased from £600m to £2.5bn.
Prime Minister Boris Johnson has also increased his Trade Envoy programme to appoint 12 Trade Envoys to serve Africa. I am extremely glad to see this government being more proactive in Africa to see how we can increase our trade and investment with Africa.
The presence of the Department of International Trade (DIT) and the Foreign, Commonwealth and Development Office (FCDO) is increasing around the continent: the former is expanding its reach under the leadership of HM Trade Commissioner for Africa, Emma Wade-Smith, while the latter now has a physical footprint in 23 African countries.
Despite Covid-19, connectivity between the continent and the UK is increasing. From July, Uganda Airlines will be launching their new direct service from Entebbe to London. This is in addition to other direct routes to the UK, such as RwandAir’s direct service from Kigali to London.
These new routes will play a vital component in building bridges and the improved connectivity will help boost trade and prosperity relations between our countries, particularly in the agriculture and tourism sectors. Beyond this, and also in Rwanda, UKEF supported the purchase of two airbus A330 aircraft that were delivered to RwandAir by the UK’s Rolls Royce, known as pioneers of energy efficiency in air travel.
We are devoting the rest of our days to ensuring the UK harnesses Africa’s potential. It won’t be long before we return to being Africa’s most important partner of choice. One way to overcome the challenges of implementing the agreement is to collaborate closely with relevant regional trade organisations. Gladly, the AfCFTA Secretariat is already doing this. One example is TradeMark East Africa (TMEA), a body financed by the UK Government, which has a track record of reducing barriers to trade in the region. I have been fortunate to see first-hand its tremendous work as the UK Prime Minister’s Trade Envoy to three African countries.
TMEA’s regional expertise and strong partnerships with stakeholders spans 11 countries. Its work has contributed to the significant reduction of red tape, which has seen the clearance time for certified goods drop by 99% and testing costs reduced by 59% in the EAC, through the harmonisation of standards. In addition to this, 19 government agencies, whose processes have been automated, have reported a reduction in average clearance time from 79 hours to two hours.
I am optimistic that a common African market will be thriving in the not-too-distant future. I look forward to the day when my own country, the UK, will be able to sign a free trade agreement with this blossoming continent.
Lord Dolar Popat is the UK Prime Minister’s Trade Envoy to Rwanda, Uganda and Democratic Republic of Congo.