Strategic trading policies key to Africa's economic renaissance

 

Africa is at a pivotal moment in its economic development, where strategic trade and investment policies can unlock significant growth and development opportunities. The continent has seen a notable increase in greenfield projects and international project finance deals, rising by over 30 percent in the past year, as highlighted in the World Investment Report 2024 by the United Nations Conference on Trade and Development (UNCTAD). Despite this, foreign direct investment (FDI) inflows in East Africa decreased by 3 percent. Overall, Africa attracted $53 billion in FDI in 2023, which is 3.4% less than in 2022. This decline persists despite Africa’s vast resources and growing investment appeal.

The infrastructure deficit in Africa is a significant challenge, requiring an estimated $130-$170 billion annually, with a financing gap of $68-$108 billion, according to the African Development Bank (AfDB). This deficit hinders economic activity, increases transportation costs, and discourages further investment. Africa needs strategic policies to address these challenges to ensure that investment translates into sustainable and inclusive economic benefits.

One transformative initiative is the African Continental Free Trade Area (AfCFTA), launched in 2021. AfCFTA aims to create a unified market for goods and services across Africa, eliminating tariffs on 90 percent of goods and streamlining trade procedures.

The International Monetary Fund (IMF) projects that AfCFTA could boost intra-African trade by 52 percent by 2025, potentially raising Africa’s income by up to $450 billion by 2035 and lifting 30 million Africans out of extreme poverty.

Additionally, ongoing trade negotiations, such as the African Growth and Opportunity Act (AGOA), have supported job creation and increased exports, with some African countries seeing significant rises in textile and apparel exports to the US market.

Investment policies are crucial in attracting and retaining capital for infrastructure development, technology transfer, and job creation. Countries with transparent and predictable investment regimes tend to attract higher levels of FDI, fostering economic stability and long-term growth.

In recent years, several African nations, such as Rwanda and Kenya, have implemented reforms to enhance their investment climates.

Rwanda, for example, exempts newly formed small and medium businesses from trading license fees during their first two years, while Kenya has established a credit reference bureau to facilitate business financing.

Africa’s growth trajectory depends on the convergence of investment policy, business climate transformation, and strategic trade negotiations.

These elements form the foundation for sustainable development and economic resilience. Investment policy catalyses economic transformation by attracting domestic and foreign capital essential for infrastructure, job creation, and technological advancement.

Crafting policies that balance investor interests with national priorities ensures mutual benefit and sustainable partnerships that uplift communities and drive innovation.

Equally important is transforming the business climate. Streamlining bureaucratic processes, enhancing transparency, and strengthening regulatory frameworks create an environment where businesses can thrive.

Reducing barriers to entry and operation empowers entrepreneurs, driving economic dynamism and fostering a culture of innovation across industries. Collaboration among technocrats, thought leaders, and stakeholders is crucial to championing evidence-based policies prioritising sustainable development and inclusive growth.

Strategic trade negotiations expand Africa’s global footprint, forging robust partnerships and advocating fair trade practices. These negotiations position Africa as a formidable player in the worldwide economy, capable of shaping global trade dynamics and driving sustainable development agendas.

Continued investment in human capital, technological innovation, and institutional capacity building is necessary to translate strategic policies into tangible outcomes, drive economic prosperity, and position Africa as a global player in the 21st century.

John Mwendwa is an investment strategist, with over 20 years of experience spanning across the banking, and government sectors.