Firms to reap big from free trade -AfDB

Undated photo of Akinwumi Adesina, the President of Africa Development. [File, Standard] Bank

Africa’s free-trade pact will help shift the continent away from its over-reliance on volatile commodity exports and boost manufacturing, according to the African Development Bankm (AfDB).

Sectors where African products already have a competitive advantage have the most to gain from the deal that joins the markets of more than 50 countries, making it the largest free-trade zone in the world, AfDB President Akinwumi Adesina (pictured) said in an interview in Niger’s capital, Niamey.

This was after Benin and Nigeria signed the African Continental Free-Trade Agreement at the weekend, paving the way for trade with reduced tariffs to start next July.

 “Manufacturing, trading in value-added products and strengthening supply chains will allow for markets to grow and for new markets to emerge,” Adesina said.

“SMEs that account for 80 per cent of all trade on the continent will benefit, as well as the financial sector, as digital payments will be needed to transact.”

Commodity exports dominate even in Africa’s two biggest economies, with mining production accounting for about half of South Africa’s shipments while crude oil generates 90 per cent of Nigeria’s foreign income.

The mechanics of the deal now has to be negotiated.

A digital system for payments converging one country’s currency to another member state’s is the most important mechanism to have in place before trading starts, Adesina said.

That’s where the Economic Community of West African States’ plan to adopt a common trade currency will also help because it could reduce foreign-exchange risks, he said.

Infrastructure gap

Access to the continental market and an increased focus on industrialisation are likely to benefit countries with access to ports, railways and airports the most, Adesina said.

The continent’s infrastructure funding needs are at Sh13 trillion ($130 billion) to Sh17 trillion ($170 billion) a year, with a financing gap in the range of Sh6.8 trillion to Sh 10.8 trillion according to AfDB estimates.

“Infrastructure is the most critical aspect,” Adesina said. “If the costs of doing trade continue to be high because you have an infrastructure deficit, this will be the biggest challenge.”

The AfDB will provide Sh480 million for member states to set up the trade zone’s headquarters in Ghana and has asked its board for a general capital increase to invest in infrastructure and support the free-trade area. 

The African Export-Import Bank has said it will establish a Sh100 billion facility to enable countries that signed up to the trade deal to adjust to reduced tariffs as a result of the pact.