How Africa free trade area could aid SME post-Covid recovery

David Kabata- an entrepreneurship and innovation lecturer at Kirinyaga University. [Courtesy]

The economic disruption caused by the Covid-19 pandemic is not just a learning lesson to small and medium enterprises (SMEs) that their value creation and delivery systems can fail.

It is also an eye opener to the fact that businesses need to adopt new survival strategies targeting not just local but regional markets as a source of raw materials and destinations for their goods and services.

SMEs play a critical role in economic growth and also creating job opportunities through their backward and forward linkages.

It is estimated that close to 80 per cent of employment opportunities in Kenya and many African countries are created by SMEs. In addition, they contribute about 20 per cent of the national gross domestic products.

Despite this huge contribution, small enterprises encounter many challenges during their start-up and growth, causing early-stage failures and also the problem of the ‘missing middle’ when they do not graduate to medium or large businesses.

Covid-19 has added to the challenges, with World Bank statistics showing SMEs have been hard hit by the pandemic.

But even with all the disruptions, a window of opportunity is beckoning with the start of the AfCFTA, regarded as the economic transformation vehicle for the continent.

Though there still exists various challenges before the trade pact is fully operational, the largest economic bloc globally is expected to bring together 55 countries with a combined population of 1.3 billion people and a GDP of over $3 trillion dollars (Sh300 trillion).

According to latest World Bank reports, successful ratification and implementation of the free trade agreement will help increase African intra-trade by 52 per cent and also double the share of the trade within the member states.

SMEs operating in Africa will be the greatest beneficiaries of this through creation of a big market for their goods and services. This is important because it will lessen the continent’s reliance on imported goods and services, and also improve value addition capacity of local firms.

It will also enlarge the manufacturing sector while creating more employment opportunities for the youthful generation.

With borderless markets, human capital movement and technology transfer becomes easier, which will help in the modernisation of production and manufacturing capabilities for SMEs and also improve the standards of goods produced.

In addition, start-ups will be able to access development funds from a large pool of investors and venture capitalists. For instance, just recently AfCFTA introduced the Africa Free Trade Innovation Challenge as a strategy to nurture within the continent.

During the pandemic, we have seen digital innovation and transformation in health, education and supply chain systems, among other sectors.

But for these innovations to help Africa, an intellectual property rights protocol should be created that will help in the growth of knowledge-driven economies.

Full implementation of the agreement will also help SMEs to acquire raw materials cheaply and conveniently.

A small manufacturing firm dealing with textiles in Kenya will be able to acquire ginned cotton cheaply from Uganda and Tanzania, then produce yarns and garments which can be sold in the Africa market with ease.

Though a lot needs to be done for the AfCFTA to succeed - such as member states’ commitment and removal of slow and bureaucratic procedures at custom borders - it can play a great role in the post-Covid recovery of SMEs and hence that of Africa’s economies.  

- The writer is an Entrepreneurship and Innovation lecturer at Kirinyaga University