Private sector, SMEs crucial for AfCFTA development benefits, through commodity exports is a problem
A survey of over 400 CEOs from 44 African countries and two other countries reflected the importance of small and medium enterprises (SMEs) in Africa.
However, the continent’s tendency to export commodities reduces the relative development value that would result from trade in higher value-added manufactures, the trade finance institution African Import-Export Bank (Afreximbank) Consultant in African relations and trade policy Professor Patrick utomi said December 14.
The CEO Trade Survey in Africa, conducted by the private sector trade organization, the Pan-African Private Sector Trade and Investment Committee (Paftrac), assessed the sentiment of business leaders on the consideration of the African Continental Free Trade Area (AfCFTA) and the perceived opportunities, benefits and challenges. presented by this one.
When unveiling the survey results, Utomi, who is also chairman of Paftrac, said Africa’s marginalization in world trade was largely due to its dependence on commodities and a bias in favor of the extractive sectors, which also had an impact on African intra-trade trade.
âTrade remains an important engine of economic growth and the means by which African nations can protect themselves from economic shocks. However, Africa has not captured enough trade benefits and improved growth, accounting for 17% of the world’s population, while its share of global growth trade has stagnated below 3%, ” he noted.
Initially, the export of commodities helped African countries achieve some of the highest growth rates in the world, but increased their exposure to global volatility and adverse trade shocks.
âOverdependence on commodities and low levels of intra-African trade, despite integration efforts and established regional economic communities, mean that Africa’s economic fortunes remain dependent on fluctuations in commodity prices. base and external shocks.
âStrengthening intra-African trade is essential to mitigate global volatility and improve the diversification and competitiveness of economies. Africa has taken the lead on economic integration. This is an important step to streamline African regional trade, deepen economic integration and create economies of scale. and regional value chains to accelerate the process of industrialization of African economies, âUtomi said.
However, preliminary estimates suggest that the AfCFTA could dramatically increase industrial production and intra-African trade, with intra-African trade more than doubling in the first decade of implementation, he pointed out.
“An Afreximbank study has shown that, as intra-African trade comprises higher skills and technological components than trade with other regions, the AfCFTA can improve the diversification of sources of growth and trade of member states of the African Union “, he stressed.
In addition, an integrated African market is also likely to lead to an increase in foreign direct investment (FDI) flows to the benefit of participating economies, and these countries could shift FDI from natural resources to industry and manufacturing as a result. that investors seek the benefits of an increased market size and greater economies of scale, Utomi said.
Further integration of African economies into the global economy will also strengthen countries’ multilateral and bilateral trade positions.
“Promoting economic integration under the AfCFTA has the potential to increase efficiency gains through better allocation of resources to expand sectors to respond to expanding markets and consumer choices. , and better access to international capital markets and investment flows. It also has the potential to accelerate technology transfers and increase FDI flows to Africa, âhe said.
However, the development impact of AfCFTA, particularly in terms of economic development, depends on the strength and transformation of the African private sector.
Meanwhile, SMEs account for between 40% and 50% of the gross domestic product of most African countries, and about 80% of jobs in sub-Saharan Africa are in SMEs, said the development finance institution, l ‘International Islamic Trade Finance Corporation (ITFC). Senior Director of Trade Finance Management Hamady Soma Ba.
âThe private sector and SMEs are therefore important and important in reducing poverty and supporting development in countries. SMEs play a vital role and the private sector must support and benefit from the benefits of the AfCFTA to have the development impact we want to see in Africa, âhe noted.
Additionally, over 50% of CEOs who responded to the survey represent SMEs, and the survey showed high levels of optimism, with 71% of respondents indicating that AfCFTA will encourage them to invest to grow their businesses. regional level activities. More than half of those polled, 57%, also believe that the AfCFTA will open up new markets for exporting regionally and 62% believe it will provide the frameworks necessary to export more regionally, Utomi said.
However, key challenges remain and will negatively impact Africa’s economic recovery prospects, and 64% of CEOs identified lack of access to finance as the biggest challenge. Additionally, 61% of CEOs identified the continued impact of the Covid-19 pandemic on economic opportunities as a challenge and 48% identified a slowdown or lack of public sector investment and spending as a key challenge. .
âThe survey results reflect the importance of SMEs in Africa, with around 80% of jobs in sub-Saharan Africa provided by SMEs. It is therefore important to address the concerns of SMEs to ensure the success of the AfCFTA, âhe said.
The positive sentiment expressed by those interviewed demonstrated the potential of the AfCFTA and the eagerness of the private sector to take advantage of the market access opportunities it offers, Utomi said.
“However, several key constraints must be addressed to ensure that intra-African business opportunities can be exploited for the benefit of African SMEs, and the implementation must help African SMEs to take full advantage of the opportunities presented by the AfCFTA,” a he declared.