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The automotive sector is garnering particular attention. As automobile manufacturers seek out opportunities to source components with an African point of origin, so component manufacturers are looking for opportunities to expand existing operations and develop relationships that will add value along the long supply chain. The resulting hub-and-spoke model promises to see this industry make great strides under the AfCFTA.
Perhaps the most significant impact of the AfCFTA so far is the Pan-African Payment and Settlement System (PAPSS). This centralised system facilitates instant cross-border payments in over 40 African currencies, reducing reliance on foreign currencies like the US dollar. It has major implications for financial services on the continent and benefits small and medium-sized enterprises by easing access to hard currency, fostering trust, and streamlining cross-border trade.
With systems like PAPSS coming online, and the abundant opportunities in mobile financial services, African banks are seeking to transform digitally. There is a palpable shift from being digitised (offering consumer-facing digital solutions like banking apps) to becoming truly digitalised – digitally transforming back-end systems to improve operations, data management, data security, customer experience and more.
The financial services industry is visibly attracting interest, and often from unexpected sources. Retailers and point-of-sales businesses are beginning to offer consumer credit, for example – a practice that has been the purview of traditional banks in most African countries, with South Africa being a notable exception.
Further opportunities lie in addressing Africa’s infrastructure deficit as a major enabler of the AfCFTA’s success. Electricity demand will increase by 93% by 2035, approximately 47% of roads will need to be paved, ports must increase their average container handling performance from 20 to 25-30 moves per hour, and another 300 million people must gain access to the Internet to keep up with the continent’s economic growth prospects.
The urgency of addressing this deficit is particularly visible in Egypt, where the rate of construction is reminiscent of development in the United Arab Emirates 20 years ago. Heavy investment in the country’s ports and ancillary infrastructure intends to maximise Egypt’s capabilities as an export hub from Africa to the rest of the world. Policy redevelopment to support this aim is also well underway.
In Kenya and Ghana, policies and procedures designed to support manufacturing are being developed, while countries like Zambia are actively pursuing Government partnerships with private investors to develop agricultural infrastructure, fisheries, and border and transport infrastructure, amongst others.
Companies keen to join this economic transformation, must consider certain practicalities of business success in Africa. The first is establishing a footprint that enables profitable operations but minimises the impacts of regulatory and governance disparities across borders, and operational costs. Linked to this is reporting in an environment that remains challenging even as the AfCFTA takes root.
And, with the Global rise in Environmental, Social and Governance (ESG) reporting requirements and the AfCFTA’s clear intent to address long-standing socio-economic problems on the continent, managing, monitoring and reporting on ESG impacts will also be important.
And finally, the availability of appropriately skilled labour in Africa can be a further challenge. Perhaps the biggest hurdle AfCFTA now faces is a resolution around the free movement of labour. It will be a key contributor to the success of the free trade area, but not all African countries are committed to the concept. So, organisations seeking to staff new African operations will need a trusted partner to support the recruitment, employment and training of their human resources in the short-term. In the longer term, facilitating cross border transfers may become a further requirement.
The AfCFTA represents an exciting time in Africa’s economic development. As SoluGrowth, we aim to shed more light on the key business considerations in a series of thought leadership pieces.
There has never been a better time to take the leap and invest in an African footprint for your business.
