AfCFTA and Logistics in Africa
A crucial component to the ease of doing business is how easily people can move their goods and services as needed. On average African countries rank between 1.77 and 3.43 out of 5 on the Logistics Performance Index which measures the ease, speed and simplicity of moving goods and services across the continent. This index also assesses other indices like cross-border clearance processes, inefficient tax structures, and tracking bottlenecks are challenges for doing business on the continent.
Inadequate road networks and transportation infrastructure has made it such that tarred roads are typically all within urban and peri-urban areas while leaving rural areas without decent road networks. An imbalanced and unequally allocated road network signals that trade is not as optimised as it can be, and this is evident in the challenges SMEs face in moving their goods regionally and locally. In a recent interview, the founder of the Tony Elumelu Foundation highlighted that, ‘the movement of goods across the continent still poses a big challenge to economic prosperity and growth’.
To wit, in our work supporting young entrepreneurs across 54 African countries at the Tony Elumelu Foundation, we have seen first-hand that a major hurdle for our entrepreneurs has been intra-regional movement of goods and services.
With 0.6 per cent of our entrepreneurs working across the logistics value chain, we are privy to the myriad of challenges SMEs across the continent face including high costs, tariffs and volatile markets, unclear and irregular customs processes, licensing, and production.
While infrastructure is improving on the continent, it is still minimal as Africa has not caught up to the demands of its increasing population with approximately 53% of roads being unpaved. Barriers to movement such as high costs of fuel, labour and equipment also highlight that poor road networks have not been addressed.
The present inability to use technology to connect shippers to goods also leads to high movement costs and makes logistics in Africa more expensive than the rest of the world. One of the ways this happens is that transporters cannot ensure dropping off goods for both ends of their journey – a concept known as ‘empty runs’, when this happens prices go up to make up for lost time and fuel.
Another challenge is the congestion at ports and long waiting times to process shipments upon arrival. In Nigeria, for example, port congestion caused by old infrastructure, absent rail transport, amongst many other issues has increased loading and offloading fees, with people paying up to $4000 to offload their containers, in one of Africa’s busiest ports – the Apapa port in Lagos.
AfCFTA – A brighter future
Through the African Continental Free Trade Area (AfCFTA), – an agreement that will establish the largest free trade area in the world, 30 million Africans are set to be lifted out of extreme poverty and expected boost in the income of up to 68 million others living on less than $5.5 a day.
This trade agreement promises to ease hurdles in regional trade on the continent which will ultimately reduce the numbers of people living in extreme poverty. This agreement promises to be catalytic for the logistics industry, with support to cross-border movements and an improvement in infrastructure. Consequently, adequate political will, a seamless implementation process and an active private sector will yield transformational results for the continent.
The role of policy makers.
As countries in Africa have different capacities for business and are in different stages of their development, Somalia and South Africa being on different ends of the Logistics Performance Index for example, the AfCFTA presents an opportunity to bridge some of these gaps with service and goods delivery.
As multilateral and bilateral agencies begin to devise COVID-19 efforts, it is important that some of this support is shifted towards the development of better road infrastructure on the continent.
Federal, state, and local governments as well as regional institutions such as COMESA, ECOWAS, The Arab Maghreb Union all have a crucial in ensuring that small and medium scale enterprises can to trade effectively across the continent to individually and collectively boost their economies.
The AfCFTA, and the creation of a single market of goods and services, represents an expedient opportunity for the issues of logistics in Africa to become more streamlined, with countries coming together to share and agree on uniform solutions to issues around customs challenges. Instruments to address these challenges such as the creation of a union for customs activities on the continent and agreement on a shared customs strategy will be instrumental in shaping the future of trade on the continent.
By building adequate transportation networks, Africa will be better equipped to better serve the demands of its growing small and medium scale businesses while creating opportunities for them to thrive.