Funding is needed now for the world’s biggest trade pact to reach its potential, writes Samaila Zubairu, President and CEO of AFC
There is no doubt that the African Continental Free Trade Area (AfCFTA) is a game changer for our continent’s economic growth, industrialisation and sustainable development. The free trade market of 1.3 billion people, the largest in the world, has created a $3.4 trillion economic bloc with scope to drive the kind of cross-border economic integration and cooperation that has enabled businesses to scale operations in Europe, the US and Asia.
Yet, the challenge of diversity amongst the 54 member countries is one that cannot be wished away. Excessive border bureaucracy, political divisions, and poor road and rail links frustrate the flow of goods and ideas.
While increasing intra-African trade will naturally boost industrialisation, economic diversification and, essentially for Africa, the beneficiation of the continent’s natural resources, commodities and agricultural produce, there will also be an enlarged burden suddenly on associated infrastructure: roads, railways, power, telecoms, water, sanitation, waste management, housing, schools and more. There will be substantially increased demand for new industrial parks and Special Economic Zones. These parks need to be financed and built.
UN Under-Secretary-General and Executive Secretary of the Economic Commission for Africa (ECA), Vera Songwe, said the AfCFTA is expected to “significantly increase traffic flows on all transport modes: road, rail, maritime and air.” But this boost will only be optimised if the AfCFTA is accompanied by robust implementation of regional infrastructure projects.
It is critical that infrastructural development precedes enactment of the full scope of AfCFTA’s vision and mission to avoid a sudden and intolerable burden on transport and energy networks.
The ECA has forecast that the AfCFTA will increase intra-African trade in transport services by almost 50% in absolute terms, with over 25% of intra-African trade gains in services going via transport networks. The share of intra-African trade using freight transport across the continent’s 65 ports will increase to 22.7% from 22.1% if both AfCFTA and planned infrastructure projects are implemented. The agreement would double maritime freight to 131.5 million tonnes from 58 today. Africa will require 126 vessels for bulk cargo and 15 vessels for container cargo by 2030.
Implementing AfCFTA would double the volume of goods transported by air from 2.3 to 4.5 million tonnes across 14,762 air routes connecting Africa’s airports.
Insufficient power generation and frequent outages coupled with vast swathes of rural areas being unsupplied–almost 600 million people in sub-Saharan Africa lack access to grid electricity–create significant socio-economic barriers, including constraints to business productivity, economic growth and employment creation. With the global push to transition to renewable energies, Africa’s climate has innate advantages to harness solar, hydro, wind and geothermal energy, but the infrastructure spend required is enormous.
Similarly, as Africa becomes increasingly beholden to digitisation–predominantly through mobile phones–substantial investments in telecommunications and ICT infrastructure are needed if the continent is to fully realise the benefits of the AfCFTA.
Rapid urbanisation and the forecast growth in Africa’s population–from just under 1.3 billion now to almost 2.5 billion by 2050–further inflate the infrastructure deficit. African governments (now additionally constrained by rising debt-to-GDP ratios due to the pandemic), international investors, DFIs, pension funds, investment companies and the private sector all have a key role to play in providing and mobilising investments into African infrastructure. Such investments play to the strategic interests of regions such as China, the US and Europe, among others, which are all competing for investments and influence across Africa.
$150 billion gap
The colossal scale of the infrastructure challenge should not be underestimated. Annual infrastructure investment in Africa has amounted to about 3.5% of GDP since 2000, whereas China spends 7.7% of its GDP and India is at 5.2%. This suggests that Africa needs to spend US$150 billion a year by 2025. Covid has only widened the infrastructure deficit, as many projected spending commitments failed to materialise due to the pandemic.
Against these challenges, Africa has numerous favourable growth factors: the AfCFTA itself, a young and growing population, most of the world’s resources in metals and minerals required for the global new energy transition, increased industrialisation, and demand growth driven by the population explosion.
Moreover, the rewards for successful investment in African infrastructure go above and beyond. In AFC’s experience, average returns on infrastructure investments in Africa surpass most other emerging markets.
AFC managed to emerge largely unscathed from the ravages of the Covid-19 pandemic, having retained both its investment-grade credit rating and the access and ability to successfully tap international capital markets. With a solutions mind-set, strong fundamentals, an ecosystem investment approach and in-depth knowledge of Africa, AFC is uniquely positioned – in partnership with other organisations – to increase its contribution to closing Africa’s infrastructure gap across the focus sectors of power, heavy industry, natural resources, telecommunications, transport and logistics.