ACFTA (African Continental Free Trade Agreement) has been heralded by many as a possible panacea to many trade frictions in Africa. Interestingly, the African Development Bank’s 2019 African Economic Outlook may have a clear insight on what really matters: “trade costs due to poorly functioning logistics markets may be a greater barrier to trade than tariffs and nontariff barriers”. Yes, logistics paralysis in Africa is more critical than tariffs. So, even if you remove the tariffs among member states without dealing with supply chain infrastructures, nothing catalytic will happen. Those infrastructures will be seaports, airports and trade routes structured for intra-Africa trade, besides the current Africa-Europe which the colonial rulers built to help their missions many decades ago.
When writing the African e-commerce story, I often leap at the chance to explore only the enviable milestones the continent has made. Nevertheless, there still exist formidable challenges especially in logistics, a vital constituent of the industry. The African Development Bank, in its 2019 African Economic Outlook, notes that “trade costs due to poorly functioning logistics markets may be a greater barrier to trade than tariffs and nontariff barriers”. This side of the story must also be told; if we are to find sustainable solutions to what could be the gateway to growing Africa’s e-commerce by leaps and bounds.
Simply, unless ACFTA will fix these infrastructure challenges, the expectation that tariffs will do the magic is an illusion. Yes, I am not hopeful that ACFTA can deliver, since after many years, NEPAD (New Partnership for African Development) has failed to change the destinies of African people despite the workshops and partnerships. Of course, I am not saying we do not need integration, my point is that even after all the papers have been signed, Africa needs to build infrastructures, as I noted in this Harvard article, to power trade if it hopes for those signatures to impact positively the welfare of the citizens.
If logistics accounts for 50-75% of retail price of goods, in Africa, it means that is where the opportunities are to improve trading efficiency. Tariffs remain important but we cannot lose the sights where the real challenge is. I am not sure the reason why Nigeria is not trading more with Gabon is due to tariff; I do think the problem is that poor infrastructures make that intra-Africa trade more challenging. To fly into Gabon from Lagos, you may have to fly into Europe first, and then back to Africa; tariffs will not fix that, only building infrastructures will do.
Click to join Tekedia Capital and build Next Africa with min of $10,000 co-investment in startups.