The narrative surrounding a successful African Continental Free Trade Area (AfCFTA)—its potential to increase intra-African trade by 15 to 25 percent, or $50 billion to $70 billion—is promising, but if African businesses do not make effective use of this landmark agreement, its ultimate success will be limited. Since the private sector is directly involved in cross-border trade, it is a major stakeholder and beneficiary of the AfCFTA. Thus, to better understand how African businesses are approaching AfCFTA and, more importantly, how AfCFTA can best support these businesses through trade, the United Nations Economic Commission for Africa (ECA) created AfCFTA country business index (ACBI).
ACBI is a new index focused on AfCFTA, easy to do business and based on a strong theoretical framework and data collection process. It enables relevant policy makers to identify obstacles to intra-African trade at the country level, which informs the barriers impeding the effective implementation of AfCFTA from the perspective of the private sector. It aims to inform African policy makers on trade barriers and guide national AfCFTA strategies. ACBI aims to ensure that the African Continental Free Trade Area delivers on its anticipated promises of sustainable development, particularly for women-owned small and medium-sized enterprises (SMEs).
ACBI chap three dimensions relevant to the understanding of the AfCFTA and related negotiations:
- Ease of trading goods across Africa;
- Strong awareness and use of Africa free trade agreements (FTAs) and AfCFTA;
- The business environment in relation to trade in services, intra-African investment, intellectual property rights and competition policy.
For a robust discussion of ACBI’s methodology, see the bottom of this blog.
Key findings of ACBI: How do African businesses perceive intra-African trade?
The first round of ACBI (which covered the seven countries of Angola, Côte d’Ivoire, Gabon, Kenya, Nigeria, Namibia and South Africa) reveals some important trends in the understanding and use of the AfCFTA by African businesses. Here are the key findings:
Overall, surveyed businesses reported feeling neutral about their country’s environment for trading and investing in goods across African borders. that is, on average, firms feel neither positive nor negative about the ease of doing business within Africa (Figure 1). As these seven member states have deposited their instruments of ratification of the AfCFTA, the obstacle appears not to be on the legal side, but rather on the lack of support from enterprises to identify strategic interests and market opportunities to ensure that the private sector can take full advantage of the AfCFTA.
Notably, the survey also reveals that perceptions are related to trading of goods (Figure 2) pose significant challenges to trade within the continent. Some of most commonly identified obstacles include unauthorized charges (bribe at a country’s border points or along transport routes) and other fees in trade (customs, border and product surcharges, price controls, reference prices, variable surcharges for goods, statistical taxes, import permit fees, etc.).
Firms appear to have positive perceptions of sanitary and phytosanitary measures and technical barriers – implying that these measures do not constitute a barrier to intra-African trade. This finding is evident given that some experts have argued that these measures and barriers often constitute a major constraint on Africa’s trade competitiveness and international trade.
In terms of “awareness and use of FTAs,” the survey found that most firms were very aware of their country’s participation in different regional economic communities, but less informed about their country’s participation in AfCFTA (Figure 3). In other words, African businesses do not have a clear understanding of the working mechanisms of the AfCFTA and market opportunities at the continental level.
Most importantly, the surveyed firms most often mentioned compliance with an FTA rules of origin requirements, which determine how exported goods are delivered to a country may qualify for cheap or preferential import tariffs, as the most binding restriction on trade. Businesses often face difficulties in complying with these rules, and their complexity can be particularly difficult for informal traders. Rules of origin should be simple, practical and business-friendly to enable African businesses to optimize the trade benefits expected from the AfCFTA. At the same time, rules of origin should lead to a transformation process that generates value through intellectual property benefits and/or new jobs.
Regarding the “trade environment”, companies mostly report that they are neutral in their perception of the investment, competition and intellectual property rights policies included in the AfCFTA. One possible explanation is that the AfCFTA protocols governing these policies are still under negotiation. For this reason, negotiators and African governments should prioritize finalizing the design of implementation strategies regarding concrete measures to facilitate access to African markets, reduce service costs and harmonize regulations related to the business environment.
Finally, Perceptions about trade differ widely between male- and female-owned businesses, as well as between SMEs and large companies (Figure 5). For example, women-owned firms and SMEs most often cite cross-border trade as a major challenge to growing their businesses. This finding is consistent with the literature: Women-owned businesses are, on average, more negatively affected by tariff and non-tariff barriers.
Conclusion and recommendations
ECA aims for the ACBI to be a monitoring and evaluation tool for African countries to understand and address the challenges faced by businesses in their countries when implementing the AfCFTA. The active involvement of the private sector is vital for informing AfCFTA National and Regional Strategies and, thus, realizing the expected benefits of AfCFTA. The rollout of ACBI to all African countries will support the implementation of the AfCFTA by identifying key trade barriers at the country and regional level. It is equally important to build strong partnerships with national and regional business associations to support ACBI’s outreach and share best practices across countries and sub-regions.
ACBI’s findings make an important contribution to Africa’s Agenda 2063 development plan and the 2030 Agenda for Sustainable Development by identifying obstacles in trade regimes that need to be addressed to ensure more inclusive trade under the AfCFTA. Indeed, the ACBI results highlight the importance of complementing the AfCFTA with specific trade facilitation policies to ensure more inclusive trade under the AfCFTA.
In Africa, most medium, small and micro enterprises are owned by women. It is therefore important to ensure a favorable national, as well as continental, regulatory framework that allows them to participate in an efficient, effective and competitive manner. Thus, African countries need to design specific policy responses support the comprehensive implementation of the AfCFTA.
Furthermore, an important and immediate point of action is to raise awareness of the possibilities of the AfCFTA and its working mechanisms both at the national and continental levels. This ultimate objective can be achieved through deeper engagement with the private sector and business associations during the development of country and regional AfCFTA implementation strategies and through wider dissemination of these implementation strategies once they are completed to create the ecosystem required for businesses.
ACBI approach and methodology: An index driven by private sector perceptions
The ACBI is different from other doing business and integration indices as it 1) is based on private sector perceptions collected through primary surveys rather than secondary data and 2) focuses on African integration by targeting trade-based businesses ( and investment) within Africa. It is the first index based on a robust methodological framework and data collection process that translated business opinion on trade restrictions under the AfCFTA. The dimensions that ACBI focuses on (see Table 1) are closely related to the AfCFTA negotiations and outcomes, all of which focus on deepening integration across the continent.
Table 1. ACBI dimensions and subdimensions
|Limitation and costs of goods||Assess the extent to which businesses see trade in goods as significant challenges for intra-African trade||Tariff barriers|
|Technical barriers to trade|
|Sanitary and phytosanitary measures|
|Fraud and corruption|
|Knowledge and use of African FTAs||Determine business views on the ease of use of FTAs and on awareness of the AfCFTA||Awareness of African FTAs|
|Ease of use of African FTAs|
|Access to information on African FTAs|
|FTA rules of origin|
|Commercial environment||Understand private sector perceptions of barriers to investment, the services business environment including competition policy and intellectual property rights||Investing|
|Trade in services|
|Cost of services|
|Intellectual property rights|
Source: ECA based on ACBI survey
The ACBI survey is based on a minimum purposive sample of 50 completed responses in each country and primarilyis done through online channels, with telephone and face-to-face interviews completed as needed.
Consistent perceptions are collected through a perception ranking (Likert) scale, ranging from 0 to 10. Index, dimension, and subdimension scores sum these perception scores to provide an overall score for each country, ranging from 0 to 10, where a higher score means that a country is perceived by businesses in that country to be “performing” better in addressing trade, investment and integration issues in Africa.
For the ACBI, each dimension is weighted equally within the index and each subdimension is weighted equally within each dimension. As a perception index, the results can be interpreted based on strong perceptions of various aspects related to trade and investment across African borders. A score of 5 reflects a neutral perception (ie, on average firms feel neither positive nor negative about a specific area). A score below 5 indicates that, on average, firms have a negative perception of the area of interest. Conversely, a score above 5 suggests that firms consider positively the impact of that area on their business, or their ability to trade and invest across borders.
This contribution represents the personal opinions of individual staff members of the United Nations Economic Commission for Africa (ECA) and is not intended to represent the position of either the ECA or its members, nor the official position of any staff member.
The authors would like to thank various contributors to the ACBI work, namely Mama Keita, David Luke, Komi Tsowou, Jamie MacLeod, Yash Ramkolowan, Jean Moolman, Thomas Yapo, Matthew Stern, Linton Reddy, Baneng Naape, Kendall Rÿnders, and Jenni Jones, Micaela Mooloo.