The African Union's project on free trade was finally born. In 2018 was the year of the signature of this great project called African Continental Free Trade Area (AfCFTA). This is an opportunity of considerable changes in regional and international trade.
The January 1, 2021, marks the novel air on African development. “Over time the AfCFTA will eliminate import tariffs at 97 percent on the trade of products in the continent and address the question of non-tariff barriers” (Asmita P, 2017).
Opening the market of more than 1.3 billion people will generate more than $3 trillion in GDP, with a considerable increase in intra-African exchange of more than 50 percent, according to the United Nations Economic Commission for Africa (2018). This approval can add $76 billion in revenue to the rest of the world (World Bank, 2018). Since the establishment of the World Trade Organization, the AfCFTA will become the largest free trade area in the world (FP, 2020).
How U.S. companies could enter, expanding, and operating in this game-change African markets?
The demand for consumer and capital goods is very high in the local African markets, known as the second largest continent, that economy rely on imports to satisfy the needs and requirements of their large population. A suitable research and knowledge still needed for U.S. companies to succeed on this novel air growing economy in the world.
In June 2012, President Obama instructed the Department of Commerce to initiate a “Doing Business in Africa” called DBIA campaign to encourage federal trade promotion and financing capabilities to help U.S. companies secure investment and trade opportunities in African markets.
The DBIA campaign continues his mission by increasing the level of trade promotion in the region, addressing the market barrier issues and expanding the trade finance capability. The Department of Commerce in charge of this campaign works closely across the government and agencies by the Department of States, Export-Import (Ex-Im) Bank, the U.S. Trade and Development Agency (USTDA), the Overseas Private Investment Corporation (OPIC), as well as other interagency parties. Under the guide of Trade Promotion Coordinating Committee (TPCC), DBIA campaign will attract more U.S. companies to explore the African market and investment opportunities through new trade promotion, financing and communication efforts (White House, 2014).
Once successfully and rapid recovery of the pandemic COVID-19, as reported the firm Palladium notes “An exceptional mobilization of global private capital would drive mutually beneficial economic growth that addresses key priorities including job creation, infrastructure development, and improved social services” (FP, 2020).
This is an opportunity to collaborate with other partners and drive private finance to Africa’s single market. We have now an occasion to strengthen our strategic partnership with Africa by driving investment toward the African Continental Free Trade Area (AfCFTA).
The DBIA Campaign already has a suite of policy tools and institutions that make such a role viable. Among them are Power Africa, Prosper Africa, the Millennium Challenge Corp. (MCC), and the recently launched U.S. International Development Finance Corp. (DFC). Power Africa has a goal to add more than 30,000 megawatts of cleaner, more efficient electricity generation capacity and 60 million new home and business connections through private-public partnerships. The DFC, which replaced the Overseas Private Investment Corp., has an expanded mandate and greater resources. The MCC, which provides large grants (in the hundreds of millions of dollars) to promote economic growth, reduce poverty, and strengthen institutions, is embarking on regional projects involving two or more countries. All of these, which could help Africa address its infrastructure issues, are a step in the right direction.
The U.S. companies could enter the African markets while considering essential products to export to Africa such as: pharmaceutical products like different medical drugs and vitamins as well as health supplements are in big demand. Since the industry of health and pharmaceutics is in constant development, investing in such goods is one of the best decisions to make nowadays.
Exporting raw materials such as iron and steel which are much needed on the African market is indeed a profitable business. Africa can’t produce metals due to lack of technology, and the demand is high especially in the urban areas of the continent.
The automobiles and its components market, there is high demand such as spare parts, tires, batteries, lubricants and different mechanical pieces needed for repairs. Many countries have been exporting a wide range of automobile spare parts to Africa and making a neat profit. Car's exportation comes with a lot of new regulations and some of them keep changing. You must consider the value of the car, the demand present on the market as well as the financial capabilities of African people. Used cars are also in big demand in African countries.
The textiles and different clothing are principle in exportation to Africa. Clothes will always be a must and a necessity which is why they are a great opportunity for those wanting to export to Africa.
The plastic raw materials should be considering also a great category of goods exporting to Africa because they are highly functional and tend to come at a low price as well. The demand for plastic increased along with the urbanization process that took place in the past decades in Africa.
African markets have enormous opportunities to pay dividends, but you must thoroughly research the market. If your business produces machinery and equipment, chemicals, petroleum products, scientific instruments or foodstuffs then exporting to Africa is a great idea. Before engaging in business, most importantly is to have an agent who can travel to your target market on a regular basis and has established a network of customers there. This allows you to concentrate on supply and production. At some point though it’s important for you to get on that plane and travel to Africa. It’s important to meet people face-to-face and build proper relationships but make sure that you learn about their culture to avoid any potential embarrassing mistakes.
Examples: in a country such as South Africa you must respect laws that demand a certain percentage of employees, directors and shareholders are black. In Gabon there are strict rules that must be adhered to. These protect the health, safety and environment of Gabon’s citizens from substandard imported goods. Exporters need to provide a Certificate of Conformity for Customs clearance (XDS Solutions, 2021).
The AfCFTA will be presented as the largest free trade area in the world, it’s important to break into a growing market as early as possible. Make sure you do your research, employ agents to keep a close eye on your investments and make sure you comply with all the relevant laws in the country you are exporting to. Doing business to Africa really can pay dividends.
Crimes and corruption are always the risks though in any emerging markets. The biggest challenge to be addressed is the business climate in Africa. The U.S. government and its agencies has already a suite policy in place and are still working on issues such as infrastructure; poor communication and trade facilitation which the AfCFTA will install a Single Window System through the region to help reduce import-export process. Certain U.S. producers will decide to set up a plant in Africa to produce goods locally to help them skip the entire import-export process which can be time-consuming and even unprofitable on some occasions.
Otherwise, the corruption is influencing U.S. business perceptions about sub-Saharan Africa. The corruption in African countries has been ranked in high level, you can ignore any crime in paying off police officer, however horrific and devastating it’s just a matter of price (Okwuagbala U. 2020). According to Transparency International, “Nearly 75 million people in Sub-Saharan Africa are estimated to have paid a bribe in the past year, some to escape punishment by the police or courts, but many forced to pay to get access to the basic services that they desperately need” (2019). These will be addressed by self-satisfaction of African countries, transparency and accountability, establishing strong anti-corruption group, and employment creation.
The risk will also be addressed in working with U.S. companies, leveraging their experiences and their voices to promote trade and investment domestically and abroad. Hearing directly from businesses is not only about learning what can be done to make trade and investment in the region a better experience but also about sharing their stories and lessons learned with other businesses looking for success and guidance in the African market. The U.S. government and its agencies provided tools and free consulting to guide on markets research and connecting companies to doing business overseas such as: export.gov, United States International Trade Commission, Small Business Administration and U.S. Embassies.
As currently imagined, Prosper Africa will be a one-stop shop to facilitate increased trade and investment between U.S. and African businesses. The initiative has clear linkages with the AfCFTA, and if implemented fully and embraced, it could generate benefits for both actors. That means the United States could increase its economic partnership with the continent to the mutual benefit of both Africans and Americans. Using existing development tools and co-investing with other bilateral and multilateral agencies, the United States should provide support to Africa’s regional integration project.
Both Africa and the United States have an opportunity to increase the quality and scope of their economic exchange, but to do so would require coherent U.S. policy toward the continent. The AfCFTA provides a platform to achieve that.