Small Businesses in East Africa Wary of AfCFTA Impact

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[ACCI-CAVIE] The African Continental Free Trade Area (AfCFTA) has the potential to greatly enhance intra-Africa trade once it is fully implemented. However, small businesses in East Africa are expressing discontentment, as they fear that the agreement may not be favorable to their interests.

A recent survey conducted by the East African Business Council (EABC), a lobby for private-sector players in the East African Community (EAC), reveals that small businesses in the region are apprehensive about the full implementation of AfCFTA, which they believe could adversely impact their operations unless they adapt their strategies.

Challenges and Concerns:

Small businesses in East Africa face numerous challenges domestically and are dissatisfied with the progress made in eliminating trade barriers within the EAC. They worry that the competition arising from AfCFTA could potentially push them out of business, leading to closures. The EABC survey, co-published with the African Export-Import Bank, highlights that “intense competition arising from AfCFTA tariff liberalization is likely to drive weaker enterprises out of business unless they scale up their efficiency levels.”

Potential Benefits and Skepticism:

AfCFTA, once fully implemented, is expected to eliminate tariffs on 97 percent of goods traded between African countries, thereby creating new markets for East African businesses. However, since these businesses have yet to fully exploit the regional market, they are not as enthusiastic about the continental customer base. Theoretically, AfCFTA is projected to boost Eastern Africa’s exports to other African countries by at least $1 billion annually, create up to 1.9 million jobs, and lift 65 million Africans out of extreme poverty, according to estimates by the United Nations Economic Commission for Africa (UNECA). Nonetheless, traders remain sceptical due to the existing challenges within the EAC and seek the removal of trade barriers both within the region and across the continent, enabling them to fully benefit and compete effectively under AfCFTA.

Identified Challenges:

The EABC study highlights several challenges faced by traders in the region. One key obstacle is the insufficient testing and certification infrastructure in some EAC partner states, which slows down cross-border business. This inconvenience, coupled with increased business costs, poses significant difficulties for small-scale traders. The EABC suggests the establishment of shared laboratory facilities strategically located across the region to address this issue. Additionally, traders express dissatisfaction with available cross-border payment options, transport networks, and the presence of non-tariff barriers that impede their access to cross-border markets.

Impediments to Trade:

The survey indicates that complex customs procedures, transportation and logistical issues, standards, sanitary and phytosanitary measures, and transit procedures are the leading impediments to trade cited by regional businesses. Dissatisfaction with the payment system is attributed to high bank transaction costs and exchange losses resulting from currency conversions.

The Way Forward:

Currently, East African countries are primarily net importers from the rest of Africa. On average, only 20 percent of member country exports are sold within Africa, while just 19 percent of their imports come from Africa. To ensure the success of AfCFTA without undermining local businesses, the EABC urges regional governments to take measures to advance the competitiveness of regional traders. These measures include fully operationalizing AfCFTA instruments in all partner states, reducing the cost and barriers to intra-African trade, enhancing transparency and accountability by regional customs authorities, and providing the business community with evidence-based trade information to leverage AfCFTA tariff concessions and trade facilitating instruments. Furthermore, investments in import substitution, export promotion, and the manufacturing sector are needed to enhance the region’s trade balance with the rest of the continent in preparation for AfCFTA.

According the experts of the African Centre for Competitive Intelligence (ACCI), with the right policies and business environment improvements, the continental market could fuel inclusive growth by creating new opportunities for SMEs across borders. The success of AfCFTA hinges on ensuring benefits are realized at the grassroots level of Africa’s business community.

The Editor with the East African