New PAFTRAC report reveals AfCFTA as African companies' act of faith

In line with the previous edition, the latest PAFTRAC Africa CEO Trade Survey Report (2024) provides an assessment of the impact of the African Continental Free Trade Area (AfCFTA) on African trade. PAFTRAC is the acronym of Pan-African Private Sector Trade and Investment Committee, an advocacy platform bringing together stakeholders from both the public and private sector to formulate policy recommendations aimed at improving trade and investment flows across the continent. Every year PAFTRAC issues a report where it describes the perceptions of African Chief Executive Officers (CEOs) about the future economic outlook of the continent based on specific surveys. All the editions of the report also make an analysis of the expectations of African businesses regarding the AfCFTA.

The first PAFTRAC survey report was published in 2021. The new edition is based on a survey conducted from 15 June until 15 August 2024 that collected views from 1,388 executives from 49 African countries. The surveyed companies are mainly Small and Medium Enterprises (SME) with less than 50 employees (representing 55% of the sample), and covering a wide range of sectors, from agriculture, tech and telecoms, transport and logistics, banking to manufacturing.

The PAFTRAC Africa CEO Trade Survey Report 2024 depicts a worrying scenario for the continent, where high inflation and interest rates, rising debt levels and security challenges continue to threaten the development path of many African economies. However, despite these challenges, African CEOs remain confident about the continent’s economic prospects and on the potential for the AfCFTA to sustain growth by boosting intra-African trade volumes.

Key instruments support the AfCFTA objective of creation of a single market for goods and services. Among them, the Pan-African Payment and Settlement System (PAPSS) is a particularly important one. Yet, an incredible 46% of the sample declared to be completely unaware of this tool. The PAPSS is a mechanism that lies at the heart of the AfCFTA by providing payment, clearing and settlement facilities for African cross-border trade. In practice, it is a bank system alternative to the SWIFT system, which avoids the need to convert African local currencies into hard currencies provided by correspondant banks located outside the continent, so allowing African companies to pay their suppliers in other African nations by using their own currency. In this manner, they avoid to pay expensive bank commissions to banks for the currency conversion operations. If companies are unaware of this tool, then they will obviously not be unable to use it, this is the point.

But it does not finish here, because also other supporting tools like the AfCFTA Adjustment Fund and the AfreximBank Automotive Fund, as well as operational guides such as the AfCFTA E-tariff Book, are little known. What it is even more shocking is that almost 4 years from the implementation of the agreement, most companies complain that they have limited or no access to relevant AfCFTA information and have received little support. Yet, the information and communication tools, the training initiatives and sensitization campaigns put in place by the AfCFTA Secretariat, by the African Union, the Regional Economic Communities and Development Partners to promote the awareness of the agreement have been many. But for an agreement of this magnitude and wide geographical coverage, it should not come as a surprise.

Another key aspect that also emerges from the report, in line with the results of the previous years’ surveys, is the optimism that reigns among African businesses on the impact of the agreement. This is astonishing, in the light of the main conclusion of the report that the levels of familiarity with the AfCFTA and its operational tools are still relatively low. How someone can have confidence in something that does not know enough? It seems that in Africa many have adopted an approach toward the AfCFTA that seems to be more an act of faith than the product of a reasoned analysis.

Regarding the status of intra-African trade, the report notes that it is still limited, but with some countries that are more involved than others, mentioning South Africa, Egypt and most of East African nations. The report also see opportunities to expand existing supply chains, especially in the automotive and pharmaceuticals sectors. More generally, the perceptions of the surveyed sample of African CEOs confirm that inconsistent regulations and a lack of cooperation between neighbouring countries are the main obstacles to the AfCFTA implementation.

Instead, a key point that would heve deserved to be emphasized more is the insufficient access to finance for African businesses. The trade finance gap in Africa is huge, as reminded by the WTO Annual Report 2023. In this publication, the WTO argues that the trade finance market in Africa barely covers 40 percent of total merchandise exports and imports, about half of the global average. Moreover, the cost incurred by companies in Africa to obtain financing for their trade operations is disproportionately higher than in other regions. Because of this situation, those businesses that would like to expand their operations to target new continental markets find very difficult to procure the financial resources needed to access these markets. Correcting this distortion will require the concerted support of various parties, including Afreximbank, the African Development Bank, other multilateral banks, and also African governments. Let’s put it straight: it is not possible to develop a single continental market without facilitating access to credit and trade finance to African businesses.

As usual, the bitter pill comes at the end. The gap in cross-border infrastructure (such as roads, railways and fibre cables), is indicated as a key barrier to the integration of African economies. Securing funding for such expensive projects, the report admits, will be difficult, particularly as a result of the partial retreat of Chinese state banks from the continent. Much more investment needs to be funneled into strengthening cross-border infrastructure. Too many rail and to some extent road networks fail to connect with neighboring economies, while one stop customs infrastructure and processes can help speed up border crossings by avoiding multiple cargo checks. There is awareness of the need to better connect the various regions and nations in Africa, transforming internal borders into conduits for trade, rather than barriers. Unfortunately, this vision is utopian without ensuring the free movement of people across these borders, an issue that the report does not address…