The Largest Free Trade Area in the World is Now Located in Africa, and It’s Affecting Local Manufacturers. Here’s How.
When the African Continental Free Trade Area (AfCFTA) agreement went into effect on January 1, 2021, Africa became the largest free trade area in the world, connecting 1.3 billion people across 55 countries with a GDP valued at US$3.4 trillion. Though intended to boost intraregional trade in manufacturing, the agreement gave local manufacturers an opportunity to grow their share of global trade by quite a lot.
By 2035, the volume of total exports could increase by almost 29%, according to a report by the World Bank. The same report says intracontinental exports could increase by more than 81%, while exports to non-African countries could rise by 19%.
So, I wonder, now that we’re over 15 months on, are manufacturers seeing a boost to their bottom lines?
I connected with Neil Gouveia, Zebra’s Director for Africa, for an update based on what he’s seeing and hearing in the region. This is what he had to say…
Stephan: Has there been a rapid change in Africa’s manufacturing sector in the past year, at least one that can be attributed to the AfCFTA agreement? Are manufacturers seeing more demand resulting from the agreement?
Neil: Based on what I have seen and heard in the market, I don't believe manufacturers are seeing more demand yet. (It's still too early). A lot of manufacturing across the continent is around agro-processing and with the pandemic, most countries started prioritizing holding onto nutrition-sensitive goods to sustain their population. So, while the pandemic might have reduced inter-trade demand, it also highlighted that countries need to produce their own food and drugs. That’s why the benefits of the AfCFTA agreement to manufacturers might only show up in the next 3 - 5 years. Even though trading under the agreement started at the beginning of 2021, we are yet to see any noticeable impact of it in terms of increased demand or production. The pandemic really slowed down the implementation of the trade agreement. As we stand, the AfCFTA agreement is currently stuck between the "negotiation" and "implementation" phases. There is still positive market sentiment that the agreement is a huge step forward for Africa and will have a positive impact, but this is yet to be realized.
Stephan: What is being done to integrate African manufacturers into global supply chains? Are they receiving assistance – or invites? Or have they had to go out and create opportunities on their own?
Neil: Speaking to my African counterparts, I have heard that it is evident there are a lot of development agencies, private sector actors, multinationals, small-to-medium enterprises (SME), and entrepreneurs working with the AfCFTA secretary’s office to implement the necessary coordination to actualize the Pan-African trade vision. There are still so many bodies trying to figure out how to work in this framework, and it is not clear at this stage who will support manufacturers in reaching the global market.
Stephan: Do you think growth opportunities are equally dispersed across the continent? Or do you find manufacturers located in areas where there may be more logistical resources have an advantage for either intracontinental or international growth?
Neil: Africa is an incredibly diverse continent with over 50 countries, and I don't think the opportunities are equally dispersed across the continent. There will be bigger economies that have more sway, power, and access to markets than others, and there are countries within each region that have more political and economic willpower than others. South Africa, Nigeria, Kenya, Egypt...these countries will have more influence on the market. That being said, locals assume that the smaller economies that are strategic will focus on making sure their infrastructure supports both continental and internal trade.
Stephan: Would you say commerce hubs within the free trade area are influencing manufacturers’ international opportunities? Are businesses starting to utilize local manufacturers to support their growth elsewhere?
Neil: I do think the free trade areas will influence international opportunities for manufacturers, especially with the right concessions and incentives around tariffs, electricity access, road networks, and workforce availability. We may also see African countries coming together with complimentary local products and forming alliances to offer a broader range or more complete product set to the international market.
Stephan: Have manufacturers started to scale operations yet in anticipation of new opportunities?
Neil: We do see some manufactures in isolation who are proactively planning their digitization roadmap and are starting to invest in their journey to be able to cope with current and future demand when it arises. I believe that the manufactures that proactively invest now and are geared up to cater for future growth and demand will be ahead of the curve and reap the rewards. Many who fall behind will find it difficult to catch up and compete in the future.
Stephan: What do you believe are the biggest roadblocks for manufacturers right now regarding fulfillment of secured orders or future growth potential?
Neil: I believe that limited insight into operations could be a stumbling block for manufactures as the AfCFTA agreement adoption gains momentum. Many local manufactures have not digitized their manufacturing operations, and this will limit their ability to boost their productivity and move faster on projects. The reality is that if manufacturers experience rapid growth and need to hit more aggressive deadlines, they will find it extremely challenging without real-time insight to what is happening on their manufacturing floors and in their supply chains.
Stephan: Are there ways in which you think they could better use technology to eliminate or workaround those obstacles?
Neil: Yes absolutely! For manufacturers to transform and redesign their operations, they will need to take a systematic approach in looking at their manufacturing operations and identifying which are the key areas to focus on digitizing data and subsequently digitalizing workflows (or implementing technology to turn a manual process into a digital one). It does not have to be a ‘’big bang’’ approach but building a roadmap with a clear end goal and the steps/milestones to get there would be a great start. It could start by simply introducing track and trace solutions using sensors, RFID readers and scanning technology. This would enable manufacturers to create a digital record of every product as it moves through every step of their manufacturing facilities. Track and trace solutions enable them to take a holistic view of operations and know what’s going on across the end-to-end supply chain. With this insight, manufacturers will have better visibility into their operations, become more agile and optimize floor performance.
Stephan: What do you think manufacturers should prioritize right now – or in the next 6-12 months – to either improve their eligibility in global supply chains or prove they’re capable of meeting demand and delivering on time? Is it a restructuring of operations? Scaling of their supplier networks? Digitalizing their systems in a way that allows them to better communicate with customers or manage orders and inventory?
Neil: Systems of record were once enough, but the reality is that with ever-rising customer expectations, manufacturers will need systems of reality to compete in the on-demand economy. I believe that the ultimate goal is digitalization (and for some automation will be feasible). But as I mentioned before, the journey needs to be mapped out with a clear starting point and end goal. I would say that the first step would be to build this roadmap with industry experts from Zebra and start on the journey. For manufacturers to be competitive and deliver on their customer expectations, they will have to protect customer confidence, be able to track anything anywhere, and account for every product and possibility.
Stephan Pottel
Stephan Pottel has 20+ years of industry experience in bringing new technologies to early adopter customers across the Transport, Logistics and Manufacturing verticals. He has been with Zebra since 2017 as part of the EMEA Strategy and Business Development team and is looking after trends and key market drivers in the Automotive industry.
He holds a bachelor’s degree in Applied Computer Science from the University of Applied Sciences Niederrhein in Germany.
