Driving Africa’s Digital Economy: The Transformative Power of AfCFTA Collaboration

Introduction 

Classical trade theory reminds us that countries can reap welfare gains by specialising in producing those goods with the lowest opportunity cost and trading the surplus of production over domestic demand. This is the theory of comparative advantage, which emphasises the relationship between trade and development and how it isn’t easy to understand the growth and development of countries without reference to their trading performance. In fact, the importance of trade among countries has led to trade liberalisation which is the removal or reduction of restrictions to trade such as tariffs. While many critics argue it could lead to a loss of jobs when done between developing economies,  it is largely a positive concept, especially in Africa where the economy has a lot of potential and a collaborative approach to the growth of the entire economy is very powerful. 

The African Continental Free Trade Area (AfCFTA), showcases a political commitment towards establishing a unified legal institution that propels economic and social development through trade. The objectives of the AfCFTA encompass economic and social development, as well as legal harmonisation aligning with the priorities outlined in the African Union (AU) Agenda 2063. According to the AU, The need to envision a long-term 50-year development trajectory for Africa is important as it needs to revise and adapt its development agenda due to ongoing structural transformations; increased peace and reduction in the number of conflicts; renewed economic growth and social progress; the need for people-centred development, gender equality and youth empowerment; changing global contexts such as increased globalisation and the ICT revolution; the increased unity of Africa which makes it a global power to be reckoned with and capable of rallying support around its own common agenda; and emerging development and investment opportunities in areas such as agri-business, infrastructure development, health and education as well as the value addition in African commodities.

The Need for Collaboration

This is the biggest learning point of the AfCFTA, Collaboration. Africa is different from any other continent. Having passed through a very similar history in colonisation and growing out to become independent, we are beginning to realise the treasures that lie in our land, the need to create a thriving economy from that and how integration with other countries is a feasible positive advantage. Africans are ultimately united through culture and background and the AfCFTA is a show of that culture of collaboration. 

As advocates of the liberalisation of trade in Africa and the entire AU’s Agenda 2063 at large, we can’t help but imagine the future of Africa in collaboration. This includes the free movement of goods and services, a single African passport, a single African air transport market, a visa-free zone, increased exports, income gains amongst countries, reduction in poverty, increased competitiveness, an African virtual university and so on. 

Africa can only achieve its massive potential through collaboration. In a 2020 report, The World Bank says that at the high end, countries like Côte d’Ivoire and Zimbabwe could see income gains of 14% each. At the low end, some – such as Madagascar, Malawi, and Mozambique – would see real income gains of only around 2%. This is because the AfCFTA is more than a trade agreement. It is a pivotal tool for fostering Africa’s development where countries combine their comparative and competitive advantages to render value to each other and establish deeper RVCs (Regional Value Chains). The AfCFTA 2021 Futures Report identifies 10 value chains where new opportunities can be maximised and where governments should focus in order to strengthen their industries and get the best from the collaboration and these include automotives, leather and leather products, cocoa, soya, textiles and apparel, pharmaceuticals, vaccine manufacturing, lithium-ion batteries, mobile financial services and cultural and creative industries. 

Through the AfCFTA, there can be a “made in Africa” revolution. For each of the value chains mentioned above, a couple of African countries produce it but not everyone who pays it has a comparative advantage in it. This revolution can drastically uplift the African economy. In essence, the economy of Africa does not rest in the 13+ European trade agreements with Africa or the multiple trade contracts with the rest of the world but with Africa’s commitment to the single voice of trade. Nobody else will be able to create policies that are best for Africans other than Africans themselves as we expect that each continent will push for their interests and prosperity first. 

The Digital Economy and AfCFTA 

Can AfCFTA help with achieving a prosperous digital economy in Africa or do we need to collectively create another agreement? Does the AfCFTA include technology, startups and innovation as part of regional trade? 

We do not need to create another agreement as the AfCFTA is comprehensive and includes provisions on the digital economy. Trade is the exchange of goods between two people and this agreement promotes trade. It could be digital trade through startups, digital services, or physical trade. This agreement allows countries to pitch their technology solutions to each other faster and better, to access new markets cheaper and promote a unified solution that can easily solve different countries’ problems at once. In fact, if the provisions of this agreement are well implemented, it sets the atmosphere for a ready-to-go digital economy. For instance, the AfCFTA Adjustment Fund was signed on 10th March 2023 which is aimed at addressing the infrastructure deficits and supply chain bottlenecks to the implementation of the AfCFTA. Solving these infrastructural deficits is the exact work that needs to be done to promote a digital economy in these countries and the continent at large. Trade is the bedrock of this agreement and we foresee a future where startups, companies and ecosystems are created to promote the easy delivery of the functions and provisions of this agreement i.e startups that aid the free flow of goods and services, the very essence of the AfCFTA or ones that mitigate the challenges in a free trade area. Therefore, a future like a liberalised Africa will have its challenges and it is technology and innovation that will support and ease its implementation.  As much as the AfCFTA will enable technology, technology will also enable AfCFTA. 

The AfCFTA is a key to deeper economic integration, therefore enabling the digital economy in  Africa. This agreement enables a smoother exchange of people and services. This is a win-win situation for all states where Africans can move freely within, and skills and knowledge are shared faster. There is an opportunity for everyone to grow exponentially because the wisdom to scale an industry has now been borrowed to other nations. For instance, through this agreement, the skills of Nigerians in mobile financial technology could be shared to enable other countries to build better fintech applications or better still, integrate into the already existing ones. 

This agreement emphasises that Africans cannot exist without their neighbours. We all need each other to facilitate growth in our digital economies. The further advantage of shared skill and labour is a diversified economy. It is not enough that one country does well, and others are lagging behind. According to Crunchbase, Africa has over 2,461 startups, the big four (Nigeria, Egypt, South Africa and Kenya) score a large representation of these with 2,217 startups across different verticals. This agreement will allow digitality and economic growth spread across the board. 

Conclusion

Only Africans can create policies that promote the continent’s prosperity. Therefore, to achieve great economic growth and development, there needs to be an intentional focus to implement the AfCFTA and possibly, emphasise provisions that incorporate the digital economy, ICT and technology. 

We are Nubia Capital.

We focus on entrepreneurs that have the potential to disrupt traditional industries, address critical challenges in Africa and yield financial returns. 

Our team at Nubia Capital possess a wealth of experience in private market investing, M&A, policy, regulatory compliance and business management.

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