Exploring Continental & Global Agricultural Trade Policies to Boost Africa’s Economy
A glance at history attests to the fact that the African continent has long served the western world as a major source of human capital and raw materials, ranging from crude oil to agricultural and mineral commodities. For a number of African countries, crude oil used to and continues to be the mainstay of the economy, with primary and intermediate merchandise forming a substantial share of their exports. As things stand today, and with current emerging trends in the global economy, it is quite obvious that crude oil cannot hold sway anymore; agriculture is now the new oil in Africa.
With rapid population growth across the continent, globalization and disruptive innovative technologies, Africa is still struggling to achieve self-sufficiency in food production, not to mention secondary production and manufacturing, while the rest of the world has long moved away from industrialization to embrace digitalization, leaving Africa far behind. This is despite the preponderance of arable lands and enormous agricultural opportunities that pervade the continent.
This article, organized into three tracks, therefore focuses on how Africa can take advantage of current local, continental and global agricultural trade policies, while exploring the benefits and opportunities in the offing. It seeks to uncover ways in which Africa can reposition along its comparative advantages to not just become a primary source of agricultural raw materials, but a global net exporter to the rest of the world.
The first track takes a look at the African Continental Free Trade Agreement (AfCFTA), its impact so far, and the opportunities it presents for the continent’s agribusiness sector, as well as the potentials that lie in it for African growers, aggregators and producers. It is quite interesting that the free trade area outlined in the African Continental Free Trade Agreement houses 54 of the 55 African Union nations, making it the largest in the world in terms of participating countries after the formation of the World Trade Organization.
The second track takes a look at the African Growth and Opportunity Act (AGOA), a United States’ trade policy, enacted in 2000 to allow exporters from sub-Saharan Africa to export some goods to the United States duty-free, while the third track takes a look at the directive by the Nigerian authorities to stop providing foreign exchange for food importation to the country.
The final signing of the African Continental Free Trade Agreement (AfCFTA), aimed at boosting intra-African trade, effectively makes Africa the world’s largest single market, comprising1.2 billion people, with a cumulative GDP of over $3.4 trillion. Arguably, this is the largest trade agreement in history since the creation of the World Trade Organization.
According to the UN Economic Commission for Africa (UNECA), the implementation of the AfCFTA could increase intra-African trade by 52% by 2022, compared with trade levels obtainable before now. Indeed, Africa is on the rise; under the AfCFTA, 90% tariffs on goods produced within the continent would be removed as part of commitment to encourage intra-Africa trade. It is hoped this will double the share of intra-African trade, which is currently at about 13% of Africa’s exports.
Being the backbone of Africa’s economic growth, the agricultural sector would be extremely important in achieving the AfCFTA, since it employs far more than half of the continent’s workforce. It is also imperative to note that while the AfCFTA may offer huge opportunities for sustainable development and economic growth across the continent, not all participating countries will benefit to the same extent. The gains and benefits may as well be a function of the commitment of the countries concerned, with its attendant cost implications.
Summarized below are the aims and objectives of the AfCFTA:
A. Create a single continental market for goods and services, with free movement of businesspersons and investments, and thus pave the way for accelerating the establishment of the Continental Customs Union and the African Customs Union.
B. Expand intra African trade through better harmonization and coordination of trade liberalization and facilitation regimes and instruments across RECs and across Africa in general.
C. Resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes.
D. Enhance competitiveness at the industry and enterprise level through exploiting opportunities for scale production, continental market access and better reallocation of resources.
Unfortunately, the majority of the continent’s commodity growers’ are predominantly illiterate smallholder farmers still suffering from lack of access to institutional financing, poor agricultural practices, lack of mechanized tools and speculative commodity pricing. This large segment of growers would have to rely mainly on middlemen for market linkages due to their size and cultivation habits.
While the key benefits from furthering trade integration across the region, lowering import prices, production efficiency, increased outputs and exports, and increased value-added jobs would materialize in the long term, the immediate cost of adjustment and integration, such as loss in existing trade tariff revenue, market linkages, local SMEs vanishing in the face of stronger competition, adjusting unemployment, required investment in infrastructure, accessible cheaper and faster alternative value chain agricultural financing, tech innovations and regulatory reforms would have to be born in the short term by both the government and the private sector in order to kick start the journey.
A key critical success factor in achieving results in intra-African trade in the agricultural commodity sector would be the numerous trade facilitation constraints and lack of access to alternative financing for commodity traders across the continent. While intra-African trade is expected to grow by 24%, trade deficit would continue to shrink at a very low rate due to the above two mentioned factors. The removal of these constraints is critical to boosting agricultural commodity trade among African countries.
Without their elimination, the removal of tariffs on intra-African trade, which has been the main focus of regional and continental market integration efforts, will have limited effect in boosting intra-African agricultural commodity trading.
It is this challenge that Zowasel is trying to address in the Nigerian commodity market worth over $200 billion, with a 90% existing credit gap and an annual growth in demand of 4 million metric tones. the startup is disrupting the $200 billion Nigerian agricultural commodity industry characterized by lack of access to finance, market, high interest rates, difficult repayment terms and speculative pricing. The company is providing sellers with access to alternative financing in the form of short-term working capital loans to meet existing market demand and expected rise in demand due to the African Continental Free Trade Agreement.
The process starts with an online application via the Zowasel website/mobile app, after which received data are verified, and then an offer is made within 24hrs. Loans are recollected directly from the enterprise owing the receivable. Additionally, the Zowasel online grains marketplace will go a long way to play a vital role in achieving the objectives of the African Continental Free Trade Agreement by enabling commodity sellers and buyers to connect virtually to sell and purchase commodities across the continent.
While Zowasel is playing its part in helping to achieve the single continental market in the agricultural commodity trading spectrum across the continent, African authorities have to act, as a matter of urgency, to address issues of complex customs and administrative procedures and regulations, inefficient and costly transit systems as evidenced by numerous informal roadblocks along trade corridors, differences in rules of origin, trade documentation, standardization of products and transport related issues across the continent.
Unlike some of the other major barriers to intra-African trade, the issue of trade facilitation can be addressed relatively quickly and without much cost, if there is the political will and a commitment to the promotion of intra-African trade. Trade facilitation will not only assist in the deepening of Africa’s market integration, it will also enhance the performance of African countries in global trade.
Another key part of this discussion is the renewal or perhaps extension of the African Growth and Opportunity Act (AGOA) to 2025 by the Trump administration. It is apparent that it also creates a huge opportunity for increased local production and export by the continent’s 1.2 billion people.
However, although the renewal is seen as a welcome development in view of Africa’s quest to boost export earnings, there are fears that Africa may fail to take full advantage of the 10 years extension because of poor infrastructure and quality of exports.
Regrettably, Africa’s agricultural sector that accounts for over 60% of the continent workforce is suffering from collapsed agricultural value chain, poor mechanization, lack of value chain finance, poor best practices and lack of infrastructural development to attract and meet the demand of the global market necessary for the continent to even maintain its primary resource status.
Other issues are a lack of product specific standard, supply-side constraints such as inability to meet up with large volume of orders from the U.S and weak competitiveness as a result of weak infrastructural facilities and lack of expert financing support.
Again, just like it is with the AfCFTA, African governments must fast track strategies to remove the administrative and logistic constraints being faced by growers and exporters across the continent if they must benefit from the AGOA policy. While it is easy to attract private enterprises, particularly start-ups like Zowasel, to provide access to alternative value chain financing and create market linkage through technology, African governments across the continent must fulfill its part in terms of value additions admissible under AGOA.
The African Growth and Opportunity Act presents a huge opportunity and creates an urgent need for export diversification to increase Africa’s exports to the U.S, particularly in sectors with strong demand like value added agricultural commodities, food, spices and beverages. To achieve this goal, Africa must, as a matter of urgency, deliberately and strategically develop a bi-annual country utilization plan.
At Zowasel, we are of the opinion that policy makers across the continent have not really looked into how Africa can tap from the benefits of AGOA, amidst the infrastructural collapse and emerging disruptive agtech startups rising up across the continent. For us, a starting point is the creation of access to alternative financing in the form of short-term working capital loans to commodity buyers to meet rising market demand, as well as creating market linkages through transparent commodity price indexing to enable growers and exporters gain from the policy.
The last part of this article takes a look at the decision of the Nigerian authorities to stop providing foreign exchange for food importation into the country. This, perhaps, has been due to the different foreign exchange regimes applicable to different entities in the country, with some seemingly gaining more advantage over others, depending on the side of the divide they stand.
A little look at past foreign exchange bans in Africa, particularly in Nigeria, shows that it impacts local productions, market demands, sustainability, growth and development. From an economic standpoint, the ban will force Nigeria to start producing more internally and make the nation look inward; this is expected to encourage value chain development from the growers to aggregators down to buyers and even manufacturers in the country.
In 2015, a similar ban was placed on importation of rice by the Nigerian authorities, an action that was aimed at making local rice value chain production and processing strong and viable. Since the current ban on forex for importation of food items does not amount to a ban on importation, it means that food importation is open to individuals and entities that can source for forex themselves, as against a situation where they enjoyed a preferential exchange regime.
Again, we expect this to have a positive impact on the country, as it should economically empower Nigerians in terms of employment in the agricultural value chain, owing to the fact that local production would be forced to increase exponentially. With about 90 per cent of smallholder farmers in the country empowered to increase production, the policy would have achieved its aims and objectives.
It is worth stating here that Nigeria has over 54 commodities, including grains and other cash crops, underdeveloped mainly due to policies on importation, agricultural practices, lack of mechanization, lack of value chain financing and several institutional deficiencies already mentioned above.
On a last note, while these policies are there for the millions of growers and exporters across the continent to tap into, it is expected that African authorities would provide the necessary administrative and infrastructural support that would enable the private sector, particularly tech startups like Zowasel, to help address the various challenges that confront the continent. Visit www.zowasel.com to get started!
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About Author
Jerry Oche is the Founder/CEO of Zowasel, the African grains marketplace that is redefining how commodity marketing is done through technology across the continent.
Inspired by the challenges faced by his late mother, who as a smallholder farmers struggled with getting financial support and access to a sustainable market for her produce, Jerry was determined to find a solution to this two-pronged challenge that continues to confront countless smallholder farmers around Africa. In 2016, he founded Zowasel, which initially focused on empowering local women with access to finance and access to market.
Today, Zowasel is disrupting the $200 billion Nigerian agricultural commodity industry characterized by lack of access to finance, market, high interest rates, difficult repayment terms and speculative pricing. The startup is developing an online agricultural grains marketplace that connects sellers with buyers, through transparent price index, and short-term working capital loan within 24hrs to meet market demand. In return, Zowasel receives a commission of 5% for commodities sold on its platform and charges an interest rate of 5% on working capital loans disbursed.
For more information:
Websites: www.zowasel.com, Email: Partners@zowasel.com
