Optimization of the African Supply Chain Network: The primary ingredient required for the successful implementation of the AfCFTA
At the Africa Union’s 50th anniversary solemn assembly in 2013; the council of presidents and heads of state decided it was time Africa took charge of its socio-economic development whilst also striving to be a major player within the global stage. This gave birth to the “Agenda 2063”, which was themed to build an integrated, prosperous, and peaceful Africa that is driven and managed by its citizens. The union thereafter highlighted 11 projects that had to be executed to actualize the full vision embodied in the “Agenda 2063”, one of which is the famous Africa Continental Free Trade Area (AfCFTA).
The AfCFTA has been termed to be the much-awaited driver the African economy requires for its rapid and sustainable growth. The primary goal which is closely in sync with the goal for the “Agenda 2063” is to provide an environment for seamless intra-African trades and reduce the dependency of the African market on foreign entities.
Upon full implementation, the AfCFTA has been projected to cover a market of about 1.2 billion people and an entire GDP currently valued at US$2.5 trillion. These figures are expected to double by 2050 according to all economic indicators, making it the largest trade area in the world right behind the World Trade Organization (WTO).
Several benefits have been highlighted as the most probable results of successfully implementing the AfCFTA, one of the major ones is the proposed 110% increase in the intra-African trading of manufactured goods by 2035. The successful achievement of this has been linked to individual countries removing or significantly reducing tariffs for imported commodities. Although this might seem to be easy to implement superficially, tariff relief can only be valuable if you are able to easily and swiftly move goods across different countries within the same region.
The continent’s supply chain network which is a collection of discrete entities such as telecommunication, transportation, and financing, among others has been described as unnecessarily complex. And most importantly, its current transportation networks can be boldly described as unpleasant and unfit for business.
Different sources have stated empathetically that transport costs may cause more barriers to efficient cross-border trades in Africa than import tariffs. According to Limao and Verables’s articles, a 10% reduction in transport costs has the potential of improving cross-border trade by 25%. And according to the World Bank, African companies do not currently have the logistics infrastructure required to effectively manage a connected market as seen from its Logistics Performance Index which had just 2 African countries within the top 50.
So does that mean the African transport system is beyond hope? Not at all, it has just been declared as being too expensive and unprofitable for business activities. According to Funke Adeyemi, a regional head for IATA in Africa and the Middle East, it costs about 45% more to travel within Africa by air than to other destinations across the globe. Even though air travel for business and cargo shipments has become easier within the last 2 decades in Africa, the inconsistent high costs have made it rather unsuitable for business purposes.
Road transportation which has always been regarded as the most affordable means of human and goods transportation across the continent is also currently in a ridiculous state. Tralac reported in one of its articles that western and central Africa have been found to have the comparatively highest transport costs and excessive transit times globally. For landlocked countries within these regions, these cost disadvantage becomes even more pronounced, with transport costs averaging about 45% and 35% of import and export value respectively in contrast to the globally accepted average of 5.4% and 8.8% respectively.
An almost similar pattern can be observed for sea freights as well. It has been estimated that the cost of transporting goods by sea within and across west and central Africa is about US$2.43 per kilometer, 2.5 times the cost of freight in the United States. According to a pre-covid survey carried out by the Guardian Nigeria, it could cost about 850 euros to transport a 40ft container of Leather from Hamburg, Germany to Lagos, Nigeria; while transporting the same quantity of goods from Lagos, Nigeria to Tema, Ghana could cost 1350 euros.
These figures as well as others not included here point to the current deplorable state of the African transportation network and have sustained the hypothesis that no sustainable trading scheme can be built without first improving and optimizing the current infrastructure or network.
It is important to also mention that certain economically advanced territories have witnessed their economies thrive by simply ensuring their inter-country and intra-country transportation networks are well developed. Some of these territories have had to also build their transport network from a somewhat deplorable state as is the condition of Africa’s current transportation network.
A typical example is the European Union. The European Union has over the last 20 years made giant strides towards optimizing the transportation network among its member states. Substantial investments have been made toward bridging gaps among national transport systems and cross-border connections. And the union has also leveraged advancement in digital technologies consistently to automate mobility within the region.
The vision for the AfCFTA is very much laudable and as stated all over again has the capacity of transforming the entire continent’s economy. But for this to be possible, there needs to be a plan entrenched within the scheme that goes beyond the removal of import tariffs, that will be more focused on ameliorating existing deficiencies within the continent’s supply chain network, especially its transportation system. There is a high probability that the resultant effect of this will be much greater at improving trade relationships than any other form of incentives.
