Africa to create a ‘macro market’ of 1.2 billion citizens

Trade in the African continent begins a new stage. This month, the African Free Trade Agreement (AfCTA) came into force, signed by countries of great importance and economic power among the states of the continent. Kenya, Morocco, Ethiopia or Egypt are some of the countries that have stamped their signature in the AfCTA agreement. The treaty lays the foundations of a single market of goods and services, which affects 1.2 billion people and moves three billion dollars of joint GDP. With this agreement, Africa will become one of the largest markets in the world, in a continent where 62% of exports are only raw materials.

The only powerful country that maintains for now its refusal to sign the agreement is Nigeria. The president of the most populous country in the African continent, Mahamadu Buhari, believes that the arrival of highly competitive products could harm the Nigerian industry. Despite this, Nigeria is expected to finally join the agreement in the future.

Precisely, the fear of the Nigerian elites highlights one of the main legs of the agreement: the tariff reduction by 90% for the entry and exit of products between countries of the continent and from outside the African borders, of which only those products considered strategic will be out of the agreement. In a region in which the nation-state continues to be highly effective, the mistrust to free trade becomes even more important.

The tariff reduction of the free trade agreement will be 90% for almost all products

Africa has begun to gain interest as a consumer market among the largest fashion distribution groups in the country. Numerous companies and fashion industries have landed with their network of stores in Africa. The Spanish giant of the fashion industry, Inditex, has a remarkable presence in Africa. The group has 10 stores in South Africa, all of them from Zara except for one Zara Home store, and another 28 in Morocco, with all the brands of the Spanish giant. Likewise, the group also has stores in countries such as Egypt, Tunisia or Algeria.

Mango was another of the companies that bet strongly on the African continent, which in 2006 had already arrived to the region, being one of the first fashion companies to take that step. Since then, the Spanish group has opened 64 stores in Africa, in countries like South Africa, Cameroon, Egypt, Libya and Namibia. In 2018, Mango opened its latest store in Africa. Specifically, the company chose Kenya for its most recent opening.

With the implementation of the African Free Trade Agreement these companies will have even more wind in favor to continue developing their strategies in the continent. Products manufactured outside Africa will be able to circulate at a much lower cost than what is currently stated.

Fashion companies have opted to open stores in Africa, despite concentrating them in a few countries

The concentration of the points of sale in certain countries (North Africa and South Africa, mainly), could be diversified as a result of the agreement and open the door of clothing consumption to populations that had not had the opportunity to enjoy the free market. The African Union, supranational entity, of which 52 of its member states have ratified AfCFTA, believes that the agreement will boost African production, industrialization and economic diversification of the continent.

A boost to production

The AfCFTA's driving institutions see the agreement as the most appropriate way to harmonize trade in the continent, giving vitality to production. Currently, production in Africa, in the textile industry, is concentrated in a few countries, which in turn compete against large producer swarms, such as China or Bangladesh.

The most significant example is Ethiopia, considered the new productive hub of the African continent. His salary of $ 26 per month makes it competitive with other manufacturing countries and, in fact, the creation of industrial parks is being encouraged. Currently, the country gets a profit of 125 million in clothing sales abroad. With AfCFTA, already in force, that figure could increase given the ease of export that the agreement provides. Something that surely also will thank the companies of the first world that outsource their production.

Ethiopia is the productive hub of Africa and has the capacity to compete against China and Bangladesh

Other countries such as South Africa and Lesotto also have a remarkable productive capacity, although not as competitive as that of Ethiopia. All of them can benefit from the approval of the African free trade agreement. The African Union also hopes that the wave will continue to other countries and that the productive industry will spread throughout the continent thanks to the ease of movement of goods and services.

Likewise, AfCTA can also be the breath of fresh air demanded by the garment-producing countries of North Africa, such as Morocco and Tunisia. These countries maintain an intense dialogue with the European Union to get rid of tariffs for the export of their clothing products. They demand that the requirement that two industrial processes of a product have been made in North Africa to have tariff advantages to be reduced to only one.

With the tariff reduction that AfCTA brings, these countries could choose another way to redefine their business model and face it towards their own continent. In fact, the African Union calculates that exchanges between countries will double with respect to the current figures. This could be the definitive boost that these garment-producing countries need, which, in addition, by enjoying a free movement of goods within the continent, could also more easily comply with the demands of origin imposed by the European Union.