With all the recent huffing and puffing in Brussels and Westminster, you could be forgiven for missing something rather important: the Africa Continental Free Trade Agreement (AfCFTA) which was launched earlier this month to form a 55-nation trade bloc. Currently, 54 of the 55 nations have signed the agreement, paving the way for the African Continental Single Market. And with 1.3 Billion increasingly middle-class consumers, all of them hungry for the latest gadgets and goods, annual spending in sub-Saharan Africa is projected to reach $2.1 Trillion by 2025. That’s only six years off, and the figure compares favourably with China’s current spend of $2.8 Trillion.
The new African Behemoth will shortly become the biggest Free Trade Area on the planet, sweeping away 90% of pan African tariffs over the next five years and with a clear and present potential to be utterly transformative for the region’s economies. Eat your heart out Jean Claude Junker…
But here’s the conundrum.
Very few of Africa’s national economies produce the goods or create the services that their near neighbours will want to import, most of them looking to source exports from companies and businesses outside Africa (everything from cars to box sets of Game of Thrones): so what difference will a phased withdrawal of internal tariffs actually make in this brave new Uber Market?
By way of answering that question, let’s take a look at Ghana which, according to the IMF’s World Economic Outlook is currently the fastest growing economy in the world, with GDP expected to rise by an astonishing 8.8% this year. And that’s not a flash in the pan by any means: last year Ghana was ranked a highly respectable sixth in the same table, with GDP growth of 5.6%. Compare that with the United Kingdom which, in the same year, grew by 1.4% and is projected to grow by less than 0.5% this year.
None of that chimes easily with the homogenised tropes for sub-Saharan Africa distilled from our daily news reporting, but even so, these are precisely the sort of tectonic shifts that are likely to shape all of our economic futures.
So why is all this happening and why is it happening now?
Well, in Ghana’s case, it’s primarily down to two drivers: Oil and Agriculture.
As for Oil, a number of new fields were discovered in Ghana last year, prompting operators to intensify exploratory and developmental activities, a trend which has been further accelerated by recent hikes in crude prices resulting from Donald Trump’s sanctions driven disengagement from Iran.
But crucially, it’s not all down to Oil. When it comes to classifying sub-Saharan Africa economically, the IMF is at pains to stress the difference in outlook between those countries which are “Oil Heavy” and those with a diversified economy: those more nuanced economies, in short, with a second strong to their bow and in Ghana’s case that second string is Agriculture.
With a welter of new policies and government-backed incentives being introduced in Ghana over the past two years, the country’s 200,000 farmers have never had it so good (to coin a phrase), and as Owusu Akoto, Ghana’s otherwise self-effacing Agriculture Minister has pointed out this all adds up to “a bumper crop as a result this great program”. Given Ghana is also already the world’s second-biggest producer of cocoa, that second string is looking exceptionally resilient and robust at the moment.
This combination of Oil and Agriculture is enough to insulate Ghana from the worst of the economic shocks caused by falling commodity prices and felt most profoundly by Oil Heavy Countries like Nigeria. Because of their diversity, economies like Ghana are contributing more in absolute terms to economic growth across Africa: 5.3% on average, compared to 2% for Oil Heavy economies.
All of which brings us back to AfCFTA and why the new African Continental Single Market will matter so much over the coming years. Unlike its Agricultural second string, investment in Ghana’s Oil sector is almost exclusively foreign-led so a surge in Oil investment will run out of the country to mostly foreign-owned companies, minimal impact on Ghanaian lives. Agriculture, on the other hand, stimulates internal investment in Ghana’s homegrown economy, creating resources that can be exported across Africa, stimulating production of other goods and services in its wake: and as that process gains traction, as internal investment focused on local communities becomes a fact of African economic life, Africa will need an internal tariff-free market more than ever before. AfCFTA meets that need perfectly.
Things are looking up in Africa!
The SLC African Fund aims to build on the opportunities offered by sub-Saharan African Markets and to deliver long term capital growth as well as income distribution: working to solve social and environmental challenges and at the same time deliver sustainable profits for investors.
We are proud to be associated with the SLC African Fund and excited too by the opportunities offered by its impact investment strategies: strategies that will challenge outdated thinking that social and environmental issues can only be addressed through market investments, that focus exclusively on short term financial returns and ignore the social and environmental impact those decisions leave behind.
The sub-Saharan African Economy has grown by 4.6% since 2000 and now, as the Article points out, it boasts the fastest growing economy in the world which will soon to be part of the biggest single market on the planet. These seismic changes will inevitably open up new synergies, new ways of doing business and more advanced market structures for this rapidly evolving sector, and I for one can’t wait to see what happens next.