Intense competition arising from AfCFTA tariff liberalisation: African MSMEs faces a new challenge to adapt and become resilient, new survey reveals

The African Continental Free Trade Area (AfCFTA) is expected to significantly boost intra-Africa trade when fully implemented, but small businesses in East Africa are not happy about it, as it may not bode well for them.

A survey by the East African Business Council (EABC), a lobby for private-sector players in the East African Community (EAC), shows that small businesses in the region are worried that a full take-off of AfCFTA could edge them out of business, unless they change tack.

In Principles, AfCFTA is projected to boost eastern Africa’s exports to other African countries by at least $1 billion annually, creating up to 1.9 million jobs and lifting 65 million Africans out of extreme poverty, according to estimates by the United Nations Economic Commission for Africa (Uneca).

But with multiple challenges slowing trade even within the EAC, traders are sceptical that the programme will work in their favour and want a speedy end of trade barriers within the region and across the continent to enable them benefit fully and compete favourably when AfCFTA goes full-scale.

One of the key challenges identified by the EABC study is insufficient testing and certification infrastructure in some EAC partner states, slowing down cross-border business within the region.

“This greatly inconveniences small scale traders, in addition to increasing the cost of doing business. Having shared laboratory facilities at strategic locations across the region could be useful,” says EABC.

In addition to this, majority of the polled traders in the region are still dissatisfied with available cross-border payment options, transport networks, and complain of several non-tariff barriers to trade slowing their access to cross-border markets.

The leading impediments to trade, cited by the regional businesses, include complex customs procedures, transport and logistical issues, standards, sanitary and phytosanitary measures, and transit procedures, the poll shows.

The Significance of Small Businesses in Africa

Small and medium-sized enterprises (SMEs) are the foundation of all economies. They play a critical role in creating jobs, fostering innovation, and propelling economic growth. The importance of SMEs is especially pronounced in Africa. With its rich diversity and abundant resources, this vast continent presents unique challenges and opportunities for SMEs.

The Potential Advantages of AfCFTA for Small Businesses

1. Market Access: The AfCFTA provides SMEs access to a larger market. Many SMEs were previously restricted to their home markets, but this agreement allows them to reach a larger customer base within Africa. This increased market access can potentially increase SMEs’ sales and revenue.?
2. Business Diversification: SMEs can now diversify their product and service offerings to meet the needs of consumers in various African countries. Diversification can assist SMEs in reducing their reliance on a single market, making them more resilient to economic fluctuations.?
3. Cost Reduction: AfCFTA seeks to reduce or eliminate tariffs and non-tariff trade barriers. Lower import costs and increased competitiveness can help SMEs. This could result in lower production costs and lower consumer prices, stimulating demand even more.?
4. Collaboration and Networking: The agreement encourages SMEs from various countries to collaborate and network. This can result in knowledge sharing, technology transfer, and the formation of partnerships that can aid in the growth and innovation of SMEs.

Challenges Facing Small Businesses

Despite their enormous potential, African SMEs face a variety of challenges that impede their growth and development. Among these difficulties are:

1. Competition: While AfCFTA creates new opportunities, it also increases competition. Larger and more established businesses may pose a greater challenge to SMEs. Hence it is important that they are prepared to compete effectively in a larger market in order to thrive.?
2. Issues with Regulatory and Compliance: Navigating the complexities of different regulatory frameworks across African countries can be difficult for SMEs. Inconsistent regulations and trade policies can act as a deterrent to new entrants. Furthermore, SMEs may have difficulty meeting export standards and quality requirements.?
3. Access to Finance: SMEs frequently face financial constraints. Working capital constraints can limit their ability to capitalize on new market opportunities, invest in technology, and scale their operations.

Strategies to Support Growth Aspirations of Small Businesses

1. Training and Capacity Building: Governments and organizations can allocate resources in training and capacity-building programs aimed at equipping SMEs with the knowledge and skills they need to compete effectively in the AfCFTA market. This includes acquiring a deep understanding of market dynamics, trade regulations, and the utilization of digital tools for business expansion.?
2. Streamlined Regulations: Governments across the continent should work to harmonize regulations and trade policies to make it easier for SMEs to navigate the complexities of cross-border trade. It will be critical to simplify customs procedures and lower trade barriers.?
3. Access to Finance: Improving SMEs’ access to finance must be a top priority. Governments can encourage financial institutions to create specialized products for SMEs. Additionally, venture capital and angel investor networks can be developed to assist startups and entrepreneurs.?
4. Digitalization and Technology Adoption:?SMEs can use digital technologies to increase their reach and efficiency. Governments and industry associations can help by offering incentives for SMEs to adopt e-commerce, digital marketing, and other relevant technologies.?
5. Market research and networking: SMEs should be encouraged to conduct market research to better understand their target audience and identify potential partners. Networking events, trade fairs, and industry associations can help to facilitate connections and collaborations within the AfCFTA framework.

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