The Africa Continental Free Trade Area is a Market opportunity for SMEs

Africa continues to hold great potential for unrivalled economic growth cognizant of its vast natural resources and its bulging youthful population. Trade in Africa is still shaped by relationships and infrastructure dating back to the colonial era. Countries mostly sell primary commodities to other continents. Only 18% of their exports are traded within Africa, where they often face high tariffs. Compare this to 65% of export traded in the EU. One of the biggest challenges faced by SMEs in Africa is access to market for their products and services; combined with lack of information this proves deadly. In March 2018 Forty-nine of the 55 member states of the African Union signed the continental free trade are agreement; if fully ratified and adopted, it will be the largest free trade area that creates an African market of over 1.2 billion people with a GDP of $2.5 trillion. The agreement is expected to remove taxes from up to 90 per cent of the 200 items traded on the continent, making them cheaper for consumers. First and foremost we must acknowledge the agreement will face strong challenges and chances it may or may not work out. Already Nigeria and South Africa have expressed reservations not to mention there are existing trade agreements across Africa such as ECOWAS, EAC, SADC, COMESA among others majority of which haven’t borne fruits yet. SMEs must be strategic and innovative for them to tap into the broader African market; one theory that must be used is the economic law of comparative advantage. First and foremost SMEs must perform a market analysis for their product offering in the country they intent to enter. This is aimed at establishing if there is critical demand and who are the players fulfilling the demand either partially or exhaustively. Further SMEs must assess whether they are able to produce goods and services at a lower opportunity cost than existing players in the market. For example Zambia is a landlocked country whose main imports are machinery, transport equipment, petroleum products, chemicals and foodstuffs. According to The World Bank In 2015, the top partner countries and regions from which Zambia Imports Food Products include South Africa, Kenya, Namibia, Zimbabwe and Netherlands. Based on this a Kenyan Agribusiness can establish which specific foodstuff its better placed to produce and deliver at a lower opportunity cost than existing players in the Zambian market. The continental free trade area if successful is just the tip of the market iceberg for the economic renaissance of Africa.