Africa free trade area: SMEs risk being left behind

Small and medium businesses must receive public and private sector support so they can take advantage of the African Continental Free Trade Area (AfCFTA) and cross border opportunities to stimulate economic growth in South Africa and Africa.

This is according to Maphefo Sipula, economist at Property Point, South Africa’s leading small business accelerator, who warns that countries must guard against bigger companies being the only benefactors of the trading bloc. 

“We will make a massive mistake if we don’t include these important segments of our society in the implementation of the AfCFTA agreement. We need to make it easier for SMEs to do business across borders by equipping them with the necessary training, information and research to be able to trade,” said Sipula.

According to media reports, a discussion paper published by the ANC noted that that there were some negative consequences for South Africa in the short to medium term as a result of unequal levels of development.

The discussion paper notes “the ‘asymmetrical’ trade liberalisation approach adopted to support vulnerable and [least developed countries] means that South Africa will be removing tariffs and trade barriers to about 90% of its goods and services without reciprocity from those countries, some [of which] have up to 15 years to remove their respective trade barriers”.

Sipula said while challenges did exist and needed to be addressed the potential benefits to SMEs remained substantial, citing AfCFTA’s key selling point – access to a market of 1.3 billion people with a combined GDP of $3.4 trillion.

“SMEs now have an unprecedented opportunity to scale,” said Sipula. “You will now be able to expand to new markets across Africa with much lower tariffs and bureaucracy. Already the agriculture and agri-processing sectors are a huge opportunity. For SMEs to exploit its potential any new opportunities would require access to market research, strategic partnerships and capital.”

Market research

Undertaking comprehensive market research is fundamental when expanding into the various African regions would require a thorough understanding of the individual countries including business and cultural practices. SMEs must be comprehensively prepared when attempting to access a new market in order to reduce the risks associated with it such as the ease of being able to make and receive payments, intellectual property and technological issues, among others. In addition to understanding the business environment, an understanding of the countries norms and cultural practices is also critical.

Strategic Partnerships

Facilitating partnerships through local advisors and bodies such as chambers of commerce is key in understanding and complying with the individual regulatory regimes that oversee business. Cross border partnerships therefor would provide a significant boost to facilitating entry into African countries including considerations from cultural sensitivities to getting products across borders to setting up operations and navigating labour unions.

Access to capital

The establishment of financial facilities are a key element to supporting SMEs ready to expand across Africa. Not only must AfCFTA signatories ensure that they work with banks and lenders to provide SMEs with access to financing, but they must also ensure that the criteria for qualification for financing is within reach for entrepreneurs. Without financial support SMEs would not be able to grow in Africa.

Sipula said: “Some of South Africa’s biggest companies are well aware of the challenges of doing business in Africa and well-resourced companies are obviously best placed to seize new markets. AfCFTA will, however, mean little if underrepresented business segments such as SMEs do not benefit, and we will run the risk of the agreement being seen to benefit big corporations only further.”

“SMEs must act now to investigate what opportunities can be leveraged in the short, medium and long term in the various African markets. The economic benefit to businesses can be positive but it also has the potential to create jobs and lift generations of people out of poverty across the continent.”

Property Point founder Shawn Theunissen said that South Africa needed to create an ecosystem of support for small businesses that wanted to trade in Africa.

“As government, business chambers, financial institutions, among others, we must take advantage of AfCFTA’s benefits, as well as to seize the opportunity it presents to grow our networks and businesses to benefit all of Africa. We stand at the cusp of an exciting new era for the people of the continent.”