Africa’s free trade agreement spurs investment plans

Africa's free trade agreement spurs investment plans

The emergence of the world’s largest free trade area in africa, with a market of 1.2 billion people, is fuelling the expectations of investors and business leaders.

"The free trade zone will open up opportunities across national borders with much greater market potential," says thomas schafer, head of volkswagen sud africa. He sees the agreement as a "historic step in the right direction" and stresses that "investment, especially by german companies, makes sense at this early stage."Last sunday, the african union (au) summit in niamey (niger) kicked off the afcfta pan african free trade agreement after nigeria also declared its accession.

"The new free trade area could increase intra-african trade by 15 to 25 percent by the year 2040," estimates joachim lang, the chief executive of the federation of german industries (BDI). He is certain: "A pan-african free trade zone will simplify investments and trade between german companies and the more than 50 countries in africa in the long term."

Today they are characterized by high import duties and bureaucratic hurdles. According to jennifer howe, the BDI’s representative for africa, the small market size of the individual countries has deterred many investors. The simplification of intra-african trade is now expected to boost their entry into the country. "Especially in east and west africa we see great potential," explained howe. Melanie muller of the foundation for science and politics also shares this view.

So far, according to AU figures, the share of trade between african countries is just 15 percent. "Through the free movement of goods, services and people, combined with the extremely rapid pace of digitalization, africa has the opportunity to generate considerable growth," believes schafer, who sees the automotive industry in particular as a key industry in this regard.

At AU there is euphoria. "Every year there will be a mid-term review to see how far we are in implementing the agreement," au trade representative albert muchanga told the german press agency. However, in view of the ambitious plans, there is no lack of skeptical voices – also on the continent itself. "Agreeing to free trade and signing an accession agreement to that effect is always easier than implementing it," warns sudafrican analyst gary van staden, referring to legal and technical adjustments.

The business law firm rodl&, which specializes in foreign subsidiaries in africa partner sees it similarly. "So far, the free trade zone has only been created on paper; time will tell how the african countries involved will now fill this agreement with life," emphasizes jose campos nave. But he also sees great opportunities for german companies: "in africa in particular, there is a great need to catch up on goods and services," especially in infrastructure, water and wastewater, energy, food and agriculture, and a huge sales market is opening up.

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