African Free Trade Area increases the attractiveness of the continent for Chinese industrial investments

The implementation of the African Continental Free Trade Area (AfCFTA), which includes the Portuguese-Speaking countries, enhances the attractiveness of the continent for industrial investment from China, according to Jeremy Stevens, chief economist of the South African Standard Bank responsible for China.

“As the African economies become more integrated, huge opportunities will arise for companies in consumer-facing sectors – such as retail, telecommunications and banking – and for infrastructure industries, sectors related with resources and across the agricultural value chain,” said Stevens in a recent article.

As a result, he said, “African industrial centres will begin to emerge that serve local and regional markets,” a “convincing proposal for entrepreneurs and investors and those Chinese companies with global scope will find it difficult to ignore.”

Signed in 2018, the AfCFTA establishes a single continental market that will allow the free movement of entrepreneurs and investments, covering all 54 member states of the African Union – a market of 1.2 billion people with a gross domestic product (GDP) of US$2.5 trillion.

The agreement requires member states initially to remove 90% tariffs on goods, which should significantly increase intra-African trade, which accounts for only about 13.5% of the continent’s total trade.

At the head of the signatories is Angola, which was represented at the summit in 2017 by its President, João Lourenço, and Mozambique, also represented by the head of state, Filipe Nyusi.

The signatories to the agreement also include Equatorial Guinea, through its prime minister, Francisco Obama Asue, São Tomé and Principe and Cabo Verde, represented by ministers, and Guinea-Bissau is the only Portuguese-speaking African country that has not signed the Kigali agreement

Stevens, who is based in Beijing, also said that, in addition to the size of the African market, another incentive for Chinese companies to relocate their industrial capacity is that labour costs in China are increasing.

According to the Standard Bank economist, Africa offers relatively low labour costs, an abundance of natural resources and markets and domestic populations in rapid growth.

To really compete for Chinese industrial investments, which are also focused on other parts of Asia, African countries should dismantle tariff barriers and improve the efficiency of customs processes, combating bureaucratic delays and corruption, in addition to making “big investments in physical infrastructure and logistics networks” and make incremental improvements in economic management and the ease of doing business.

“Although Africa’s trade relationship with China has improved in recent years – a trend that must continue – the next big opportunity revolves around industrialisation, creation of jobs and technology transfers through private sector investments in African industry,” said Stevens.

“China is already Africa’s largest trading partner and will remain deeply involved in the economic trajectory of the continent. In fact, it has become almost impossible to imagine any partner, other than China, as the most important trading partner in Africa in the coming decades,” he added. (macauhub)