Frontline Africa Advisory

Small, Medium and Macro Enterprises can play a role in driving the objectives of the AfCFTA

Small, Medium and Macro Enterprises can play a role in driving the objectives of the AfCFTA

In May 2019, the African Continental Free Trade Area (AfCFTA) came into force and with that the expectation that it will boost the levels of intra-Africa trade and address the continent’s developmental and economic problems. The AfCFTA brings together all 55 member states of the African Union covering a market of more than 1.2 billion people, including a growing middle class, and a combined gross domestic product (GDP) of more than US$3.4 trillion. In terms of numbers of participating countries, the AfCFTA will be the world’s largest free trade area since the formation of the World Trade Organization. The AfCFTA also lays the foundation for a viable continental market to accelerate the growth and allow Small, Medium and Micro Enterprises to be more competitive in global trade and value chains.

It is no doubt that the AfCFTA is a game changer for the continent, particularly those companies that have been struggling to expand beyond their borders, due to tariff and non-tariff barriers. Not only will the realisation of AfCFTA allow big African companies to trade more with the rest of their continental counterparts, it can also be an opportunity for South African Small Medium and Micro Enterprises (SMMEs) to expand into the continent and contribute to driving economic growth and addressing issues unemployment and poverty in Africa.

The Global Enterprise Monitor (GEM) notes that South Africa, Uganda, Angola, Ghana and Zambia have a growing number of SME’s which are main drivers of growth in their respective parts of the continent. It estimates that there is an estimated 19.3 million SMMEs on the African continent, which contribute to more than 80% of the jobs created. SME’s account for 70% of Ghana’s Gross Domestic Product (GDP) and 92% of its businesses, and 70% of the manufacturing sector in Nigeria. In South Africa, the National Treasury estimates that the 2.8 million SMMEs make up 91% of South Africa’s formalised businesses and contribute 52%-57% of GDP. Overall, SMMEs on the continent provide about 60% of jobs and contribute more than 40% of Africa’s GDP.  It should also be noted that SMMEs on the continent receive little or no support from their government, whether it be financial or non-financial and have to often fight for their survival. With adequate support, SMMEs can be great pillars to Africa’s development and contribute more to the continent’s growth and plays a significant role in achieving the objectives of the AfCFTA.

For SMMEs to effectively participate in the Africa’s integration agenda, there needs to be enabling environment to assist them in effectively doing business across the continent. This would include easier access to capital, elimination of non-tariff barriers, skills development programmes and less redtape.

There is also a need to strengthen regional value chains. Current linkages between African economies are insufficient to expand trade, create comparative advantage and strengthen partnerships across Regional Economic Communities (RECs). As it stands, Africa lags behind much of the world in intra-regional integration, with the share of trade with countries within regional economic communities in Africa lying well below that of RECs in Europe or Asia. Therefore, the growing and strengthening of regional value chains, which are still at infant stage in Africa, would offer SMMEs the space for “learning to compete” and for “self-discovery”, organising them for the greater rigor and competition. This will not only ensure that they expand to markets across the continent, but this would also address challenges of youth unemployment, skills development, industrialisation and women empowerment in the pursuit of Africa’s development as envisioned by African leaders when they signed the AfCFTA.

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