The African Continental Free Trade Agreement (AfCFTA), which became a reality on January 1, creates what is the largest free trade area in the world by number of participant countries. With 54 African nations involved, it’s set to accelerate intra-African trade and have a lasting wider impact.
Yet with huge inefficiencies across African trade and logistics, it is tech startups that will dictate whether or not the new free trade area has the desired effect. By bringing extra efficiency to the continent’s logistics sector, and driving down costs, entrepreneurs are seeing huge opportunities in the free trade era.
Today, a container shipped from Tema to Kinshasa will start in Ghana, stop in Europe for transhipment, and then head back down to DRC. That’s a six-week transit time for a route that would take a week if it were direct.
“Today, businesses on the continent pay the highest costs and wait the longest transit times for imports and exports. This creates a vicious cycle. African businesses have more working capital locked up in the supply chain for longer, which reduces their turnover, which raises their unit costs and slows their transit speeds even more. Ultimately, these problems flow through to consumers in the form of higher prices, unpredictable inventories, and lower incomes,” Addy says.
Jetstream’s freight management platform for Africa-side logistics providers and cargo owners is designed to finance and manage freight moving from one country to another, ultimately lowering the cost and opening up access to trade-related financial services. And with the advent of the new free trade zone, Addy is expecting trade to boom.
Changing face of African trade
“AfCFTA can change the nature of trade on the continent. Exporters in Africa are more likely to sell value-added goods to other African businesses than to overseas buyers who favour raw commodities. That’s good for local jobs and development,” she says.
“For logistics, there’s a big opportunity to simplify trade routes. w Reliable trade volumes, reliable data, and reliable logistics will help change that picture.”
Such is the opportunity that startups are active in the space across the continent. Jean-Claude Homawoo is co-founder and chief product officer of Lori, another tech-driven logistics services company that coordinates haulage across frontier markets. The company’s operations-driven marketplace efficiently connects transport to shippers, bringing down costs. Lori has already expanded from its Kenyan base to a host of other markets and has moved billions of dollars worth of cargo. Homawoo says AfCFTA has made the startup’s addressable market much larger, while its broader impact is potentially massive. Yet the level of success depends on how it works in practice.
“The treaty alone isn’t sufficient to ensure the intended benefits are felt. The implementation here is the key and both the collaboration of governments and the on-the-ground execution of required reforms will be essential,” he says. “How soon will the informal border crossings be normalised? When will simplified customs documents and clearance procedures be in place? Those will be real challenges.”
Addy says there is one big challenge to African trade that cannot be addressed by AfCFTA.
“China is a top import origin for most countries, including in Africa. This year, the price of ocean freight from China jumped five times to over $10 000 per container, due to a shortage of empty containers in China. Prices in other trade corridors followed suit. Global freight prices cannot be resolved overnight, but we’re addressing long-standing working capital shortfalls,” she says.
Tonye Membere-Otaji is the founder and CEO of Nigerian startup MVX, which aggregates, synchronises and simplifies end-to-end land haulage, freight forwarding, and customs brokerage services for African merchants, and also provides an embedded trade finance solution. He agrees there are challenges when it comes to the implementation of AfCFTA, but says the benefits are greater.
“The sector isn’t advanced yet, and we see opportunities to bring technology and automation to address many of the sector’s problems. We expect trade to accelerate with AfCFTA, opening doors for products like our embedded trade finance,” he says. “We also anticipate increased demands for efficient shipment booking and logistics solutions in a few years. The challenges, especially within the sector, are really opportunities for us to exploit for the rapid growth of trade in Africa.”
The key role tech-enabled logistics companies in Africa are set to play in the AfCFTA era has resulted in a funding boost for the space, with Jetstream, Lori and MVX among a host of such businesses to have secured significant investment in the last year or so. Addy says the investor friendliness of such startups hasn’t changed, but attention has now been drawn to them.
“For a long time, cross-border logistics was hidden from view. Recently, there has been more attention around how volatility in costs, transit times and port efficiency affect the quality of life at the consumer level. The fundamentals still have to be there, but mainstream attention to global logistics has raised investors’ background awareness,” she says.
Homawoo thinks more capital is coming as free trade becomes more established.
“The sector has been hot and AfCFTA will likely drive more capital into the sector – rightly so. Effective logistics are the bedrock of a thriving economy and as the continent continues to grow, we aim to do our part by building the operating system for logistics in frontier markets, starting with the African continent,” he says.
Read: Open banking for a banked Africa
• The African Continental Free Trade Area (AfCFTA) agreement creates the largest free trade area in the world by the number of countries participating.
• AfCFTA connects 1.3 billion people across 54 countries with a combined GDP valued at $3.4 trillion.
• The AfCFTA is intended to lift around 68 million people out of moderate poverty and make African countries more competitive.