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Tag: Africa

  • Cross-Border Trade Opportunities within AfCFTA for MSMEs

    Cross-Border Trade Opportunities within AfCFTA for MSMEs

    The African Continental Free Trade Area (AfCFTA) presents a transformative opportunity for Micro, Small, and Medium Enterprises (MSMEs) across Africa. By creating a single market for goods and services, AfCFTA aims to enhance intra-African trade and stimulate economic growth. This article explores key opportunities for MSMEs within AfCFTA, supported by relevant case studies.

    Market Expansion

    AfCFTA opens access to a market of over 1.2 billion people, allowing MSMEs to expand beyond their national borders. This wider market offers opportunities to increase sales and diversify customer bases, significantly boosting growth potential.

    Reduction in Tariffs

    One of the primary benefits of AfCFTA is the reduction and eventual elimination of tariffs on 90% of goods traded within the continent. This reduction makes it cheaper for MSMEs to import raw materials and export finished products, enhancing their competitiveness.

    Easier Access to Raw Materials

    AfCFTA facilitates the sourcing of raw materials from neighboring countries at lower costs due to reduced tariffs. MSMEs can benefit from improved supply chain management and reduced production costs, enabling them to offer more competitively priced products.

    Enhanced Competitiveness

    With the elimination of trade barriers, MSMEs can benefit from economies of scale and become more competitive on a global scale. Enhanced competitiveness can lead to increased innovation and efficiency, positioning MSMEs as key players in the market.

    Standardization of Regulations

    AfCFTA aims to harmonize trade regulations and standards across member countries. This standardization reduces the complexity of cross-border trade and helps MSMEs comply more easily with regulatory requirements, streamlining their operations.

    Investment Opportunities

    AfCFTA encourages investment in infrastructure and industrialization, creating new opportunities for MSMEs to collaborate with larger firms and attract foreign investment. Improved infrastructure facilitates smoother logistics and distribution networks.

    Regional Value Chains

    MSMEs can participate in regional value chains by providing specific components or services to larger manufacturers or exporters. This integration into value chains can enhance skills, productivity, and market presence.

    Trade Facilitation

    AfCFTA includes measures to facilitate trade, such as simplifying customs procedures and enhancing transparency. These measures reduce the administrative burden on MSMEs and speed up the movement of goods across borders.

    Access to Finance

    Initiatives under AfCFTA aim to improve access to finance for MSMEs by creating a more integrated financial market. MSMEs can benefit from better access to credit and investment opportunities, fostering growth and expansion.

    Capacity Building

    AfCFTA encourages capacity-building programs to help MSMEs improve their business practices, compliance with standards, and overall competitiveness. These programs can include training, mentorship, and technical assistance, empowering MSMEs to thrive in the continental market.

    Case Studies

    Nigerian Fashion Industry

    A Nigerian fashion MSME, previously limited to local markets, leverages AfCFTA to export garments to Ghana and Kenya. By sourcing fabrics from Côte d’Ivoire at reduced tariffs, the business lowers production costs and offers competitive pricing internationally, resulting in increased market share and profitability.

    Kenyan Agribusiness

    A Kenyan agribusiness MSME, producing organic teas, partners with a distributor in South Africa. The elimination of tariffs on agricultural products under AfCFTA allows the business to expand its reach and increase sales volume, enhancing profitability and market presence.

    Ghanaian Tech Start-Up

    A Ghanaian tech start-up specializing in mobile payment solutions collaborates with telecom companies in Uganda and Tanzania. The harmonization of regulatory standards across AfCFTA countries facilitates easier market entry and compliance, enabling the start-up to scale its operations and increase its customer base.

    Conclusion

    AfCFTA presents substantial opportunities for MSMEs by creating a more integrated and expansive market, reducing trade barriers, and fostering a conducive environment for growth and competitiveness. MSMEs can harness these opportunities to scale up, innovate, and contribute significantly to economic development across Africa. As MSMEs navigate the evolving trade landscape, leveraging the benefits of AfCFTA will be crucial for their sustained growth and success.

  • A 9-Step Guide On Expanding Your Business in the ECOWAS Region

    A 9-Step Guide On Expanding Your Business in the ECOWAS Region

    Introduction

    Expanding your business into the Economic Community of West African States (ECOWAS) region offers a significant opportunity for growth. This article provides a detailed roadmap to help businesses navigate the complexities of entering and thriving in this diverse market.

    Understanding ECOWAS

    What is ECOWAS?
    The Economic Community of West African States (ECOWAS) is a regional political and economic union of fifteen countries located in West Africa. Established on May 28, 1975, with the signing of the Treaty of Lagos, ECOWAS aims to promote economic integration and cooperation among its member states to foster development and stability in the region.

    Member Countries:

    1. Benin
    2. Burkina Faso
    3. Cape Verde
    4. Côte d’Ivoire
    5. Gambia
    6. Ghana
    7. Guinea
    8. Guinea-Bissau
    9. Liberia
    10. Mali
    11. Niger
    12. Nigeria
    13. Senegal
    14. Sierra Leone
    15. Togo

    Key Objectives of ECOWAS:

    • Economic Integration: To achieve collective self-sufficiency for member states by creating a single large trading bloc.
    • Trade Liberalization: To eliminate trade barriers and enhance free trade among member countries.
    • Monetary Cooperation: To harmonize monetary policies and eventually establish a single currency.
    • Infrastructure Development: To develop and improve regional infrastructure, including transportation, energy, and telecommunications.
    • Peace and Security: To ensure peace and stability in the region through political cooperation and conflict resolution mechanisms.

    Steps to Expand Your Business in ECOWAS

    1. Conduct Market Research

      • Identify Market Demand: Assess the demand for your products or services in different ECOWAS countries.
      • Analyze Competitors: Study the competition to understand market dynamics and identify your competitive advantage.
      • Cultural Insights: Gain insights into the cultural preferences and consumer behavior in each target market.

      2. Regulatory and Compliance Requirements

        • Business Registration: Ensure your business complies with the registration requirements in each country.
        • Tax Regulations: Familiarize yourself with local tax laws, obligations, and potential incentives for foreign businesses.
        • Trade Agreements: Utilize ECOWAS trade agreements that facilitate reduced tariffs and smoother cross-border trade.

        3. Develop a Strategic Business Plan

          • Market Entry Strategy: Decide on the best entry mode—whether direct exports, partnerships, joint ventures, or subsidiaries.
          • Localization Strategy: Tailor your products, marketing, and customer service to meet local preferences and norms.
          • Risk Management: Identify potential risks and develop strategies to mitigate them, including political, economic, and legal risks.

          4. Build Partnerships and Networks

            • Local Partnerships: Form alliances with local businesses to gain market insights and establish credibility.
            • Business Networks: Join business associations and chambers of commerce to expand your network and access support.
            • Government Relations: Engage with local government agencies to understand regulations and access business support programs.

            5. Financial Planning and Funding

              • Budgeting: Create a detailed budget covering operational costs, marketing, and contingencies.
              • Funding Options: Explore local and international funding options, including banks, investors, and ECOWAS development funds.
              • Financial Management: Implement robust financial management practices to monitor and control expenses.

              6. Marketing and Sales Strategies

                • Market Research: Conduct thorough research to understand consumer preferences and purchasing behaviors.
                • Digital Marketing: Utilize digital platforms to reach a broader audience and drive engagement.
                • Sales Channels: Develop diverse sales channels, including online platforms, retail outlets, and distribution networks.

                7. Operational Excellence

                  • Supply Chain Management: Establish a reliable supply chain to ensure timely delivery and product availability.
                  • Quality Control: Maintain high-quality standards to build trust and brand loyalty among consumers.
                  • Customer Service: Provide exceptional customer service to enhance satisfaction and foster long-term relationships.

                  8. Training and Development

                    • Local Talent: Hire and train local employees to leverage their market knowledge and expertise.
                    • Continuous Learning: Invest in ongoing training and development programs to keep your team updated and skilled.

                    9. Monitoring and Evaluation

                      • Performance Metrics: Establish key performance indicators (KPIs) to measure success and track progress.
                      • Regular Reviews: Conduct regular reviews to assess performance and make necessary adjustments.
                      • Feedback Mechanism: Implement a feedback system to gather insights from customers and stakeholders for continuous improvement.

                      Case Studies

                      Example 1: Nigerian Company in Ghana
                      A Nigerian consumer goods company successfully expanded into Ghana by forming strategic partnerships with local retailers. They adapted their product packaging to suit local tastes and preferences, which significantly boosted their market penetration.

                      Example 2: Togolese Firm in Côte d’Ivoire
                      A Togolese technology firm entered the Ivorian market through a joint venture, leveraging local expertise to navigate regulatory challenges. Their collaborative approach facilitated a smoother market entry and rapid growth.

                      Conclusion

                      Expanding your business in the ECOWAS region requires careful planning, a deep understanding of local markets, and strategic execution. By following these steps and learning from successful case studies, businesses can tap into the vast opportunities offered by this dynamic and growing region. With the right approach, your business can thrive and contribute to the economic development of West Africa.

                    1. Understanding the African Continental Free Trade Area (AfCFTA) for MSMEs

                      Understanding the African Continental Free Trade Area (AfCFTA) for MSMEs

                      The African Continental Free Trade Area (AfCFTA) is a flagship project of the African Union’s Agenda 2063, aimed at creating a single continental market for goods and services, with free movement of businesspersons and investments. It aims to boost intra-African trade by reducing tariffs and other barriers, thereby fostering economic growth and development across the continent.

                      Key Objectives of AfCFTA

                      1. Create a Single Market: Facilitate the movement of goods, services, and investments.
                      2. Increase Intra-African Trade: Enhance trade relations among African countries.
                      3. Industrial Development: Promote economic diversification and industrialization.
                      4. Job Creation: Generate employment opportunities through expanded market access.
                      5. Sustainable Development: Promote inclusive and sustainable economic growth.

                      Benefits for MSMEs

                      1. Market Access: MSMEs can access a broader market of over 1.2 billion people, providing opportunities to scale up operations.
                      2. Reduced Tariffs: Lower tariffs on intra-African trade reduce costs, making African products more competitive.
                      3. Economic Diversification: Encourages MSMEs to diversify their products and services.
                      4. Investment Opportunities: Attracts investment in local industries and infrastructure, benefiting MSMEs.
                      5. Business Collaboration: Facilitates partnerships and collaborations with other African businesses.

                      Case Studies

                      Case Study 1: Fashion and Apparel Industry in Nigeria
                      Company: A Nigerian MSME producing traditional and contemporary fashion.
                      Challenge: High tariffs and limited market access restricted their ability to export to other African countries.
                      AfCFTA Impact:

                      • Market Expansion: With reduced tariffs, the company expanded its market to Ghana, Kenya, and South Africa.
                      • Revenue Growth: Increased sales and revenue by 30% within the first year of AfCFTA implementation.
                      • Job Creation: Hired additional staff to meet the growing demand, thus contributing to local employment.

                      Case Study 2: Agricultural Exports in Kenya
                      Company: A small Kenyan agribusiness exporting fresh fruits and vegetables.
                      Challenge: Export barriers and high costs limited their export potential to neighboring countries.
                      AfCFTA Impact:

                      • Cost Reduction: Lowered export costs by 15% due to tariff elimination.
                      • Market Penetration: Entered new markets in Rwanda, Uganda, and Tanzania.
                      • Technological Investment: Invested in better packaging and cold storage technologies to meet the increased demand and ensure product quality.

                      Case Study 3: ICT Start-up in South Africa
                      Company: A South African tech start-up providing digital solutions for small businesses.
                      Challenge: Difficulty in expanding services to other African countries due to regulatory differences and high costs.
                      AfCFTA Impact:

                      • Harmonized Regulations: Benefited from efforts to harmonize ICT regulations across member states.
                      • Service Expansion: Expanded its digital solutions to Botswana, Namibia, and Zambia.
                      • Strategic Partnerships: Formed partnerships with local businesses in new markets to tailor solutions to specific needs.

                      Challenges and Recommendations for MSMEs

                      1. Understanding Regulatory Requirements: MSMEs need to understand the varying regulatory requirements across member states to ensure compliance.
                      Recommendation: Invest in legal and regulatory expertise or consult with local trade bodies.

                      2. Enhancing Product Quality: To compete in new markets, MSMEs must ensure their products meet international standards.
                      Recommendation: Adopt quality management systems and seek relevant certifications.

                      3. Building Capacity: MSMEs often lack the capacity to scale up production quickly.
                      Recommendation: Seek funding opportunities and invest in capacity-building programs.

                      4. Leveraging Technology: Technology can help MSMEs streamline operations and reach new markets more effectively.
                      Recommendation: Invest in digital tools and platforms that enhance efficiency and market reach.

                      5. Access to Information: Lack of information on trade opportunities and market conditions can hinder MSMEs.
                      Recommendation: Utilize resources from trade associations, chambers of commerce, and government agencies to stay informed.

                      Conclusion

                      The AfCFTA presents significant opportunities for MSMEs in Africa to expand their markets, reduce costs, and enhance competitiveness. By understanding the benefits and addressing the challenges, MSMEs can effectively leverage the AfCFTA to achieve growth and contribute to the continent’s economic development. The success stories from various sectors demonstrate the potential impact of the AfCFTA, encouraging more MSMEs to take advantage of this continental agreement.

                    2. Understanding the African Continental Free Trade Area (AfCFTA) for MSMEs

                      Understanding the African Continental Free Trade Area (AfCFTA) for MSMEs

                      As a seasoned professional with over 20 years of experience, I’ve witnessed the dynamic evolution of trade policies and their profound impact on businesses, particularly Micro, Small, and Medium Enterprises (MSMEs). The African Continental Free Trade Area (AfCFTA) represents one of the most transformative economic initiatives aimed at reshaping the business landscape across Africa. This article delves into the opportunities and challenges presented by AfCFTA, particularly for MSMEs, and includes relevant case studies to illustrate its practical implications.

                      Overview of AfCFTA

                      Launched on January 1, 2021, AfCFTA aims to create a single market for goods and services, facilitating the movement of capital and people. With 54 of the 55 African Union nations signed up, it stands as the largest free trade area globally by the number of participating countries. The primary goals of AfCFTA include boosting intra-African trade, reducing tariffs on 90% of goods, and addressing non-tariff barriers.

                      Opportunities for MSMEs

                      1. Market Expansion: AfCFTA opens up a market of over 1.3 billion people with a combined GDP of $3.4 trillion. MSMEs can leverage this expansive market to scale their operations, diversify their customer base, and increase revenue.
                      2. Cost Reduction: By eliminating tariffs on most goods, AfCFTA reduces the cost of importing raw materials and exporting finished products. This cost efficiency can significantly enhance the competitiveness of MSMEs.
                      3. Enhanced Competitiveness: The exposure to a larger market compels MSMEs to improve product quality and innovation to meet diverse customer preferences, fostering a culture of continuous improvement.
                      4. Access to Finance: With increased market opportunities, financial institutions are more likely to provide funding to MSMEs, recognizing their potential for growth and profitability under AfCFTA. Challenges for MSMEs
                      5. Regulatory Compliance: Navigating different regulatory frameworks across member countries can be daunting. MSMEs must stay informed about varying standards and regulations to ensure compliance.
                      6. Infrastructure Deficits: Inadequate infrastructure, such as poor road networks and limited access to electricity, can hinder the seamless movement of goods and services, affecting MSME operations.
                      7. Technical Know-How: MSMEs often lack the technical expertise required to optimize cross-border trade. Investing in training and capacity-building initiatives is essential for maximizing AfCFTA benefits.
                      8. Competition: The removal of trade barriers increases competition from larger enterprises and foreign companies. MSMEs need to innovate and enhance their value proposition to remain competitive.

                      Case Studies

                      Case Study 1: Agritech Solutions Ltd.

                      Agritech Solutions Ltd., a small agricultural technology firm based in Nigeria, leveraged AfCFTA to expand its market reach across West Africa. By eliminating tariffs, the company could export its innovative irrigation systems to Ghana and Côte d’Ivoire at a lower cost. This expansion not only increased its revenue by 40% but also fostered partnerships with local distributors, enhancing its market presence.

                      Case Study 2: Fashion House Africa

                      Fashion House Africa, an MSME in Kenya, designs and manufactures bespoke clothing. With AfCFTA’s implementation, the company started sourcing high-quality fabrics from Egypt and exporting finished garments to South Africa. The reduced tariffs and streamlined customs procedures facilitated a 30% reduction in production costs and a 25% increase in sales. The company also benefited from networking opportunities at AfCFTA business forums, leading to collaborations with designers across the continent.

                      Conclusion

                      AfCFTA presents a paradigm shift in how African MSMEs operate, offering unprecedented opportunities for growth, market expansion, and innovation. However, the journey is not without challenges. By strategically navigating regulatory landscapes, investing in capacity building, and embracing technological advancements, MSMEs can harness the full potential of AfCFTA. As an experienced professional, I advocate for proactive engagement with AfCFTA’s frameworks and resources to ensure that MSMEs not only survive but thrive in this new era of African trade integration.

                      Recommendations

                      1. Capacity Building: Governments and private sector organizations should invest in training programs to equip MSMEs with the skills needed to navigate the AfCFTA landscape effectively.
                      2. Infrastructure Development: There is a critical need for improved infrastructure to support the efficient movement of goods and services across borders.
                      3. Information Dissemination: Regular updates and clear communication about regulatory changes and trade opportunities under AfCFTA can help MSMEs stay informed and compliant.
                      4. Financial Support: Enhanced access to finance for MSMEs can drive innovation and growth, enabling them to capitalize on the opportunities presented by AfCFTA.

                      By addressing these areas, MSMEs can be better positioned to contribute to and benefit from Africa’s ambitious free trade agenda.

                    3. AfCFTA: Promoting E-commerce and Formalising Informal Micro-Enterprises in Africa.

                      AfCFTA: Promoting E-commerce and Formalising Informal Micro-Enterprises in Africa.

                      The Organization for Economic Co-operation and Development (OECD) defines E-commerce as “The sale or purchase of goods or services, conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders”.

                      The most popular definition of E-commerce is that of the World Trade Organization (WTO) which says that E-commerce is “the production, distribution, marketing, sale or delivery of goods and services by electronic means”.

                      The African Continental Free Trade Area (AfCFTA) has opened a $3.4 trillion borderless market created by the AfCFTA to present an opportunity and rekindled hopes for African recovery through trade in a post-Covid-19 world.

                      E-commerce and the Boost for Micro-Enterprises

                      Micro enterprises are defined as having less than 10 employees with $100,000 or below in assets and annual turnover. There are 44 million registered micro enterprises on the continent and an estimated equal number or more operate in the informal economy. The upcoming AfCFTA protocol on E-commerce can leverage instant and inclusive digital payments to address the unique challenges of Africa’s micro-enterprises.

                      There are widespread E-commerce use cases in Africa in which transactions are initiated online but delivery, fulfilment, or payment is achieved offline. In some other use cases, the order is placed offline, but the delivery, fulfilment or payment is achieved online.

                      It is recommended that the upcoming E-commerce protocol takes a broader view of the definition of the term (E-commerce) as defined by the World Trade Organisation (WTO) and includes instant and inclusive payment channels such as mobile money to ensure the inclusion of Africa’s formal and informal micro-enterprises.

                      According to a report by the World Bank, AfCFTA has the potential to boost regional income by 7% or $450 billion, speed up wage growth for women, and lift 30 million people out of extreme poverty by 2035. Wages for both skilled and unskilled workers will also increase by about 10 per cent.

                      Formalizing Africa’s Informal Micro Enterprises

                      The AfCFTA should formalise informal micro-enterprises through the protocol on E-commerce and should particularly encourage African countries to enact specific legislation simplifying registration and regulatory requirements for new firms, and simple tax systems including electronic payment of taxes.

                      The International Monetary Fund (IMF) notes that policies that are effective in formalizing the informal sector include among other things, increased access to formal financial and economic resources and leveraging mobile money and digital payments.

                      Conclusion

                      Workers in the informal economy experi­ence specific disadvantages and the most severe decent work deficits. As individuals and a group, their well-being is precarious and vulnerable.

                      AfCFTA is providing Africa with renewed hope for a future of economic prosperity. This hope is equally shared by Africans and even others outside the continent. Implementation of the AfCFTA agreement is reportedly going well and progress is being made with the negotiations.

                      The AfCFTA protocol on E-commerce should set the agenda for seamless cross border payment to drive cross border trade and rally countries around the goal of creating the regulatory environment for informal micro-enterprises in Africa.

                      DISCLAIMER:

                      The material contained in this publication is provided for general information purposes only and does not contain a comprehensive analysis of each item described. Before taking (or not taking) any action, readers should seek professional advice specific to their situation. No liability is accepted for acts or omissions taken in reliance upon the contents of this alert.

                      AOA Professional Services is an indigenous tax, regulatory and advisory service firm driven by the values of professionalism and partnership. For further information on the subject matter, reach out to our Africa International Helpdesk

                    4. AfCFTA: Trade Finance and Intra-Africa Trade

                      AfCFTA: Trade Finance and Intra-Africa Trade

                      Trade finance represents the financial instruments and products that are used by companies to facilitate international trade and commerce. Trade finance makes it possible and easier for importers and exporters to transact business through trade.

                      President of the African Development Bank (AfDB), Akinwumi A. Adesina, stated that “trade finance is an important instrument for influencing Africa’s long-term economic development and structural transformation”.

                      According to Baker McKenzie’s research with Oxford Economics – AfCFTA’s US$ 3 trillion Opportunity – “there are now unprecedented opportunities for Africa, and its trading partners, to reap economic benefits on the back of the possible improvements in transport infrastructure, reduction of red tape for cross-border dealings, renewed funding and improved liquidity”.

                      AfCFTA and Opportunities for Africa:

                      African Continental Free Trade Area (AfCFTA) will help African countries to diversify their economies, grow production capacity and broaden the range of products made in Africa, in particular improving the production of manufactured goods (and the potential for multinational companies to set up manufacturing plants in Africa). Closer integration of neighbouring economies is a potential avenue for creating scale and competitiveness through domestic market enlargement, thereby promoting development, and improving foreign investment through greater efficiency.

                      The AfCFTA is expected to positively affect domestic manufacturing. For example, Manufacturing is currently the second-largest sector in the Nigerian economy (12.8% of GDP in 2020 at current prices), and the Government set an ambitious target of 20% manufacturing share of GDP by 2023.

                      In Nigeria, the National Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) is also closely working with the Nigerian Export Promotions Council (NEPC) to develop its members for export so that member’s products will meet international standards and facilitate acceptance globally.

                      AfCFTA and Intra-African Trade:

                      Intra-African trade is very low, standing at just 16 per cent of the continent’s total trade, compared with 19 per cent in Latin America, 51 per cent in Asia, 54 per cent in North America and 70 per cent in Europe.

                      The AfCFTA, fundamentally, will put African economies-and African citizens on a better economic footing. It will enhance competitiveness and stimulate investment, innovation, and economic growth by increasing efficiency and eliminating trade barriers.

                      The agreement commits countries to remove tariffs on 90 per cent of goods and incrementally apply the same to services. In addition, the removal of tariffs on goods, in particular, is projected to increase the value of intra-African trade by 15 to 25 per cent by 2040. This would translate to between $50 billion and $70 billion in value.

                      AfCFTA and Pan-African Payments and Settlements Systems (PAPSS):

                      The African Export-Import Bank (Afreximbank), working with the AfCFTA and the Central Bank of Nigeria (CBN) to come up with the PAPSS where if you, as a Nigerian exporter, send goods to Ghana, you will be paid locally in Naira; the other person does not need to go and be looking for the dollar to pay you. In the same way, a company will not go and be looking for a Dollar to carry out a transaction.

                      PAPSS was developed by Afreximbank and Launched in January 2022 in Accra, Ghana.

                      It is expected to boost Intra-African trade by transforming and facilitating payment, clearing and settlement for cross-border trade across Africa. PAPSS will enable a customer in one African country to pay in his currency, while a seller in another country receives payment also in his currency.

                      At the unveiling of the payment platform, AfCFTA Secretary-General Wamkele Mene stated that the PAPSS is expected to boost intra-African trade and save the continent $5 billion yearly in payment transaction costs, while also playing an increasingly significant role in accelerating the continent’s transactions underpinning the operationalisation of the AfCFTA.

                      The Afreximbank, as the main Settlement Agent for PAPSS, will provide settlement guarantees on the payment system and overdraft facilities to all settlement agents, in partnership with Africa’s participating Central Banks.PAPSS will effectively eliminate Africa’s financial borders, formalise and integrate Africa’s payment systems, and play a major role in facilitating and accelerating the huge AfCFTA-induced growth curve in intra-African trade.

                      Before PAPSS, over 80 per cent of African cross-border payment transactions originating from African banks were said to be routed offshore for clearing and settlement using international banking relationships.

                      Conclusion:

                      The President of the African Development Bank stated that “Trade finance is an important instrument for influencing Africa’s long-term economic development and structural transformation. It can play a cross-sectoral role to facilitate the delivery of the Bank’s, “High 5” strategic priorities to “Power and Light Up Africa”, “Feed Africa”, “Industrialize Africa”, “Integrate Africa” and “Improve the quality of life of the people of Africa.”

                      Intra-African trade accounted for approximately USD 1 billion of total trade supported, 60% of all supported transactions are attributable to SMEs. Similarly, over 62% of all transactions have a tenor of fewer than 6 months, signifying the short-term nature of trade finance transactions in general.

                      Culled from AfDB’s Trade Finance Program

                      DISCLAIMER:

                      The material contained in this publication is provided for general information purposes only and does not contain a comprehensive analysis of each item described. Before taking (or not taking) any action, readers should seek professional advice specific to their situation. No liability is accepted for acts or omissions taken in reliance upon the contents of this alert.

                      AOA Professional Services is an indigenous tax, regulatory and advisory service firm driven by the values of professionalism and partnership. For further information on the subject matter, reach out to our Africa International Helpdesk

                    5. AfCFTA: Administration of Rules of Origin

                      AfCFTA: Administration of Rules of Origin

                      Rules of origin are the basis required to ascertain the home source of a product. Their importance is derived from the fact that duties and limitations in several cases depend upon the source of imports.

                      With the African Continental Free Trade Area (AfCFTA) bringing together 1.3 billion people in 55 African countries to create the world’s largest free trade area as measured by the number of participating Member States, the Economic Development in Africa Report 2019 notes that the rules of origin could be a revolutionary for Africa as long as they are simple, transparent, business-friendly and predictable.

                      In essence, rules of origin will enable goods to move duty-free within a free trade area (FTA) as long as these goods qualify as originating within the FTA.

                      It is required to set up a committee on rules of origin under the AfCFTA agreement to annually review the implementation of the rules, and their provisions and submit reports and recommendations to a committee of senior trade officials.

                      Rules of origin are the foundations for the successful implementation of preferential trade liberalization, the critical policy tool needed to make any Free Trade Area (FTA) functional and are of necessary importance in creating opportunities for African Least Developed Countries (LDCs) to boost trade.

                      UNCTAD recommends that rules of origin should be kept simple, transparent, business-friendly, predictable and not costly or complex to comply with as companies may instead forego these preferences and choose to trade with partners outside the AfCFTA.

                      “The AfCFTA is a landmark achievement in the continent’s history of regional integration and is expected to generate significant gains. But it is the rules of origin that will determine whether preferential trade liberalization under the AfCFTA can be a game-changer for Africa’s industrialization”.

                      UNCTAD Secretary-General Mukhisa Kituyi

                      President Muhammadu Buhari has assured the Manufacturers Association of Nigeria (MAN) that the federal government will take relevant measures to enhance access to foreign exchange for the importation of raw materials and machines that are not available locally. The President also said that Nigeria would expedite the process of setting up the Designated Competent Authority that will superintend the administration of Rules of Origin and Commission as well as the automation for issuance of electronic Certificate of Origin.

                      Rules of origin are used:

                      • to apply measures and instruments of commercial policy such as anti-dumping duties and protective measures;
                      • to decide if imported products shall receive most-favoured-nation (MFN) treatment or preferential treatment;
                      • for trade statistics;
                      • for the use of labelling and marking requirements; and
                      • for government procurement.

                      DISCLAIMER:

                      The material contained in this publication is provided for general information purposes only and does not contain a comprehensive analysis of each item described. Before taking (or not taking) any action, readers should seek professional advice specific to their situation. No liability is accepted for acts or omissions taken in reliance upon the contents of this alert.

                      AOA Professional Services is an indigenous tax, regulatory and advisory service firm driven by the values of professionalism and partnership. For further information on the subject matter, reach out to our Africa International Helpdesk

                    6. AfCFTA & PASPPS: Accelerating Africa’s Trade

                      AfCFTA & PASPPS: Accelerating Africa’s Trade

                      The AfCFTA, African Export-Import Bank, and other partners on 13th January officially launched a unified payment system for the African market. This is the Pan-African Payments and Settlements Systems(PAPSS). Its primary goal is to boost Intra-African trade significantly by making cross-border payments less reliant on third party currencies.

                      PAPSS allows a customer in one African country to pay in their currency, while a seller in another country receives payment in their currency. With PAPSS, this would facilitate the African Continental Free Trade Agreement (AfCFTA) aim to bring together the 54 African countries to trade under a single market with liberalized tariffs and the removal of the non-tariff barriers to cross-border trading.

                      The commencement of PAPSS would solve reliance on third currencies- US Dollars, Euros and the British Pounds for the clearing and settlement of cross-border payments and transactions which in turn leads to high costs and long transaction times. At the moment, 42 currencies are being spent on the continent and only a couple of those currencies have any value outside the countries where they are tender.

                      Before PAPSS, for example, a buyer in Nigeria who intends to buy goods from a seller in South Africa will be required to pay the seller in a third currency from outside the continent- either the US dollar, the Euros or the British Pounds, pay the extra charges to have the agreed sum processed and sent to the seller in South Africa and have to wait several days for transactions to clear.

                      Aside from time constraints, the method of currency conversion adds to the value of doing business and actually, the money has got to leave Africa before being sent back to South Africa. With the start and functioning of PAPSS, the same business would only pay in Nigerian Naira for the goods, while the seller will receive South African Rand.

                      The PAPSS serves as the clearing, processing and settlement agent in the transaction for MSMEs in Nigeria and other emerging economies facing high import and export expenses, as well as unknown transaction delays due to limited correspondent bank relationships, foreign currency availability, and cross-border transaction rail capacity would be addressed with a commercially viable modern solution in the continent.

                      In conclusion, Pamela Coke-Hamilton, executive of the International Trade Centre, said:

                      “In these uncertain times, African countries now have a commercially viable tool which will address a critical barrier for MSMEs to trade competitively. ITC is preparing enterprises to profit from PAPSS, creating new opportunities for growth in cross-border e-commerce and sustainable trade.”

                      DISCLAIMER:

                      The material contained in this publication is provided for general information purposes only and does not contain a comprehensive analysis of each item described. Before taking (or not taking) any action, readers should seek professional advice specific to their situation. No liability is accepted for acts or omissions taken in reliance upon the contents of this alert.

                      AOA Professional Services is an indigenous tax, regulatory and advisory service firm driven by the values of professionalism and partnership. For further information on the subject matter, reach out to our Africa International Helpdesk

                    7. AfCFTA: The Need to Review Double Taxation Arrangement

                      AfCFTA: The Need to Review Double Taxation Arrangement

                      A Tax Treaty otherwise called an Avoidance of Double Taxation Agreement (ADTA) or Double Taxation Agreement (DTA) could be described as an agreement between two or more countries (otherwise known as the Contracting States or parties) to make sure that a resident of one or both of the contracting countries does not suffer from paying tax twice on the same income in both jurisdictions or unduly benefit from not paying appropriate taxes in any of the countries through tax evasion or avoidance. The Agreement covers taxes on income and capital only and does not extend to consumption taxes such as Value Added Tax or Sales Taxes.

                      Over the last few decades, the number of bilateral tax treaties has increased dramatically. The United Nations Model Double Taxation Convention Between Developed and Developing Countries (“UN Model Convention”) and the Organisation for Economic Co-operation and Development’s Model Tax Convention on Income and on Capital2 (“OECD Model Convention”) provide models for countries to use in negotiating the terms of their treaties and are regularly updated. For purposes of both the UN and OECD Model Conventions, it is assumed that any rules for the application of the provisions of those Model Conventions are a matter for the domestic law of the contracting states. Consequently, there are no general rules in the Model Conventions or in the Commentaries concerning how the provisions of the treaty should be applied.

                      Speaking at the launch of “Dangers of Double Tax Agreement in Financing Development: a case study in Ghana,” Mrs. Ofori-Kwafo said the report emphasized the need to adopt a harmonized DTA model, which would take into consideration diversities in the African economies.

                      She said in view of that, Tax Justice Network Africa (TJNA), in collaboration with its members of South and Eastern Africa Trade Information and Negotiation Institute (SEATINI Uganda), Civil Society Legislative Advocacy Centre Nigeria (CISLAC), Ghana Integrity Initiative (GII), Policy Forum Tanzania and Centre for Trade Policy and Development (CTPD) Zambia with support from Open Society Foundation (OSF) had conducted a joint study on the Dangers of DTAs in Financing Development in Africa with case studies of Ghana, Nigeria, Tanzania, Uganda, and Zambia.

                      In general, the tax authorities of a country should apply the provisions of its tax treaties to prevent tax avoidance and evasion. This requires careful consideration of the inclusion of anti-abuse rules in tax treaties and the adoption of domestic anti-avoidance rules that can be applied to treaty abuses. However, in addition to ensuring that the appropriate anti-avoidance rules are in place, the tax authorities must have the capacity to interpret, apply and enforce those rules concerning treaty abuses.

                      Given the African Continental Free Trade Agreement (AfCFTA), there is, therefore, the need for a thorough review and renegotiation of the Double Taxation Agreement to resolve challenges regarding tax evasion and avoidance in the continent.

                      DISCLAIMER:

                      The material contained in this publication is provided for general information purposes only and does not contain a comprehensive analysis of each item described. Before taking (or not taking) any action, readers should seek professional advice specific to their situation. No liability is accepted for acts or omissions taken in reliance upon the contents of this alert.

                      AOA Professional Services is an indigenous tax, regulatory and advisory service firm driven by the values of professionalism and partnership. For further information on the subject matter, reach out to our Africa International Helpdesk

                    8. AfCFTA: Potentials & Challenges for MSMEs in Africa

                      AfCFTA: Potentials & Challenges for MSMEs in Africa

                      In 2018, 54 of the 55 countries that make up the African Union (AU) established the African Continental Free Trade Area (AfCFTA). It was created by the African Continental Free Trade Agreement to be a free trade area to fast-track economic development on the African Continent, especially through the small and medium-sized enterprises (SMEs).

                      The AfCFTA has opened a $3.4 trillion borderless market created to present an opportunity and rekindle hopes for African recovery through trade in a post-Covid-19 world. As nations continue to battle a pandemic that does not respect national borders, the Intra-African trade is currently low at 14.4 percent of total African exports. The United Nations Conference on Trade and Development (UNCTAD) estimates that the AfCFTA could boost intra-African trade by about 33 percent and cut the continent’s trade deficit by 51 percent.

                      The latest Economic Development report shows that about 34 percent of African households live below the international poverty line ($1.9 per day), and around 40 percent of the total wealth is owned by approximately 0.0001 percent of the continent’s population. Then the pandemic has exacerbated inequalities and vulnerabilities of marginalized groups, resulting in an additional 37 million people in sub-Saharan Africa living in extreme poverty.

                      A key question is how economic growth through regional integration can contribute to poverty reduction, cut inequality, and foster inclusive development, which is the main objective of the African Union’s Agenda 2063. Reports have shown that the continent’s current untapped export potential amounts to $21.9 billion, equivalent to 43 percent of intra-African exports. An additional $9.2 billion of export potential can be realized through partial tariff liberalization under the AfCFTA over the next five years.

                      So what are we saying here?

                      • With the AfCFTA, the market potential is huge but there is an equally huge challenge, which is that of a wide poverty line in the continent.
                      • MSMEs are at the centre of leveraging the potential of the market and also solving the problem of poverty through job creation.
                      • MSMEs would also help reduce over-reliance on foreign goods while enhancing the production of locally made goods which would boost infrastructure within the African Continent.

                      According to the National Bureau of Statistics (NBS) and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), SMEs in Nigeria account for about 96 percent of registered Nigerian businesses, employ about 75 percent of the national labour force, and contribute 48 percent to the country’s Gross Domestic Product (GDP). A 2020 survey of 1,804 MSMEs across Nigeria by the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) showed that more than 50 percent of those surveyed were most concerned about the threat posed by imported cheaper goods competing with local products due to the AfCFTA, while only 20 percent were aware of the existence of the AfCFTA.

                      In conclusion, it’s not just policies and procedural shortcomings that have resulted in limited cross-border trade volumes in Africa. Medium Small and Middle-Scale Enterprises (MSMEs) and other stakeholders in Africa must look deeper into why intra-African trade has been slow to gain traction, leading to Africa’s ongoing heavy reliance on imports and taking advantage where necessary to grow their business and market share in Africa.

                      DISCLAIMER:

                      The material contained in this publication is provided for general information purposes only and does not contain a comprehensive analysis of each item described. Before taking (or not taking) any action, readers should seek professional advice specific to their situation. No liability is accepted for acts or omissions taken in reliance upon the contents of this alert.

                      AOA Professional Services is an indigenous tax, regulatory and advisory service firm driven by the values of professionalism and partnership. For further information on the subject matter, reach out to our Africa International Helpdesk