In March 2021, I wrote about the impact of the AfCFTA agreement on Fintech. Today I want to extend the reflection and have a look at the technology industry as a whole.
As a short reminder, the AfCFTA is a flagship project of Agenda 2063 of the African Union with the following aims (amongst others, check out AfCFTA)
Create a single market for goods and services facilitated by the movement of persons.
Create a liberalised market for goods and services.
Contribute to the movement of capital and natural persons and facilitate investments building.
Lay the foundation for the establishment of a Continental Customs Union.
AfCFTA - Current Status
As of 10 February 2022, 41 of the 54 have ratified this agreement. Now we are speaking of a potential of around $3.4 trillion of combined GDP, however, there are still significant hurdles to be taken. Negotiations are currently managed in 3 different phases and the ultimate success of this agreement depends on the final closing of those as pointed out by David Thomas in his excellent article on African Business. Furthermore, this would include a comprehensive regulatory framework.
Phase 1 negotiations – trade in goods and services.
Phase 2 negotiations – intellectual property rights, investment and competition policy.
Phase 3 negotiations – e-commerce. These negotiations are due to begin when phase 2 is complete.
While Phase 1 has led to the ratification of the overall agreement, details remain to be reviewed and agreed upon. Phase 2 negotiations have started.
Africa - Unrivaled Tech Opportunities
So how does this play into the African Tech industry? A couple of years ago, it would have been unimaginable that tech giants like Google and IBM heavily invest in resources and facilities and that unicorns bloom on the continent. According to Boston Consulting Group, the number of African tech start-ups securing funding has risen by 46% vs 8% globally between 2015 - 2020. Undoubtedly, Africa is the next best tech place to be, with a huge potential market for Fintech (57% of the population are unbanked), Edtech (only four out of every 100 children in Africa is expected to enter a graduate and postgraduate institution) and Healthtech (fewer than 50% of Africans have access to modern health facilities) alone. Around 40% of the African population is younger than 15. The usage of mobile phones and other devices is huge compared to other regions, especially the younger generation is tech agile and savvy.
AfCFTA and Tech - The Untapped Potential
Who says "tech development", says the "need for a competent workforce". No tech company can flourish without the right skills. I experience this myself as the co-founder of an AI Fintech and also speak to many entrepreneurs on the continent who have brilliant ideas and even the funding but not the right skills in the team. AfCFTA Phase 1 has the potential to unify the approach by hiring a skilled workforce and a free exchange of skilled labor wherever needed.
Furthermore, Africa's Tech industry suffers from poor IT infrastructure. Building undersea cables is a costly endeavor and the African states are often only minority shareholders in those enterprises. The AfCFTA can increase the economic weight in negotiations while fostering the construction of land cables.
Another example is the protection of IP (Phase 2) in the tech sector. The proper protection of technology IP on a continent-wide basis, with an overarching legal framework, would massively increase the attractiveness for investors. Then, the entire business model of E-commerce, the object of Phase 3, is based on technology, opening an even wider horizon on the consumption front.
The examples of benefits of the AfCFTA are too numerous to all be mentioned here and bear an unmeasured economic potential for the African tech industry. And while this potential is undeniable, the maximisation of the latter largely depends on the commitment of the member states to not only finalize the agreement but also execute the laws and regulations decided upon.