Wole Olufunwa Director (Partner), Head of Africa Group
AfCFTA and the maritime industry
This article is the second in a series of articles looking at the impact of the African Continental Free Trade Area (the “AfCFTA”) on various practice areas and industry sectors that our clients operate in. This article focuses on the maritime industry and addresses three key questions our shipping clients have asked about AfCFTA.
Question 1: “I ship goods from Nigeria to several other countries along the west coast of the continent. How will AfCTA assist me?”
- By far and away one of the biggest complaints from shippers is the familiar “African customs delay”. In circumstances where customs clearance on some goods can take in excess of one calendar week, this issue accounts for the high cost of shipping goods to Africa and within Africa; so much so that the international market has become one of necessity rather than one of choice for Africa-based shippers.
- If traders factor in the monthly cost of losing 10 days out of every 30 on account of customs delays (on a monthly trade cycle), and try to pass that cost on to the consumer by absorbing that loss within the price of their goods, they can often effectively price themselves out of the intracontinental market.
- Although trading in Africa may be several years away from a fully operational system, one of the primary objectives of the AfCFTA is to put in place a Continental Customs Union. This is intended to harmonise customs procedures and pave the way for improving efficiency in the industry.
- It will be interesting to see what part technology plays in this initiative. For example, electronic bills of lading were once heralded as a new dawn for the shipping industry. Despite the promise of increased security on account of integrated blockchain technology, we have not seen the wholesale adoption of e-bills.
- That said, it may be that e-bills enjoy something of a resurgence if the modernisation of African ports entails looking at this issue again alongside increased automation, in order to realise further potential time-cost savings during the customs importation process.
Question 2: “Despite Africa’s size and considerable coastline, global trade tonnage is dominated by shipping giants like Greece (17.7%), Japan (11.4%), China (11.2%)”, and Singapore (6.7%). Will there be any room for African owned tonnage in the new AfCFTA landscape?”
- Much of the African population would romanticise about the potential prevalence of African-owned tonnage. However, the reality is that the maritime trade aspect of AfCFTA will probably still be dominated by the big international players like Greece and Japan – at least in the short term.
- However, that is not to say that there will be no room for African-owned players to emerge onto the scene in this new landscape. These new African players would likely come from the continent’s larger economies with well-developed port infrastructures like Nigeria, Egypt, Morocco and South Africa.
- Most eyes will probably be on Nigeria as the leading economy on the continent. A shining symbol of its industrial strength is the Dangote oil refinery. It is Africa’s biggest oil refinery and the world’s biggest single-train facility.
- Where the refinery will meet 100% of the Nigerian requirement of all refined products, it will also have a surplus of each of these products for export both intercontinentally and intra-continentally. It would not surprise many if in the fullness of time, we saw Dangote-owned vessels transporting their petroleum products in the anticipated coastal trade – especially whilst the continent’s road networks undergo construction and modernisation.
Question 3: “If one of the objectives of AfCFTA is to boost intercontinental coastal trade, how will the current port systems cope?”
- A clue to the answer is in the question itself. The reality is that much of Africa’s current port infrastructure will not cope in its current state. Presently, there are significant gaps across the continent that will need to be plugged by a combination of domestic and foreign investment.
- In a new landscape where import tariffs and the other usual obstacles to trade such as customs delays are removed or at least vastly reduced by AfCFTA, it is thought that this will expand intracontinental trade between coastal countries by diversifying African economies. A by-product of this will be an increase in containerised trade and port traffic volumes.
- The two concepts are not mutually exclusive. The boosting of intracontinental trade can only really be sustained if port infrastructure is improved. By the same token, the continent’s port infrastructure cannot be improved without reinvesting some of the income generated by intracontinental trade. Many will look to Nigeria to lead the way, and with savvy planning and targeted investment the entire continent has the potential to prosper, step by step, and territory by territory.
They say “Rome was not built in a day”. Perhaps in the fullness of time, it may be equally true to say that “Africa was not built in a week”.
If you have any questions about the content in this article or would like to discuss further, please do not hesitate to reach out to our specialists at Africa@incegd.com.
As proud platinum sponsors, Ince will be hosting a number of events as part of London International Shipping Week, taking place between 13 to 17 September 2021.
Ince hosts will be joined by several leading industry experts to discuss a range of topics affecting the maritime sector.
Please click here for further information, dates and timings, and to confirm your attendance - whether this be in–person or virtually.
Featured news & insights
Insights / The African Continental Free Trade Area: Africa speaks with one voice
25-05-2021 / Commodities & Trade
After years of preparation, negotiation and operational delays caused by the COVID-19 pandemic, 1 January 2021 marked the commencement of the long-awaited African Continental Free Trade Area (“AfCFTA”).