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How logistics startups could make Africa’s free trade area work — Quartz Africa

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African logistics startups are positioning themselves to play a key role in the African Continental Free Trade Area (AfCTA), the largest free-trade area in the world by the number of participating countries, which launched on Jan. 1.

As businesses that tend to think about being in multiple markets from the onset, startups can help tackle some of the biggest goals of the agreement, such as common payment systems and common user experiences, says Onyekachi Izukanne, co-founder and CEO of TradeDepot, a Lagos-based startup that distributes consumer goods from manufacturers to retailers in three countries.

“We are big supporters of this increased access to market that the agreement promotes, even if we recognize that there is still quite a bit of work to be done,” says Izukanne. “I look at the agreement as a promise of integration.”

Tech can help tackle some of the biggest issues that have prevented trade from growing in Africa, including cutting down on red tape and easing supply-chain bottlenecks. But startups can’t do it alone. Governments will need to cooperate by creating infrastructure and ensuring that regulations don’t drag things down.

Low intra-African trade

AfCTA covers a market of 1.2 billion people with a combined GDP of $3 trillion. The agreement underpinning the trade area was signed by 54 out of the 55 African Union countries, with 36 countries ratifying it as at Feb. 5.

The main goal of the agreement is to create a single market for goods and services in Africa and deepen the continent’s economic integration. One of the ways it seeks to do this is by progressively eliminating tariffs for trade in goods.

African countries don’t trade very much with each other, which has hurt their ability to diversify their economies. Intra-African exports were 16.6% of total exports in 2017, compared to 68.1%, in Europe and 59.4% in Asia. And intra-African trade (the average of exports and imports), was around 2% in 2015-2017, compared to 47% for America, and 61% for Asia.

Removing import duties could increase intra-African trade by more than 50%, while reducing non-tariff barriers would double trade volumes.

The potential benefits of AfCTA notwithstanding, the agreement faces long-standing obstacles. These include poor infrastructure, unfriendly regulatory regimes and trade laws, border bureaucracy, red tape, and insufficient access to trade information. These obstacles have kept logistics costs high.

E-logistics firms help transport players in different parts of the continent save costs and increase revenue by providing them with tech that simplifies pricing, payment, and the smooth movement of goods; as well as data that offers valuable business intelligence. Some startups shone during the height of coronavirus lockdowns last year, enabling goods to keep flowing domestically despite supply chain and border restrictions.

With their experience using digital solutions to make logistics more efficient and transparent in the continent, they could help determine whether the free trade area is a success.  But they can’t tackle these issues by themselves.

“The treaty alone isn’t sufficient to ensure the intended benefits are felt,” says Jean-Claude Homawoo, co-founder and COO of Lori Systems, a Nairobi-based e-logistics startup that operates in six countries. “Implementation here is the key.”

Challenges present opportunities

The barriers that stand in the way present an opportunity, Homawoo says, given that startups already facilitate the work of leading logistics players. One example is Imperial, an African and European-focused provider of market access and logistics solutions. Imperial uses Lori System’s proprietary tech platform to provide transporters in southern Africa access to software applications and data, so that they can more efficiently manage their fleets and operations.

Startups could help governments register, track, and automate border crossings for freight carriers, and provide them with better visibility in the free-trade area, Homawoo says. Tech can also help shape valuable insights by collecting data on the movements of goods and people, he says. Further, Homawoo says, tech can be used in collection of duty for goods that will still carry tariffs.

Kobo360, a Nairobi-based e-logistics platform that serves more than 19 countries, is building a global logistics operating system that it wants to use to power trade and e-commerce enabled by AfCTA, says Dennis Kathurima, the country manager for Kenya and Uganda. The platform will incorporate logistics elements such as transport, clearing and forwarding, and warehousing services.

AfCTA is “still in its early stages, but we’re rooting for it,” says Kathurima.

In a sign of confidence in the potential boost they will get from AfCTA, African e-logistics startups have attracted investment from organizations including the World Bank. Its International Finance Corporation has poured around $82 million into global e-logistics companies, including Kobo360, in the hopes that they can tackle some of the challenges that have prevented trade from taking off between African countries.

A chance for startup expansion

AfCTA also presents an opportunity for tech startups to scale across the continent under a single set of rules and regulations, says Brian Laung Aoaeh, co-founder and general partner at REFASHIOND Ventures, a US venture capital firm specializing in supply chains.

Much still depends on how how the agreement is actually implemented on the ground, Aoaeh, who also teaches supply chain and operations management at New York University. But the potential to ease the regulatory burden on technology startups is significant. This can only happen if the new set of rules that startups and other businesses must comply with isn’t burdensome.

“It makes it much more likely that a continental giant will emerge from the African tech startup ecosystem,” says Aoaeh, “one that then can compete on the global stage.”

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