African leaders gathered in Rwanda to move ahead on the establishment of a new free trade zone. Could it be the ideal platform for you to grow your reach into the continent?
Trying to grow your company across Africa could be challenging. From language barriers, to import and export controls, there’s so much to consider in the pursuit of African success.
Fortunately, more than 40 nations have signed the new African Continental Free Trade Area agreement in Kigali, Rwanda. By doing so, government leaders across the continent signal their commitment to remove tariffs on 90% of goods traded on the continent.
BBC Africa’s Business Report editor, Matthew Davies, says it’s expected that the free-trade agreement will come into force within six months.
Related: What does it take to successfully grow a company in Africa?
Rwandan president, Paul Kagame, says the promise of free trade and free movement will lead to prosperity for all Africans. “Prioritising the production of value-added goods and services that are ‘Made in Africa’ is essential. The advantages we gain by creating one African market will also benefit our trading partners around the world.”
President of South Africa, Cyril Ramaphosa, believes this is an opportunity that is going to yield great benefits for all countries on the continent, including big business, small companies and micro-traders.
What’s the significance of a free trade zone?
According to the African Union, the new free trade zone will serve as a single continental market for goods and services. It will also allow for easier movement of business people. Overall, it’s expected the zone will enhance competitiveness across industries and at all enterprise levels. Large companies can work with smaller ones to explore opportunities to scale production and improve resource utilisation.
The birth of the free trade zone
Ireland pioneered the first free trade zone in the world when it opened the Shannon Free Trade Zone in the early 1950s. It served as a way for the Irish Government to promote employment within a rural area of the country and make better use of a small regional airport to generate revenue for the Irish economy. The zone was reported to be successful from the outset and is still in operation today.
Why you should consider using a free trade zone
Companies that set up operations in free trade zones receive tax breaks as an incentive for doing so. The thinking behind it is straightforward: Free trade zones are established in unused or under-utilised parts of a host country.
Related: Major trends that are shaping the business landscape in Africa
Businesses employ people in the area to address poverty and unemployment while stimulating the economy. Every zone’s tax incentives and trading conditions vary, but free trade zones can be ideal for businesses that run factories to produce goods, like clothing or shoe brands. Electronics, automotive and chemical companies can also use free trade zones to their advantage.
Business expert on the benefits of trade zones
According to Yvon Pellerin, a free trade zone programme advisor, a free trade zone can help businesses save money and grow their market access at the same time.
“Because it is an area in or near a customs port of entry - where foreign and domestic merchandise is considered outside the customs territory - certain types of merchandise can be imported into the zone without going through formal customs entry procedures or paying import duties,” he says.
You can move goods into a zone, or manufacture goods in a zone, and keep them there until you’re ready to take them to a particular market. Any duties or taxes that are due for import or manufacture (depending on the zone) will only be payable by you at the time of transfer from the zone to a domestic market for consumption. If you’re ready to grow your reach across the continent, click here for more useful info on doing business in Africa.