'We are on our own'- Africa looks within to weather growing global tariff turmoil

African leaders are accelerating efforts to implement the African Continental Free Trade Area (AfCFTA) amidst rising concerns over potential U.S. tariffs and the weaponization of global trade policy. While the pact, aiming to unify Africa's $3 trillion economy, has seen a 12.4% boost in intra-African trade to $208 billion, its full potential is hindered by significant challenges including a substantial infrastructure deficit, weak governance, and persistent reliance on the U.S. dollar for transactions. Addressing these barriers and fostering internal value chains is deemed crucial for the continent to mitigate external shocks, create jobs, and retain wealth.

Analysis

African leaders are escalating efforts to implement the African Continental Free Trade Area (AfCFTA) as a strategic response to growing global trade protectionism, particularly the threat of U.S. tariffs. While the pact shows early promise, with intra-African trade increasing 12.4% to $208 billion last year, its full realization is severely hampered by structural challenges. The primary obstacle is a massive infrastructure deficit, estimated at over $100 billion annually, which threatens to keep the agreement a "paper promise" according to Standard Bank's CEO. Furthermore, implementation remains sluggish and inconsistent, with fewer than half of the ratifying nations actively trading under the framework, undermined by weak governance and bureaucratic hurdles. A significant financial dependency also exists, with nearly two-thirds of intra-continental payments clearing through U.S. dollar corridors, introducing volatility and higher costs. While initiatives like the Pan-African Payments and Settlement System aim to address this, the overall tone remains cautious, reflecting a long-term potential that is currently constrained by significant short-term execution risks across finance, logistics, and governance.

Key Decisions for Investors

• Investors should monitor companies in the infrastructure, engineering, and logistics sectors, as they are positioned to benefit from the stated $65 billion in recent investment and the critical need to close the continent's $100 billion annual infrastructure gap.
• Given the inconsistent implementation and governance issues, a cautious approach is warranted; prioritize investments in countries and companies with demonstrated operational strength and proven access to cross-border markets over broad, passive exposure to the AfCFTA theme.
• Consider the currency risk and opportunity by tracking the development of the Pan-African Payments and Settlement System, as a shift away from U.S. dollar dependency could create long-term winners in regional banking and fintech.
• Evaluate portfolio companies' revenue exposure, favoring firms geared towards the growing intra-African market over those heavily reliant on exports to the U.S. and other regions susceptible to new tariff policies.