Latest / International Business with Fexingo: Global Trade, Cross-Border Deals, and Multinational Operations / How Africa Is Becoming the Next Big Trade Link
Transcript
- Lucas: So, Luna, I was looking at the latest trade numbers and something jumped out at me. The US trade deficit narrowed to about seventy-three point three billion dollars in June, down from nearly seventy-eight billion the month before. That's notable, but what's more interesting is where some of that improvement is coming from — and it's not just China or Mexico. Luna: You're talking about Africa, right? I've been seeing more headlines about African exports, but I'm not sure people are paying attention yet. Lucas: Exactly. We talk a lot about Vietnam, Thailand, Mexico — the usual suspects in supply chain diversification. But there's a quieter shift happening on the African continent. Intra-African trade is up sharply since the African Continental Free Trade Area, or AfCFTA, really got going. And it's not just raw materials anymore. Luna: What's the actual number? I've seen some estimates, but I want to hear what you're looking at. Lucas: So, according to the African Development Bank, intra-African exports are projected to rise by about thirty-eight percent in the next couple of years, pushing the share of intra-African trade from around fifteen percent to over twenty percent. That might not sound huge, but for context, that's still way below Europe's sixty percent, but it's a massive jump for a continent that's traditionally been fragmented. Luna: And what's driving that? Is it just the trade agreement, or is there something else happening? Lucas: The trade agreement is a big part, but it's also about infrastructure and investment. Kenya, for example, is becoming a hub for tech and services. Morocco has got this booming automotive sector — carmakers are exporting vehicles and parts to Europe. Even something like the drone manufacturing we saw in Taiwan — Africa is starting to get similar attention, though on a smaller scale. Luna: Morocco is a good example. They've got that Renault plant, and they're also making a push into electric vehicles. I read that they're aiming to increase the local content in those cars, which would make them more attractive for European supply chains. Lucas: Right, and that's the key — it's not just about low cost anymore. It's about proximity to Europe, better trade deals, and in some cases, a more stable business environment. But there are still big hurdles. Infrastructure gaps, customs delays, and political instability in parts of the continent. It's not a smooth ride. Luna: So, when you say Africa is becoming the next big trade link, what exactly is changing? Are we seeing a shift in how multinationals view the continent? Lucas: I think so. Historically, Africa was seen as a source of commodities — oil, minerals, cash crops. You extract and ship out. But now, with rising labor costs in Asia and companies looking to diversify, some are looking at Africa as a place to actually manufacture goods, not just source raw materials. Take textiles, for instance. Ethiopia has been getting investments in garment factories, even though challenges remain. Luna: And it's not just manufacturing. Services are a big deal too. I've seen Kenya's tech scene mentioned a lot — they call it Silicon Savannah. Companies like Safaricom's M-Pesa have shown that Africa can be a leader in fintech, which is attracting investment from global firms. Lucas: Absolutely. And that's where some of the numbers in the live data start to make sense. If you look at emerging market ETFs, they're mixed — but African-focused funds aren't even in the top ten, so the market hasn't fully priced this in yet. That could be an opportunity for investors, but also a warning that it's early days. Luna: Let's talk about the AfCFTA specifically. What's actually been implemented so far? I know it launched in 2021, but I've heard that negotiations are still ongoing. Lucas: Yeah, the agreement is still being phased in. They've got the framework in place, but rules of origin, tariff schedules, and dispute resolution are still being negotiated. The United Nations Economic Commission for Africa says that if fully implemented, AfCFTA could boost intra-African trade by fifty-two percent by 2035. That's a huge potential, but the implementation is slow-going. Luna: What are the main bottlenecks? Is it political will, or practical issues like customs and infrastructure? Lucas: It's a mix. On the political side, there's a lot of enthusiasm, but when it comes to actually lowering trade barriers, some countries are reluctant to open up markets where they have infant industries. On the practical side, infrastructure is a killer. The Africa Infrastructure Development Index shows that the continent has a massive gap in transport, energy, and digital connectivity. For example, moving goods from Mombasa to Kampala can take weeks and cost more than shipping to China and back. Luna: Right, that's the kind of friction that keeps trade low. But I've also heard that some countries are making big investments in ports and rail. Like the new deepwater port in Kenya, or the Chinese-built railway between Ethiopia and Djibouti. Those could change the math. Lucas: Yes, and there's a subtle angle here: the competition between China and the West for influence in Africa. China has been the biggest investor in infrastructure, but Western countries and Japan are pushing back with their own initiatives. That's creating more options for African governments, which can play one against the other to secure better deals. Luna: So, for a multinational manufacturer or a logistics company, what does this actually mean in practice? Is it worth setting up operations in Africa now, or is it still too early? Lucas: That's the million-dollar question. There's a real risk of getting ahead of the curve. But look at what's happening in apparel: brands like H&M and PVH have been sourcing from Ethiopia and Kenya, and they're seeing cost advantages. On the flip side, there have been issues with labor disputes and currency volatility. So it's a calculated bet. Luna: And then you have the political risk. Cameroon, for example, has had a stable government for decades, but that doesn't mean it's a business paradise. There are corruption concerns, and the business climate is tough. Lucas: Exactly. So, when we think about Africa as the next big trade link, we're not saying it's the next China. It's more about adding another node to the network — a way to reduce concentration risk in your supply chain. And that's something we've seen in the data: companies are increasingly looking at 'China plus one' strategies, and Africa is one of the 'plus ones' they're testing. Luna: I think the bigger picture is that global trade is becoming more fragmented. We saw the US trade deficit narrow a bit, but that's partly because of tariffs and re-shoring. Africa could be a beneficiary of that fragmentation, but only if it can get its act together. Lucas: And that's the real story. We're not going to see a dramatic overnight shift, but if you look at the trends — rising intra-African trade, more investment in infrastructure, and a growing middle class — the pieces are there. The question is whether it will be a slow burn or an explosion. Luna: Before we go deeper, I want to come back to something you said earlier about the US trade deficit. Do you think Africa is playing a role in that improvement, or is it still too small to matter? Lucas: It's still small, but it's growing. In 2025, US imports from Africa rose by about twelve percent, though they're still only a fraction of total imports. But if you look at countries like South Africa, they're exporting more advanced goods, like cars and machinery, not just platinum and gold. So the composition is changing. Luna: That's a good point. And on the investment side, American companies are starting to look at Africa differently. I saw that Procter & Gamble has been expanding their operations in Nigeria, and General Electric set up a manufacturing plant in Ethiopia a few years back. Those are early indicators. Lucas: Right. And it's not just American companies. European firms are also getting in on the action, especially in North Africa. Morocco's proximity to Spain makes it an attractive spot for automotive and aerospace manufacturing. They're actually exporting car parts to Europe, and I've heard that they're targeting higher-value components like electric batteries. Luna: So, with all this in mind, what should a business listener actually take away from this episode? I mean, is there a concrete action item? Lucas: I think it's about keeping Africa on your radar. Whether you're a supply chain manager, an investor, or an entrepreneur, the opportunity is real but it's not without risk. A good first step is to look at the Africa Continental Free Trade Area's tariff schedules and see if your product category is eligible for duty-free access. That's a concrete way to start exploring. Luna: And maybe don't bet the farm on it. But if you're in a sector like agriculture, technology, or infrastructure, there are definitely opportunities to get ahead of the curve. Lucas: For sure. And speaking of getting ahead of the curve, I want to mention something that's been on my mind. This show is a lot of work to produce — research, editing, coordination. And we keep it free because a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo. It's not a big group, but it's what makes this sustainable without ads. Luna: Yeah, and it's genuinely just a small way to support the work if it's been valuable to you. No pressure, but it does help us keep going deeper into topics like this. Lucas: Anyway, back to Africa. If we look at the next five years, I think we'll see a few winners emerge — countries like Kenya, Morocco, and maybe even South Africa if they can stabilize their energy grid. But the key is that Africa is becoming more than just a source of raw materials. Luna: And that's a narrative that's been building for decades, but now it feels like it's actually starting to happen. The question is whether the infrastructure and policy will keep up with the ambition. Lucas: Right. So, keep an eye on those intra-African trade numbers. If they keep climbing, that's a sign that the AfCFTA is working. And if you see more multinationals announcing African manufacturing plants, you'll know the shift is real.