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Economy

The Death Of Shopping In Africa?

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By Melitta Ngalonkulu

A sad story; the death rattle of an African legend. On this Friday, the lights shine brightly but the shelves are gloomy. The manikins lay in a pile, stripped of their designer labels and dignity. The shop assistants wear black as sombre as the day. Outside stand the last two flimsy racks of cut-price clothes; like the store itself, everyone wants to see the back of them. A sorry end to more than a century of tradition.

“When one door closes, another one opens,” says one shop assistant, through a smile as empty as the shop.

These were the last heavy hours of 159 years of South African department store – Stuttafords. An economic slump and the shift to online shopping has seen many retail stores shut across the continent. On August 1, the last Stuttafords stores in two Johannesburg malls, Eastgate and Sandton City, took their final bow after years of struggle.

“Stuttafords just became more irrelevant to the customer. There was no individuality to it, it just became a portfolio of global brands. It became a departmental stocking global brands, which were stocked in the centers independently anyway,” says portfolio manager at 36ONE Asset Management, Evan Walker.

When the first shop was opened in Cape Town, in 1858, by English immigrant Samson Rickard Stuttaford, the vision was to establish a Harrods-like department store in what was then a Crown Colony. Its main store opened in 1938 in Cape Town. It was designed by in-house Harrods architect Louis David Blanc and echoed the British store’s famous frontage in London’s exclusive Knightsbridge district.

It went through many hands, including winemaker Graham Beck,  who died of lung cancer in 2010. Beck bought Stuttafords in 1978 with its six department stores from the Stuttaford family for R12 million ($900,000), and shortly thereafter delisted the company from the Johannesburg Stock Exchange (JSE).

However, it stayed focused on the middle- and upper-class market, despite the economy’s failure to recover from the deep recession of 2009.

Stuttafords Chief Executive Robert Amoils, who declined to be interviewed, told business website Fin24 that the damage had already been done.

“I believe the path we set was correct. We ran out of time. The market downturn was so swift, so severe,” says Amoils.

Then came President Jacob Zuma’s surprise removal of South Africa’s former finance minister Nhlanhla Nene. In December 2015, the rand dropped, which raised the prices of stock that Stuttafords had committed to buying up to a year in advance.

The company filed for voluntary business rescue in October, cutting 50 jobs – out of 800 employees. The store had 61% independent creditors, and owed R836 million ($63 million). They included Nedbank, Estée Lauder, Levi Strauss, Tommy Hilfiger and Polo.

The rescue plan was amended four times. There was conflict between shareholders and management as well as creditors and management.

Months before its closure, the department chain launched a slew of promotions which were a mix of high discounts and three-for-two promotions. This was to raise money for stock for the winter season.

The single largest shareholder Ellerines Bros, which currently owns 26.4%, withdrew from its commitment to inject R12 million ($900,000) in exchange for a 76% stake.

It left Stuttaford’s in liquidation. Its assets would be sold and some creditors will only be paid three cents for every R1. Creditors, whose debt is secured against Stuttafords’ assets, would be paid 90 cents for every R1.

The South African Revenue Service (SARS) would be the first to receive its R28 million ($2.1 million) in taxes. Creditors with secured debt and other shareholders, including Ellerines and Vestacor, will also receive what is due to them, leaving the employees last in line.

“I am really worried about finding another job. I am a mother of two and I support my brother as well because our parents passed away. Last year I moved to Stuttafords for greener pastures, little did I know that I would find myself in this crisis,” says a distraught employee at the Sandton store.

Stuttafords employees stand next to empty shelves at the store in Sandton. (Photo by Motlabana Monnakgotla)

“They did nothing themselves in turning around the store. They had zero output for the customer. I would say that they have been outdated for the past 10 years. I think what has kept them more relevant is the fact that, I think that they had more relevant regional locations and sub–centers, and the brands in South Africa have taken a long time to get here,” says Walker.

“Big stores, like H&M, Zara and Cotton On, keep introducing new product lines all the time and they keep having different footprints and different handwritings all the time, at way more affordable prices. I do not see any future for departmental stores, there is very little future growth. Globally, we have seen the added footprint of online shopping that is destroying the retail market.”

EY’s analysis on the 12 largest retailers in South Africa accounts for about R600 billion ($45 billion) in annual sales. The analysis focused on groceries, clothing and speciality items, like stationery.

Last year, return on equity (ROE) was strong for specialty retailers at 51.6%, grocery retailers averaged 22.3% and clothing ROEs were 41.1%.

The grocery retailers had a 62% share of total retail spend, specialty retailers had 23% and clothing retailers achieved 15%. In terms of share of profits, grocery retailers achieved 66%, while speciality and clothing retailers had lower shares at 18% and 16% respectively.

Many of Africa’s retailers are gloomy. The sector is trying to recover from weak and declining Gross Domestic Production (GDP) growth, low credit growth, and low investment levels.

In the difficult retail business of Africa there are no sacred cows – just ask Stuttafords.

Empty shelves are becoming common in stores across Africa. (Photo by Motlabana Monnakgotla)

Empty Shelves, Unpaid Bills And Angry Workers

In East Africa – where the tills used to jingle all year round – the picture is even grimmer. The big retailers are on the ropes, yet the developers plan even more shops. Crazy?

By Allan Akombo

In the once bustling supermarkets of Kenya, acres of shelves are empty; the once maddening queues are no more; disgruntled and unpaid shop workers are threatening to join the exodus of customers.

This has become the face of the two big names in retail in East Africa: Nakumatt and Uchumi Supermarkets.

Just three years ago, homegrown Nakumatt supermarkets were a signature success story in the region with expansion in mind to capitalize on a growing middle-class.

Today, Nakumatt – which runs the highest number of supermarkets in East Africa – is a shadow of itself, choking with debt and battling insolvency lawsuits by suppliers, as well as industrial action by its workers over unpaid wages.

“The situation is not good but we hope it will be handled fruitfully,” says Kenya’s Trade Principal Secretary, Chris Kiptoo.

Nakumatt’s financial struggles have already seen the chain shut down two stores in Kenya, and another three in Uganda, as part of a restructuring program to curb debts of more than  $145 million.

The debt crisis has sunk Nakumatt into serious cash flow problems to the extent that it can’t pay its 5,700 workers on time. Its woes have been compounded by cautious suppliers who now demand upfront payments. Others have cut their shipment of products to Nakumatt altogether, while some, such as Africa Cotton Industries and Gold Crown Beverages, have filed insolvency lawsuits against the supermarket chain for non-payment of debt.

“We had a delay in some salary payments. The restructuring has taken longer than anticipated and affected some of our liabilities,” Andrew Dixon, Nakumatt’s Marketing Director, admitted in June.

Insiders say Nakumatt’s financial troubles stem from an ambitious brick-and-mortar expansion gone wrong. Agitated by the entry of new rivals into the region – including Choppies of Botswana, France’s Carrefour, South Africa’s Game and Walmart of the US – Nakumatt and other Kenyan retailers expanded their footprint to ward-off competition for the dollars of East Africa’s growing middle-class.

The debt-driven expansion, partly through acquisitions, backfired because of a shaky economy and competition from new entrants.

“The management should share the blame because some of the expansion decisions defied basic economic sense. A responsible management should have engaged professional counselling to strategize the expansion,” a government source said.

Nakumatt looks to a long awaited $75-million cash injection from an undisclosed private equity fund to help shore up its stores. Despite the crisis, Nakumatt has 45 stores running in Kenya, eight in Uganda, three in Rwanda and five in Tanzania.

Uchumi Supermarkets faces the same trials as Nakumatt. Shelves at its stores are either empty or filled with single-line products as suppliers stay away due to lack of payment.

The chain, in 2016, closed stores in Kenya, leaving Uganda and Tanzania in an attempt to climb out of a financial hole. Uchumi is also selling assets, like land, to improve its cash reserves; it is hoping to obtain fresh funds from its shareholders that include the Kenyan government. The partly-owned government retailer was declared insolvent on May 30, 2006.

A decade on from this insolvency, Uchumi survived a winding-up suit and is currently banking on a Sh1.8 billion ($17.6 million) Treasury bailout package, of which only Sh500 million ($4.9 million) has been released so far. Another Sh3.5 billion ($34 million) is needed from investors to help Uchumi restock its shelves and pay supplier and bank debts.

But even with all of this debt and despair, developers in East Africa plan ever more retail space.

“The demand for brick-and-mortar retail is still high in East Africa, unlike in other markets where online commerce has disrupted things, leaving shopping malls empty. More new smaller retailers are emerging to service customers at their respective residential estates,” says John Ndirangu, a property agent in Nairobi’s Lang’ata suburb.

According to a report by Broll Property Group, an estimated 135,985 meters squared of retail space will be added to the Nairobi market in 2017.

“The opening of Garden City in Kasarani in mid-2015, The Hub in Karen in February 2016, and now Two Rivers, which opened in February 2017, have added an additional 120,000 meters squared of prime retail space in less than 20 months,” says Gordon Bell, Director and Head of East Africa Operations for Broll Property Group.

There is also the rise of international brands.

“Ultimately, landlords want tenants who can do the most business. The result is numerous international brands are now entering the market and local retailers feel the need to expand their number of outlets, in spite of the pressures on their financial and management structures,” says Bell.

“If we look at global retail trends, there is continuing debate about online shopping versus physical storefronts and changing consumer habits.”

Several online outlets, including Jumia, are attempting to grab a bigger share of the retail cake, sending those with brick-and-mortar stores turning to smaller and cheaper shops to cut costs.

“Across East Africa, we are seeing an emerging trend of smaller strip malls… where more favorable cost structures and the convenience aspect may better suit the much-needed up-and-coming retailers,” says Bell.

They may find it a rollercoaster ride in the uncertain world of East African shopping.

The Alara store in Lagos, Nigeria. (Photo supplied)

Trouble In Store Unless You Go Online

A falling naira and oil price may be crippling stores of Nigeria, but there is hope online and in pandering to the whims of the mega-rich.

By Peace Hyde

Alara is a store that nestles into the heart of the busy and prosperous Victoria Island district in Lagos. It could as easily be in London or Paris; it sells designers from Dries Van Noten to Valentino and Stella McCartney. Rich customers spend thousands of dollars every day here in contrast to the poor pickings in the rest of Nigeria’s retail industry.

“The biggest influencers of Nigeria’s retail transformation are the proliferation of the internet and the impact of globalization. We realized that people were craving the luxury shopping experience they had in places like Paris or London and did not always want to travel outside Nigeria to get it. They wanted the retail experience at home, without the hassle of flying around the world,” says Reni Folawiyo, the founder of Alara.

“Even in these turbulent economic times, we have found that our high net worth clients still crave exclusivity of products and the convenience of shopping at home. So we do everything we can to supply them with the very best,” says Deremi Ajidahun, who opened the first boutique selling the luxury watch brand, Ulysse Nardin.

These stores are a couple of lucrative spots on a dingy canvas. Nigeria has 180 million customers to sell to, but the country’s short-term retail prospects are gloomy.

“The foreign exchange (forex) crisis, which is largely the result of the falling demand for the naira from foreign buyers of Nigerian oil and gas, which accounts for a significant balance of payment for the government, is a strong catalyst for these challenges. The Central Bank of Nigeria (CBN) proceeded to cut about 680 categories of items from the list of those it would provide forex at the official rate, forcing retailers to secure US dollars through the black market at a much higher exchange rate,” says Bismarck Rewane, Managing Director and Chief Executive of Financial Derivatives, a financial advisory firm in Lagos.

This has led to an exodus by international retailers in Nigeria. South African shopping giant Woolworths – that has easily ridden hard times at home – ran from Nigeria in 2013, even before the forex problems. The reason: high cost of rent, taxes and supply-chain management. Then, clothing retailer Truworths, also of South Africa, followed in February 2016, citing a struggle to stock its outlets and manage the forex challenge. Many of the items subject to the CBN’s import controls, like textiles, clothes and woven fabrics as well as glassware and utensils, affect the retail sector, making it more expensive to stock these products.

“The old or traditional brick-and-mortar retail system, which accounts for almost 90% of retail activity in Nigeria, has continued to decline because of the government’s policy, changes in the composition of Nigeria’s population and increasing sophistication of the Nigerian consumer,” says Rewane.

These old school stores are increasingly facing stiff competition from digital and e-retail. The rise of Nigerian online seller Jumia is a sign of disruptive times. It is backed by big hitting investors: the US’s Goldman Sachs, Germany’s Rocket Internet, South African telecommunications giant MTN, and Sweden’s Millicom. It claims millions of customers.

“People told us when we started about six years ago that it won’t work, people don’t trust the internet in Nigeria so they have to feel and touch the product. Our response was to build Jumia as the first Amazon of Africa,” says Jeremy Hodara CEO and founder of Jumia.

With the increasing growth in internet and mobile penetration, satisfying the demands of an increasingly tech savvy millennial consumer has become integral to survival in Nigeria.

“It is simply a case of those who dare, survive. Numerous stores have transformed by adopting fully-integrated solutions, collaborating with retailers rather than competing with them,” says Rewane.

“I use Jumia and other online retailers, like Konga, to shop mostly for clothing because it is faster, much more convenient and I can get the best prices and deals all from the comfort of my home. Due to growing competition, especially from international brands like ASOS and Amazon who now deliver worldwide, the choice for consumers are practically endless,” says Stephanie Bello, an MBA student at the Lagos Business School.

Data is at the heart of this transformation.

“Companies in this space are quickly differentiating themselves and streamlining their operations by employing cutting-edge cognitive technologies to help them gain insights. Most of these online retailers use hyper-personalization software to map user behavior and are able to recommend items based on consumers’ past shopping experience,” says Mawuli Nunya, an independent software analyst.

Deloitte forecasts that e-retail in Nigeria will grow at a compound annual growth rate of 37.7% from 2013 to 2017. The CBN recently announced a review of the current currency policy, which experts believe is the most important factor for the retail sector, especially for those importing global brands.

If old-school retailers don’t feel threatened; they should. Rapid change is needed in Nigeria’s retail business as only the swift will survive.

Stores Of The Future?

Shops are closing across Africa; still they come like lemmings to a cliff.  Entrepreneurs are prepared to throw good money after bad.

By Melitta Ngalonkulu

Mbukwashe Zwide. (Photo by Motlabana Monnakgotla)

Shops are closing around Africa and yet still they throw in more money. Entrepreneur Mbukwashe Zwide is one of them.

“I took a decision of balancing social media, pop-up sales with brick-and-mortar. This was informed by the understanding of the market. The type of clothing one sells, being vintage, tends to be tricky selling it online, seeing a picture looking all pretty online as compared to seeing the garment and feeling the fabric,” she says.

Vintage-meets-urban chic fashion is her game. Zwide, who holds a national diploma in information technology, ditched her permanent job to pursue her passion for clothes.

“It was then that the fashion bug bit and it was just too strong to ignore and I left the corporate world to pursue what was dear to my heart and soul; fashion,” she says.

In 2014, she started Hombakazi Vintage Cabin (HVC) from her mother’s garage in Port Elizabeth, and with just R10,000 in stock. She advertised her clothes on social media and would travel to different provinces in South Africa, with a black plastic bag, to sell. As the demand grew, she opened a shop.

Zwide turns over R1.3 million ($98,000) annually across the counter, making 20%. Her profits online are 30% and pop-up sales [temporary store] are 50%.

She has 75,000 followers on Facebook and over 2,000 followers on Instagram.

“Social media still gives us the reach, marketing and online orders, while pop-up sales is part of our customer touch points and market development across the country. Retail has its own function [over social media and pop-up sales] of growing and sustaining my business,” says Zwide.

Not everything has been a perfect fit.

“My biggest challenge is the conversion rate of walk-in customers. Since I have opened my store, I have observed that during certain periods of the month I have high volume of traffic in the store but a low percentage of converting the traffic into sales. This could be caused by not finding a specific garment at that particular time, and also size tends to be an issue at times. …I plan to introduce an incentive-driven program for my team to work on a 30% conversion rate of traffic during certain periods of the month,” she says.

Zwide says it is up to newcomers, like her, to make sure that retail does not die.

“The industry reports predict continuous decline in revenue generation from store traffic holds, as we have seen with the 159-year-old retail giant [Stuttafords], and probably a consolidation of retail businesses… these open opportunities for emerging players like HVC to come up with unique offering to your counterparts. That way one can then convert these newly unattended customers from affluent areas and traditional in-store shopping to online and pop-up sales. Given my background in information technology, I’m considering the use of emerging technology, such as virtual reality and digital innovation, with the sentiment of improving store productivity and aggressively enhancing customer experience,” she says.

Zwide is also concerned that not all likes and shares mean money.

“My social media posts directly generate 1,000 likes on clothing items we post, however, this is translated into 10% sales from likes; my ambition is to have a 100% conversion rate,” she says.

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Economy

Why The High Number Of Employees Quitting Reveals A Strong Job Market

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While recession fears may be looming in the minds of some, new data from the Bureau of Labor Statistics shows that the economy and job market may actually be strengthening.

The quits rate—or the percentage of all employees who quit during a given month—rose to 2.4% in July, according to the BLS’s Jobs Openings and Labor Turnover report, released Tuesday. That translates to 3.6 million people who voluntarily left their jobs in July.

This is the highest the quits rate has been since April 2001, just five months after the Labor Department began tracking it. According to Nick Bunker, an economist at the Indeed Hiring Lab, the quits rate tends to be a reflection of the state of the economy.

READ MORE | 5 Things You Should Do The Night Before A Job Interview

“The level of the quits rate really is a sign of how strong the labor market is,” he says. “If you look at the quits rate over time, it really drops quite a bit when the labor market gets weak. During the recession it was quite low, and now it’s picked up.”

The monthly jobs report, released last week, revealed that the economy gained 130,000 jobs in August, which is 20,000 less than expected, and just a few weeks earlier, the BLS issued a correction stating that it had overestimated by 501,000 how many jobs had been added to the market in 2018 and the first quarter of 2019. Yet despite all that, employees still seem to have confidence in the job market.Today In: Leadership

The quits level, according to the BLS, increased in the private sector by 127,000 for July but was little changed in government. Healthcare and social assistance saw an uptick in departures to the tune of 54,000 workers, while the federal government saw a rise of 3,000.

READ MORE | 5 Questions You Should Never Ask During A Job Interview

The July quits rate in construction was 2.4%, while the number in trade, professional and business services, and leisure and hospitality were 2.6%, 3.1% and 4.8%, respectively. Bunker of Indeed says that the industries that tend to see the highest rate of departuresare those where pay is relatively low, such as leisure and hospitality. An unknown is whether employees are quitting these jobs to go to a new industry or whether they’re leaving for another job in the same industry. Either could be the case, says Bunker.

In a recently published article on the industries seeing the most worker departures, Bunker attributes the uptick to two factors—the strong labor market and faster wage growth in the industries concerned: “A stronger labor market means employers must fill more openings from the ranks of the already employed, who have to quit their jobs, instead of hiring jobless workers. Similarly, faster wage growth in an industry signals workers that opportunities abound and they might get higher pay by taking a new job.”

Even so, recession fears still dominate headlines. According to Bunker, the data shows that when a recession hits, employers pull back on hiring and workers don’t have the opportunity to find new jobs. Thus, workers feel less confident and are less likely to quit.

READ MORE | South Africa’s Informal Sector: Why People Get Stuck In Precarious Jobs

“As the labor market gets stronger, there’s more opportunities for workers who already have jobs. So they quit to go to new jobs or they quit in the hopes of getting new jobs again,” Bunker says. He also notes that recession fears may have little to do with the job market, instead stemming from what is happening in the financial markets, international relations or Washington, D.C.

So what does the BLS report say about the job market? “Taking this report as a whole, it’s indicating that the labor market is still quite strong, but then we lost momentum,” Bunker says. While workers are quitting their jobs, he says that employers are pulling back on the pace at which they’re adding jobs. “While things are quite good right now and workers are taking advantage of that,” he notes, “those opportunities moving forward might be fewer and fewer if the trend keeps up.”

-Samantha Todd; Forbes

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Current Affairs

Roadmap For African Startups

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Francois Bonnici, Head of the Schwab Foundation for Social Entrepreneurship, explains how African impact entrepreneurs will continue to rise.


Does impact investment favor expats over African entrepreneurs? If so, how can it be fixed?

There is a growing recognition all over the world that investment is not a fully objective process, and is biased by the homogeneity of investors, networks and distant locations.

A Village Capital Report cited that 90% of investment in digital financial services and financial inclusion in East Africa in 2015-2016 went to a small group of expatriate-founded businesses, with 80% of disclosed funds emanating from foreign investors.

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In a similar trend recognized in the US over the last decade, reports that only 3% of startup capital went to minority and women entrepreneurs has triggered the rise of new funds focused on gender and minority-lensed investing.

There has been an explosion of African startups all over the continent, and investors are missing out by looking for the same business models that work in Silicon Valley being run by people who can speak and act like them.

In South Africa, empowerment funds and alternative debt fund structures are dedicated to investing in African businesses, but local capital in other African countries may not also be labelled or considered impact investing, but they do still invest in job creation and provision of vital services.

There is still, however, a several billion-dollar financing gap of risk capital in particular, which local capital needs to play a significant part in filling. And of course, African impact entrepreneurs will continue to rise and engage investors convincingly of the growing and unique opportunities on the continent.

READ MORE | The World’s Most Generous Billionaires Outside Of The US

What are the most exciting areas for impact investing and social entrepreneurship today?

After several decades of emergence, the most exciting areas are the explosion of new products, vehicles and structures along with the mainstreaming of impact investment into traditional entities like banks, asset managers and pension funds who are using the impact lens and, more importantly, starting to measure the impact.

At the same time, we’re seeing an emergence of partnership models, policies and an ecosystem of support for the work of social entrepreneurs, who’ve been operating with insufficient capital and blockages in regulation for decades.

Francois Bonnici, Head of the Schwab Foundation for Social Entrepreneurship. Picture: Supplied

The 2019 OECD report on Social Impact Investment  mapped the presence of 590 social impact investment policies in 45 countries over the last decade, but also raises the concern of the risk of ‘impact washing’ without clear definitions, data and impact measurement practices. 

In Africa, we are also seeing National Advisory Boards for Impact Investing emerge in South Africa and social economy policies white papers being developed; all good news for social entrepreneurs.

READ MORE | Naomi Campbell: Africa Is One Of The Leading Continents In The World

What role does technology play in enabling impact investing and social entrepreneurship?

The role of technologies from the mobile phone to cloud services, blockchain, and artificial intelligence is vast in their application to enhancing social impact, improving the efficiency, transparency and trust as we leapfrog old infrastructures and create digital systems that people in underserved communities can now access and control.

From Sproxil (addressing pirated medicines and goods), to Zipline (drones delivering life-saving donor blood to remote areas of Rwanda) to Silulo Ulutho Technologies (digitally empowering women and youth), exciting new ways of addressing inclusion, education and health are possible, and applications are being used in many other areas such as land rights, financial literacy etc.

While we have seen a great mobile penetration, much of Africa still suffers from high data costs, and insufficient investment in education and capacity to lead in areas of the fourth industrial revolution, with the risk that these technologies could negatively impact communities and further drive inequality.

READ MORE | Why Now Is The Time To Invest In African E-commerce

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Economy

Towards One Africa

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In the alphabet soup of regional African trade blocs, will the AfCFTA ease the cost of doing business on the continent?


Ghana has been named the host of the African Continental Free Trade Area (AfCFTA) following four years of talks to form a 55-nation trade bloc. It will be the base for the AfCTA secretariat.

The opportunities for Africa with this new trade bloc are immense. The Economist Intelligence Unit estimates that the AfCFTA will create the world’s largest continental free-trade area, provided all 55 African Union (AU) members join, and has the potential to create an African single market of 1.2 billion consumers whilst eliminating about 90% of tariffs on goods over the next five years.

So far, 44 African countries have signed up for the historic agreement, the world’s largest free trade area since the formation of the World Trade Organization.

READ MORE | Amid Trade Wars, What Africa Must Do

The AfCFTA is expected to boost the economies of African countries through employment creation and the promotion of made-in-Africa goods. But Kayode Akindele, a partner at TIA Capital, a pan-African investment partnership focussed on credit-based investing across sub-Saharan Africa, is not opening up the bubbly just yet.

“We already have ECOWAS [Economic Community of West African States] which doesn’t seem to be working and so why don’t we sort that out first before we enter a continental trade agreement for Africa?”

And he is not alone in his concerns.

“There are other factors we need to also consider. Firstly, with the implementation of the AfCFTA, goods made in other continents could be disguised as made-in-Africa to qualify for duty free treatment. There could also be a reduction in government revenue and also this trade bloc also threatens the profitability and survival of infant industries,” says Vincent Acheampong, an economist based in the United Kingdom.

READ MORE | Ghana Hopes To Benefit From Hosting Africa’s Free Trade Area Secretariat

Of the regional blocs in Africa, including EAC (East African Community) and SADC (Southern African Development Community), the ECOWAS has some way to go in terms of performance, according to Muda Yusuf, the Director General of the Lagos Chamber of Commerce and Industry, in an interview with CNBC Africa. But he believes there is still reason to be optimistic.

“A continental trading bloc is going to build on the success of the regional blocs like ECOWAS and other blocs across Africa. So, this integration is going to build on those blocs. In terms of performance, of course ECOWAS is the least performing because East Africa is doing very well and South Africa is doing far better also. But there is no perfect time for things like this, what is important is for us to get a conviction that economic integration will work for us and also if we can get our institutions to make it work,” says Yusuf.

Amongst the many challenges of the ECOWAS is its failure to implement its vision of a single currency, the ECO, which is part of its plans to make Africa a more integrated continent. That vision has been postponed several times by the 15-member group with the newest target date set for 2020 although most experts believe the date to be unrealistic.

The success of the AfCFTA requires not only a trade policy but also a manufacturing agenda, competition, industrial policies and property rights to work well according to Vera Songwe, the Executive Secretary of the UN Economic Commission for Africa, in a statement at the launch event that took place in Niamey, Niger.

READ MORE | Trade Wars: We’re Next, European Investors Fear

The ninth edition of the flagship Assessing Regional Integration in Africa report (ARIA IX) stipulates that AfCFTA’s success will be due to its ability to actually change lives, reduce poverty and contribute to economic development in Africa.

In support of the new trade bloc, Ghanaian President Nana Akufo-Addo pledged to donate $10 million to the AU to support the operationalization of the secretariat of the AfCFTA.

Although the AfCFTA will be economically transformative for Africa in the long-term, the immediate benefits will be restricted due to the macro-economic uncertainties of regional trade.

“Most African countries are currently not producing the goods and services that their neighbors import, as a result we do not trade a lot with each other. It is easier for an African country to trade with a country in Europe than a country that lies right next to it and these low levels of intra-African trade need to be addressed before we can reap the full benefits of the AfCFTA,” says Acheampong.

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