Shem Oirere, Africa Correspondent12.11.19
At least 44 member-countries of the Africa Union (AU) early this year signed the African Continental Free Trade Area (AfCFTA) agreement that could lead to increased intra-Africa trade and expanded continental economic growth with the paint and coatings market likely to benefit from the expected elimination of tariffs and free movement of manpower across the region.
The AfCFTA, which is a project conceived by AU Heads of State and Government under the continent’s Agenda 2063, came into force in May 2019 with growth projection of gross domestic product (GDP) of between 0.66 percent to 0.97 percent and an increase in intra-Africa trade of 24 percent to 33 percent in the long term.
For the paint and coatings industry, the launch of the free trade agreement could be an opportunity for international and regional manufacturers and suppliers to access a larger market and cut down on trade costs once the AfCFTA finalizes negotiations on free trade area’s tariff concessions.
With the AfCFTA, it is projected the market population will increase from the current 1.27 billion to 1.7 billion people with 600 million of them being in the middle class – a high paint and coatings consuming group.
Furthermore, the African Union estimates the AfCFTA market’s GDP to range between $2.1 trillion and $3.4 trillion with anticipation the deal would probably attract an additional $4 trillion in investments and consumer spending.
Africa’s paint and coatings industry, which some previously predicted could surpass the 1.7 million tons mark in 2018, has been considered having high potential but still underdeveloped and hence the launch of the continental free trade area could trigger increased investment in construction and industrial sectors that are considered high consumers of surface protective products.
According to a recent market analysis by Orbis Research, expansion of the construction industry, increase in demand for housing and expansion of infrastructure in major regional economies of South Africa and Nigeria, are expected to drive the growth of the paints and coatings market.
“The South African construction industry has a positive outlook, despite the decline in the market (and) the rise in demand for housing and growth in new residents in urban areas have increased; the government’s national infrastructural plan is supporting this growth with new projects in the coming future,” per Orbis.
Although the Manufacturers Association of Nigeria has recently expressed reservation on the likely negative impact of AfCFTA on the country’s paint and coatings market, Orbis listed the West African country among those in Africa with rapidly growing paints and coatings market supported by “increasing government spending on construction and infrastructure.”
“In addition, the FDI inflow into the sector and private investment has increased, which is expected to augment Nigeria’s paints and coatings market,” said Orbis.
Furthermore, Orbis said Africa’s paint and coatings market is set to benefit from the projected growth of the continent’s automotive industry in countries such as Morocco and Algeria, “Owing to the presence of many multinational OEM manufacturers who are keen to invest and start their production plants in these countries.”
With a bigger market reach, businesses in Africa are likely to reap from the integration of the continent’s economies as suppliers of raw materials and manufacturers of the paints and coatings hope for an improved business environment.
The continental trade agreement, according to International Trade Centre (Intracen) “provides African business with a great opportunity to implement forward-looking business decisions so they can maximize the benefits from the AfCTA and integrate seamlessly with regional and global value chains.”
Intracen, which is a multilateral agency with a joint mandate of the World Trade Organization and the United Nations through the United Nations Conference on Trade and Development, projects that within next 10 years, AfCFTA member-States should expect “gradual removal of tariff barriers and non-tariff barriers to intra-community grade and the establishment of a customs union by means of adopting a common external tariff.”
For paint and coatings market players in Africa, the launch and implementation of the AfCFTA could mean ease of doing business especially if the signatory countries effectively bring to fruition the operationalization of the seven action clusters of “trade policy, trade facilitation, improving productive capacity, trade-related infrastructure, trade finance, trade information, and factor market integration.”
“The AfCFTA provides a single rule book for doing business and investing in Africa, a rules-based framework for investing and doing business in the continent. It is precisely what the continent needs at this moment,” said Mokate Ramafoko, managing director for the rest of Africa at South Africa’s cement group PPC Ltd.
“Harmonization of trade and investment rules, overcoming the constraints associated with small economies, achieving economies of scale and integrating African economies are the ultimate objectives of the AfCFTA,” he said in a previous presentation.
One of the minuses of the implementation of AfCFTA is the likely increase in the current volume of substandard and fake paints and coatings in the market.
Moreover, there is no yet single currency within the envisaged AfCFTA which means, the price of raw materials for making paint and coatings will vary from country to country because of the variation in currency depreciation, which is likely to create price wars among industry competitors in the free trade area.
Meanwhile, studies quoted by the African Union admit the importance of AfCFTA signatories preparing to make adjustments in the short term because of the likely losses such as revenue losses, which some estimate to range between 7.2 percent to 9.1 percent.
Social tensions are also expected in AfCFTA member-States as the trade agreement is likely to lead to job losses, reduction in wages and increased cost in re-training of personnel in the short term and paints and coatings companies operating in these countries will be no exception.
The AfCFTA, which is a project conceived by AU Heads of State and Government under the continent’s Agenda 2063, came into force in May 2019 with growth projection of gross domestic product (GDP) of between 0.66 percent to 0.97 percent and an increase in intra-Africa trade of 24 percent to 33 percent in the long term.
For the paint and coatings industry, the launch of the free trade agreement could be an opportunity for international and regional manufacturers and suppliers to access a larger market and cut down on trade costs once the AfCFTA finalizes negotiations on free trade area’s tariff concessions.
With the AfCFTA, it is projected the market population will increase from the current 1.27 billion to 1.7 billion people with 600 million of them being in the middle class – a high paint and coatings consuming group.
Furthermore, the African Union estimates the AfCFTA market’s GDP to range between $2.1 trillion and $3.4 trillion with anticipation the deal would probably attract an additional $4 trillion in investments and consumer spending.
Africa’s paint and coatings industry, which some previously predicted could surpass the 1.7 million tons mark in 2018, has been considered having high potential but still underdeveloped and hence the launch of the continental free trade area could trigger increased investment in construction and industrial sectors that are considered high consumers of surface protective products.
According to a recent market analysis by Orbis Research, expansion of the construction industry, increase in demand for housing and expansion of infrastructure in major regional economies of South Africa and Nigeria, are expected to drive the growth of the paints and coatings market.
“The South African construction industry has a positive outlook, despite the decline in the market (and) the rise in demand for housing and growth in new residents in urban areas have increased; the government’s national infrastructural plan is supporting this growth with new projects in the coming future,” per Orbis.
Although the Manufacturers Association of Nigeria has recently expressed reservation on the likely negative impact of AfCFTA on the country’s paint and coatings market, Orbis listed the West African country among those in Africa with rapidly growing paints and coatings market supported by “increasing government spending on construction and infrastructure.”
“In addition, the FDI inflow into the sector and private investment has increased, which is expected to augment Nigeria’s paints and coatings market,” said Orbis.
Furthermore, Orbis said Africa’s paint and coatings market is set to benefit from the projected growth of the continent’s automotive industry in countries such as Morocco and Algeria, “Owing to the presence of many multinational OEM manufacturers who are keen to invest and start their production plants in these countries.”
With a bigger market reach, businesses in Africa are likely to reap from the integration of the continent’s economies as suppliers of raw materials and manufacturers of the paints and coatings hope for an improved business environment.
The continental trade agreement, according to International Trade Centre (Intracen) “provides African business with a great opportunity to implement forward-looking business decisions so they can maximize the benefits from the AfCTA and integrate seamlessly with regional and global value chains.”
Intracen, which is a multilateral agency with a joint mandate of the World Trade Organization and the United Nations through the United Nations Conference on Trade and Development, projects that within next 10 years, AfCFTA member-States should expect “gradual removal of tariff barriers and non-tariff barriers to intra-community grade and the establishment of a customs union by means of adopting a common external tariff.”
For paint and coatings market players in Africa, the launch and implementation of the AfCFTA could mean ease of doing business especially if the signatory countries effectively bring to fruition the operationalization of the seven action clusters of “trade policy, trade facilitation, improving productive capacity, trade-related infrastructure, trade finance, trade information, and factor market integration.”
“The AfCFTA provides a single rule book for doing business and investing in Africa, a rules-based framework for investing and doing business in the continent. It is precisely what the continent needs at this moment,” said Mokate Ramafoko, managing director for the rest of Africa at South Africa’s cement group PPC Ltd.
“Harmonization of trade and investment rules, overcoming the constraints associated with small economies, achieving economies of scale and integrating African economies are the ultimate objectives of the AfCFTA,” he said in a previous presentation.
One of the minuses of the implementation of AfCFTA is the likely increase in the current volume of substandard and fake paints and coatings in the market.
Moreover, there is no yet single currency within the envisaged AfCFTA which means, the price of raw materials for making paint and coatings will vary from country to country because of the variation in currency depreciation, which is likely to create price wars among industry competitors in the free trade area.
Meanwhile, studies quoted by the African Union admit the importance of AfCFTA signatories preparing to make adjustments in the short term because of the likely losses such as revenue losses, which some estimate to range between 7.2 percent to 9.1 percent.
Social tensions are also expected in AfCFTA member-States as the trade agreement is likely to lead to job losses, reduction in wages and increased cost in re-training of personnel in the short term and paints and coatings companies operating in these countries will be no exception.
