Why the AfCFTA has opened the door for Africa’s industrialisation

In the 1980s and earlier, Africa’s attempts to use import substitution as a stepping stone towards an industrialised status failed miserably, mainly because of fragmented, tiny markets. Can the same approach now succeed under the unique opportunities offered by the AfCFTA? Dr Hippolyte Fofack argues that indeed it can – provided it can also fulfil other conditionalities required for broad-based industrialisation.

In the 1980s, as the US automotive industry faced significant competitive pressure from Japanese carmakers, Washington negotiated trade relations with Tokyo. Rather than passively allowing Japanese imports to supplant domestic manufacturing, a strategic mix of trade restrictions and the compelling appeal of the US market motivated Japanese manufacturers to establish facilities in the US.

Today, President Donald Trump’s extensive application of aggressive tariffs closely mirrors 20th-century import substitution industrialisation – a strategy aimed at replacing imports with domestic production by erecting high tariff walls.

This historical example, together with ongoing efforts by the US and the European Union – both actively employing industrial policies to reduce strategic import reliance and rebuild domestic productive capacity – contrasts with the traditional narrative of free-market competition.

It illustrates how a country and region can utilise their extensive domestic markets as instruments of industrial policy. This same rationale further reinforces arguments in favour of the African Continental Free Trade Area (AfCFTA).

By lifting the constraints of fragmented national markets, the AfCFTA fundamentally changes the economic logic of import substitution in Africa.

Historically, import substitution was pursued in relatively small national markets, with individual governments trying to replace imports with domestically produced goods behind protective trade barriers. The results were mixed, partly because many African economies lacked the market size, infrastructure, capital, and technological capabilities needed to sustain competitive industries.

The AfCFTA offers an alternative framework for economic development and could facilitate industrialisation, a goal that has remained elusive for Africa for decades.

For too long, the region has been confined to a colonial-era development paradigm centred on resource extraction, which contributes to persistent structural trade deficits, recurring balance-of-payments crises, and widening income disparities between Africa and other regions.

This model results in exporting raw materials and importing manufactured goods at higher costs. By incrementally integrating African economies into a unified continental market, the AfCFTA creates the scale needed to boost competitiveness and make strategic import substitution more feasible. Consequently, Africa can progressively substitute imports at the continental level, moving beyond individual national efforts.

The primary distinction lies between national and continental import substitution. The former aims to produce domestically what a relatively small economy previously imported. The latter endeavours to develop African capacity to manufacture goods that Africa as a whole currently imports from external sources.

This differentiation is of the utmost importance. A nation with a limited domestic market may struggle to sustain competitive production of manufactured goods such as pharmaceuticals, machinery, fertilisers, vehicles, chemicals, or industrial equipment.

However, a continental market exceeding 1.5bn people – and projected to reach 2.5bn by 2050 – can provide the demand needed to achieve economies of scale and foster domestic manufacturing, reducing excessive reliance on imported industrial products.

A diversified African production system

The AfCFTA provides a strong economic rationale for shifting the focus from national self-sufficiency to continental self-reliance. Africa does not need every country to produce everything. Instead, African countries can specialise in different products and stages of production while trading with one another, allowing raw materials, intermediate goods, and finished products to circulate more easily across the continent.

Developing robust regional value chains enhances the global competitiveness of African industries. This approach will foster the development of a diversified African production system, rather than autarky.

At present, Africa still relies heavily on imports for essential commodities, including foodstuffs, pharmaceuticals, machinery, fertilisers, refined petroleum products, chemicals, and automobiles.

Manufactured consumer goods account for up to 70% of Africa’s total imports and represent a significant share of its import expenditure. Moreover, a substantial share of the value generated by these goods is captured outside the continent.

Strategic import substitution can redirect a segment of this expenditure toward African producers, promoting employment, attracting investment, facilitating technological learning, and enhancing domestic value addition. Such measures can support growth in per capita incomes and turn Africa’s demographic potential into a demographic dividend.

This opportunity is particularly important in agriculture and food processing, given that the region allocates more than $100bn annually to food imports. Africa has more than 60% of the world’s remaining arable land and substantial agricultural potential.

The AfCFTA can accelerate the development of continental agro-industrial value chains, enabling Africa to process and transform agricultural commodities domestically.

Instead of exporting cotton and importing textiles, or exporting agricultural products and importing processed foods, African economies are positioned to progressively capture these stages of production.

Growth opportunities are equally significant in the automotive industry, with Africa spending more than $50bn annually on vehicle imports. The continent’s automotive market is positioned for substantial expansion, supported by a low current vehicle ownership rate of around 73 cars per 1,000 inhabitants (compared to a global average of 300 per 1,000), a growing young population, and rapid urbanisation.

Commodity-based industrialisation

Africa’s demographic dynamics present considerable long-term market opportunities as traditional markets mature. These prospects could spur job creation and technology transfer, provided the region capitalises on continental import-substitution strategies to boost domestic production.

Commodity-based industrialisation can serve as the foundational element of this strategy. Africa need not initially focus on manufacturing the most advanced products. Instead, it can advance along the value chain within sectors where it possesses inherent competitive advantages.

Minerals can be refined and processed; crude oil can be refined; and natural resources can supply inputs for chemicals, construction materials, and manufacturing industries.

Additionally, agro-industries can process agricultural products locally, thereby reducing post-harvest losses, enhancing farmers’ access to markets, and increasing the value generated from agricultural production.

The AfCFTA enhances investment attractiveness by giving industrial producers access to a continental market, not just a national one.

Factories producing fertilisers, pharmaceuticals, machinery, textiles, or processed foods can sell their products across multiple African markets. An expanded customer base enables firms to spread fixed costs over higher production volumes, reducing unit costs and boosting competitiveness.

This creates a virtuous cycle in which efficiency and competitiveness gains promote further investment. As a result, import substitution may serve as a mechanism for industrialisation, rather than being an end in itself.

The distinction between strategic import substitution and protectionism is fundamental – Africa should not pursue the blind elimination of imports. International trade remains vital for economic development, and many imported goods serve as essential inputs for African manufacturing.

Moreover, governments should not indefinitely shelter inefficient enterprises from competition. Instead, import substitution should target products for which Africa can develop competitive manufacturing capabilities, leveraging the continental market as a training ground and a scale platform for African industry.

Temporary support must be conditioned on quantifiable improvements in productivity, technology, employment, exports, and local value addition, ensuring that African firms acquire the capabilities necessary to compete on the international stage.

The strategy also bears significant implications for economic resilience. Recent global disruptions have highlighted the vulnerabilities arising from excessive dependence on remote suppliers for essential commodities. The over-reliance on medical supplies has proved particularly costly, as the region imports over 90% of its pharmaceuticals and critical medical provisions. Events such as the COVID-19 pandemic, geopolitical conflicts, shipping interruptions, and commodity price fluctuations have underscored the need for diversified, resilient supply chains. Enhancing Africa’s domestic production capacity for essential goods would not eliminate external reliance, but it would mitigate the risks of excessive supply concentration outside the continent.

Industrialisation through the AfCFTA can also strengthen Africa’s international bargaining power. A continent that is both a major producer and a major consumer of manufactured goods is less affected by commodity price cycles and therefore has greater influence in trade negotiations and global supply chains.

If Africa can process its commodities locally, manufacture more essential goods, and develop competitive regional industries, it will no longer be a price taker. External partners will increasingly need to engage with Africa, not only as a supplier of raw materials, but also as a major industrial market and production centre.

Nevertheless, numerous challenges persist in achieving structural transformation through a continental import substitution model, even within the framework of the AfCFTA.

While trade liberalisation can enhance market access, it requires factories, supply chains, skilled labour, technology, and financial resources to leverage that access effectively.

Without productive capacity, the AfCFTA may merely facilitate increased imports from external sources, further increasing the frequency of recurrent balance of payments and debt crises.

Conversely, industrialisation can promote the emergence of competitive African producers, diversify growth and trade sources, and improve fiscal and external balances, thereby strengthening the foundation of long-term growth and macroeconomic stability.

Essential requirements for industrial development

Continental import substitution, however, requires more than the mere removal of tariffs. Africa must urgently confront infrastructure constraints, energy deficiencies, inefficient logistics, border delays, regulatory fragmentation, insufficient financing, and disparities in product standards.

No modern industrial society can operate effectively without a plentiful, affordable supply of electricity. Factories depend on uninterrupted power to operate machinery, safeguard products, process raw materials, and maintain competitive production costs.

Yet many African nations still face electricity shortages, unreliable power grids, and high energy costs despite the region’s huge potential in both renewable and non-renewable energy sources.

Human capital is arguably even more important in a region facing a chronic shortage of engineers and scientists. Industrialisation requires workers who can operate machinery, maintain equipment, manage factories, develop new technologies, and solve complex technical problems.

Similarly, industrial development requires patient capital, yet African firms often face high financing costs and short loan maturities. Complementary investment in physical and human capital, along with a deeper continental capital market, would make the AfCFTA’s industrial ambitions more achievable.

Ultimately, the AfCFTA shifts the question Africa should ask about import substitution. Historically, the question has been: “How can each African country produce what it imports?” Under the AfCFTA, it should instead be: “How can Africa collectively produce a greater share of what Africa currently imports while building industries capable of competing globally?”

In essence, the AfCFTA enables Africa to combine the developmental rationale of import substitution with the competitiveness and efficiency gains of regional integration and the discipline of international competition, facilitating a smooth transition to an industrial society.

The AfCFTA provides the market architecture for a new form of African import substitution – one based not on national isolation, but on continental integration; not on permanent protection, but on competitive industrial development; and not on autarky, but on strategic interdependence.

The ultimate objective should be to transform Africa’s enormous and growing import demand into an engine of regional production and structural transformation. Every product Africa can produce competitively on the continent is not merely an avoided import that improves the region’s trade balance – it is also an opportunity for employment, investment, technological learning, value addition, and industrial capability, strengthening the foundation of growth and macroeconomic stability.

In this sense, the AfCFTA is more than a trade agreement. It provides the economic rationale and market scale for Africa to pursue strategic import substitution as a pathway to industrialisation, economic resilience, and greater economic sovereignty.

The US experience and the revival of industrial policy show that countries have leveraged the size of their domestic markets to implement import substitution successfully and remain at the global technological frontier, enabling sustained per capita income growth.

Continental import substitution has significant potential for growth and structural transformation in Africa. It could propel Africa toward an industrial society and reposition the continent in the architecture of the global economy.

The region’s challenge lies in building the financial and physical infrastructure for industrial development, turning its population into an industrial workforce, and strengthening coordination across AfCFTA’s member countries to implement a robust industrial policy at the continental level.