Growing intra-african trade
THE African Continental Free Trade Area (AFCFTA), which came into force in January, is a huge opportunity to strengthen Africa’s position within the global trading system.
The AFCFTA is one of the largest free trade areas in the world, with a combined market of 1.2 billion people across 55 countries, and will ensure that the continent benefits from increased trade as a bloc. It represents a long-term process of continental integration, and is undeniably a powerful tool to open opportunities.
Currently intra-african trade is very low, standing at only 16% compared to intra-european trade which stands at 60%. But there has been improvement in intra-african trade over the past decade, and the hope is that the AFCFTA will boost levels significantly.
Africa also needs to alter the nature of what it trades to countries outside the continent, as for many decades, trade has largely been in raw materials. Ninety-two percent of foreign value-added content embedded in African exports comes from outside the continent, whereas in Asia, foreign value added-content is below 50%.
The urgency of procuring medical supplies during the Covid-19 pandemic has highlighted Africa’s dependence on foreign imported goods which could be made at home. Ninety-four percent of medical supplies were imported, but under the new AFCFTA agrement, there is potential to develop the capacity for production on the continent.
What we, as a collective, need to ensure is that Africa becomes an industrial hub and delivers on the promises of sustainable development. The extent to which the continent develops its infrastructure, energy, transport and telecommunications sectors will determine the success of the AFCFTA.
In order for the AFCFTA to be a game-changer in terms of industrialisation, governments will need to develop national strategies to drive their own industrialisation, with a view to being inclusive and environmentally friendly. Trade, in and of itself, is not the silver bullet to Africa’s development, but part of an agenda to build infrastructure and develop the continent’s industrial capacity.
The agro-industry has an important role to play in industrial targeted policies, particularly given the need for food security on the continent. It is one of the priority areas that has been identified by the AU and sub-regional actors, and forms part of the SADC Regional Indicative Strategy.
Africa has vast potential but is in need of an enabling environment where national governments across the continent invest in infrastructure and formulate inclusive policies. In this agenda, South-south co-operation is critically important.
Before the pandemic, the global South had shown leadership in investing in infrastructure and small-scale production. Triangular co-operation with the North was also a key element of infrastructure development.
Another key to the success of the AFCFTA is the building of regional value chains, which have become important enablers and have been characterised as “the missing link”. The way in which Covid-19 triggered disruptions in global supply chains and made certain goods difficult to procure heightens the urgency of the continent developing and strengthening regional supply chains. It was tragic that African countries were at the back of the line when it came to procuring equipment to fight Covid19. While it will be difficult for Africa to invest in regional value chains, we need to shape the investments of our partners so that we are better prepared for future pandemics.
One of Africa’s major challenges is to stem illicit financial flows (IFFS), which pose a major problem to development. More capital is leaving Africa than is coming in as foreign aid or foreign direct investment. If we are to finance our own development, then we need to plug the holes. The AFCFTA presents an opportunity to address the structural challenges. Money laundering or IFFS out of the continent has led to a shortfall of $1.5trillion (about R22 trillion) which could have been used to finance the Sustainable Development Goals.
Not only do we need to plug resource leakages by improving the capacity of our customs and border authorities and cross-border management, but we also need to tackle trade misinvoicing. Misinvoicing goes on in the area of minerals, ores, rubber and even grains. IFFS make use of the internet of things, biometrics, drones and 3D printing, all of which are disruptive technologies.
African governments need to create financial intelligence units and harness big data analytics and create trade identification numbers in order to halt IFFS. Africa is behind in terms of the internet, with a connectivity of 18 megabytes a second compared to 60mgb/s in the Organisation for Economic Co-operation and Development countries. Africa will need to urgently close the digital gap if it is to move forward, as the industries of the future will require digitisation.
The continent can learn from the world’s largest free trade arrangement – the Regional Comprehensive Economic Partnership (RCEP) between 16 Asia-pacific nations, which was signed in November. The partnership represents a market of 2.3 billion people (30% of the world’s population), and it was agreed that 92% of tariffs would be eliminated immediately. The RCEP was initiated by the Association of South-east Asian Nations (Asean), to harmonise and standardise the bilateral free trade agreements of the Asean members. The economic impact of the RCEP will originate from the simplified and standardised rules, as will be the case under the AFCFTA.
The goal of the RCEP is to create a larger market in order to create regional value chains. With the complications and disruptions due to the pandemic and Us-china trade disputes, regional supply chains will have more resilience. The RCEP will eliminate red tape in terms of customs. Africa stands to gain from its newly formed free trade area for the same reasons as the Asian nations do. Implementation is the priority in order to make enhanced intra-african trade and industrialisation a reality.