The Sunday News
By Admire Maparadza Dube
The African Continental Free Trade Area (AfCFTA) was established in 2018 with the aim to create a single market for goods and services, facilitated by movement of persons to deepen the economic integration of the African continent, under the Pan African Vision of “An integrated, prosperous and peaceful Africa.”
Consolidating Africa into one trade area provides great opportunities for entrepreneurs, businesses and consumers across the continent and ultimately countries which boosts chances to support sustainable development in the world’s least developed region.
With the backdrop of the Covid-19 pandemic exponentially increasing the challenges of a continent already ravaged by socio-economic ills, AfCFTA offers great potential to not only offer economic mitigations against the pandemic, but also speedily extricate African nations from regression and to a path of self betterment.
The year 2019 statistics show Africa’s population stood at 1.3 billion with a combined nominal GDP of USD2.58 trillion and a healthy 3.7% growth rate. This stood it firmly abreast of fellow rising economies like India with the exact same population count and a GDP of USD3.2 trillion and Brazil with its nominal GDP of USD2 trillion.
However, in 2020 the pandemic took a toll on African lives and economies as economic activity declined by a projected 3.3%, confirming the region’s first recession in 25 years. The substantial downturn in economic activity cost the region at least USD115 billion this year, in part caused by depressed domestic consumption and competition as investment were divested to containment measures for mitigating the spread of the corona virus.
This situation could also push up to approximately 40 million more people into extreme poverty erasing at least five years of progress in fighting poverty. Similarly, Covid-19 could set back progress in building human capital, as school closures continue to affect nearly 253 million students, potentially causing losses in learning which bodes badly for the continent’s future.
The full implementation of the AfCFTA will certainly stem this downward trajectory by progressively eliminating tariffs on intra-African trade, making it easier for African businesses to trade within the continent and benefit from the growing African market. Africa, being a diverse continent fragmented into 54 independent sovereign states which are organized into Trade Blocks and associations under the African Union as Members, will necessarily morph into a single business entity, or as close to one as anyone can hope for such a heterogeneous cocktail of diverse people.
Covid-19 aside, the continent already faced a myriad of social, economic, and political challenges weakening current African trading blocs and their ability to promote integration and intra-trade among each other. The share of intra-African exports among constituent countries (trade among each other) as a percentage of total exports out of the African continent was still a miniscule 17 percent as at 2017, which remains low compared to levels in Europe (69 percent), Asia (59 percent), and North America (31 percent).
This is an important reason to expect that trade will be a key driver of growth in Africa. The long and short of it is that more than 80 cents per dollar worth of merchandise exported by any African country is destined outside Africa and this ipso facto necessitates there be a bloc occupied with “increasing (international) integration through customs and monetary unions, free trade areas, and common regulatory and legal frameworks” for international trade facilitation as much as other economic blocs and associations do for intra-trade stimulation.
We may harp on about need to migrate from primary goods production and increase beneficiation by value addition so we export more valuable products, improve job creation and the like. But it goes without saying that we still are a minerals and other raw products exporter so we need a (single) bloc that facilitates that to the world and representing a solid 1 trillion USD worth voice for better deals on a global market. This must be the immediate plan to coagulate the mini country trades into a formidable trade monolith and speak with might to already powerful industrialised nations. AfCFTA promises to be that.
In a nutshell, the agreement is expected to: create a liberalised market for goods and services through successive rounds of negotiations; contribute to the movement of capital and persons and facilitate investments; lay the foundation for the establishment of a Continental Customs Union; enhance the competitiveness of the members’ economies and promote industrial development through diversification and regional value chain development, agricultural development and food security. And in the long run, it will help promote and attain sustainable and inclusive socio-economic development, gender equality and structural transformation across the continent.
But what would this mean for individual entrepreneurs as opposed to improvement of whole nation fundamentals? The AfCFTA agreement has the potential to become a game changer and bring some great opportunities such as: Exposing business to local African markets and exposure with as little hurdles as possible improving the intra-African trade landscape and export structure; Creating a sound global economic impact as the block facilitates block negotiations with the world as opposed to individual entrepreneurs making petit and individual negotiations on the global arena; Developing better policy frameworks which will help the business environment even further; Fostering specialisation and boosting industrialisation; Strengthening regional and inter-state cooperation as well as bringing politics and economics in tandem; Increasing employment and investment opportunities, as well as technological development; Providing the opportunity to harness Africa’s population dividend; Among other benefits.
The advent of Covid-19 vaccination brings a ray of hope yet we should not lull ourselves into instant comfort with this as the Corona virus shows signs of being with us for a while longer.
Similarly, AfCFTA is not the panacea of all of Africa’s challenges. Its very implementation is likely to encounter its own challenges. For instance, the implementation is complex and poses significant adjustments costs for member countries; it is also hard to ensure broad-based gains for all Member States as is envisaged. Well off nations of Africa necessarily reap more than the poorer ones, at least on implementation. Moreover, in some countries, weak infrastructures, low technological uptake and conflicts will threaten the implementation of the agreement and likely they may resist it if it has little benefit for them. Finally, there’s a general fear of losing control and sense of identity across segments of the population, not to speak of the already difficult African political landscape.
However, as alluded to expansively in this piece, Africa must trade as a bloc to increase its rewards and minimise its risks from international trade, which constitutes four fifths of its overall trade. Use of an integrated bloc representing all of Africa in trade and investment could bolster Africa’s recovery prospects from the desolation engendered by Covid-19.
AfCFTA offers a unitary continental voice on the global arena representing a trillion USD worth of merchandise, some of which are goods only abundantly found in Africa the whole world over, like rare earth minerals. This could provide a major avenue for the continent to achieve sustainable development and enhance its economic competitiveness in the globe.
Despite these possible challenges, it’s important to note that the benefits for the continent will surpass the risks if the trade agreement is successful: Africa will be more self-sustainable if it increases trade with itself and creates value addition systems for its products. There is no doubt that AfCFTA is the biggest trade area since the inception of WTO and if it works out will spring immerse development on the African continent. The catalyst the continent needs to launch Africa forward post Covid-19.
Admire Maparadza Dube ([email protected]). Financial Analyst, Banker, MSc, CFA, PhD Student