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African free trade: Challenges, road ahead

FRANCIS Mangeni.

Analysis: FRANCIS MANGENI
WORLD history was made on March 21, 2018 in Kigali, Rwanda when Africa launched its Continental Free Trade Area, the largest economic integration project ever undertaken.
The African Continental Free Trade Area was negotiated by the 55 countries of Africa, and was expected to double intra-Africa trade, creating the much-needed jobs and wealth for a young continent with a median age of 19.5 years and a population of 1.27 billion people.
Africa has a geographical size of 30 million square kilometres and 60 percent of the world’s arable land. In the global production of minerals, Africa accounts for 75 percent of the platinum group, 46 percent of diamonds, 21 percent of gold, 17 percent of uranium, and eight percent of aluminium, to mention but a few.
The European Union (EU) raw materials initiative indicates the critical economic, strategic and security importance of minerals. What is really required in Africa though is not mines but minds, to convert these resources into equitable and sustainable growth and wealth.
The Mckinsey Global Institute, in its ‘Lions on the move 2.0’ estimates that consumer and business spending in Africa has reached US$3.9 trillion annually. Africa has 700 companies with annual revenues of more than US$500 million and manufacturing output has reached US$500 billion and is projected to hit US$930 billion by 2025, creating 14 million stable jobs over the decade.
Economies of scale and other advantages from this size and natural wealth, and despite the enormous potential, have been denied by the balkanisation of the continent into diminutive national economies and multiple economic regulatory regimes, stunting economic growth and global competitiveness.
The ACFTA is meant to create a large single African market with a common trade regime, providing a seamless regulatory regime across the continent. The euphoria at the launching of the ACFTA was therefore very much in order but a lot of hard work lies ahead, especially to innovate new products and industries that can utilise new export and investment opportunities, and realise the enormous potential.
A sober assessment of the tasks and challenges ahead should now be undertaken with a view to effectively addressing them in order to deliver the promise of the African Continental Free Trade Area.
Forty-four African countries signed the agreement establishing the African Continental Free Trade Area (ACFTA) on the spot. Eleven countries didn’t, including Nigeria and South Africa, which was a setback, but these two big economies are expected to sign in due course.
The 44 countries, who include Kenya and Egypt, account for 38 percent of intra-Africa exports and 47.2 percent of intra-Africa imports, according to current figures from the COMTRADE database. South Africa accounts for 34 percent and Nigeria nine percent of intra-Africa imports.
Of Africa’s total gross domestic product (GDP) at purchasing power parity in dollar terms of US$6.7 trillion (nominal GDP is US$3.3 trillion), the 44 countries that signed the ACFTA account for 65.1 percent, of which Egypt accounts for 18.9 percent. South Africa and Nigeria, which haven’t yet signed the agreement, account for 11.9 percent and 17.6 percent, respectively.
Evidently then, the absence of Nigeria and South Africa from the ACFTA, together accounting for 43 percent of intra-Africa imports and 29.5 percent of Africa’s GDP, remains a matter of some concern. A first challenge for the ACFTA then is to get Nigeria and South Africa to sign the agreement.
Nigeria is undertaking internal consultations among stakeholders. What might be important is to clearly explain the flexibilities in the agreement and the 10 percent list of excluded and sensitive products, amounting to about 600 products, as adequate to protect domestic industries; as well as the vast export and investment opportunities in Africa to follow up and utilise. Regional and continent-wide value chains will benefit domestic industries through sourcing and exporting inputs on the free trade area.
The outstanding work should be completed, such as legal scrubbing of all the annexes, finalisation of tariff modalities and identification of the services sectors that will form the integrated services market. When this is done, South Africa is likely to sign the agreement.
The good thing is that a one-year timetable for completing this outstanding work has been agreed and adopted. Abiding by this timetable will be a challenge, and will require good management of meetings, so they duly accomplish what each of them is called for.
The agreement establishing the ACFTA, requires 22 ratifications before entering force. Forty-four signatories provide a good catchment area. The summit spurred a sense of urgency and the expectation that the agreement should enter into force before the end of 2018. This is possible if proactive and systematic outreach activities are sustained, to mobilise governments and relevant stakeholders and Parliaments. A clear programme to this end, with designated emissaries would help.
Governments have challenges to contend with. Financial and human resource shortfalls, as well as disconnects between the trade ministry, on the one hand, and finance and planning, and foreign affairs ministries, on the other, are notable constraints in a number of countries. Boosting financial, skills and personnel capacities in governments and institutionalising national multi-stakeholder consultative frameworks, will therefore be urgent interventions to support ratification and implementation of ACFTA.
Industry-related challenges will need to be addressed under a renewed impetus that adequately prioritises their role in working the free trade area. The Afrexim Bank and the African Development Bank have properly stepped forward with financial products to support trade under the free trade area, bearing in mind that 90 percent of international trade uses credit.
Intra-Africa trade has always had enormous unutilised potential. In COMESA, for instance, intra-regional exports of goods have an unutilised current potential of US$82.3 billion. A survey of enterprises in active production found that lack of information about products in the region was a key factor. Other factors included the high cost of inland surface and air transport as well as perceived risks, especially by banks.
Academia-related constraints pertain to limited access to African economic integration material that can be inculcated into teaching, course work and dissertations. Curriculum reforms will be required. What is equally urgent is tailor-made short executive courses for Government and secretariat staff, targeting the ratification, implementation and continuous utilisation of the ACFTA.
These courses should be available for industry, scholars and researchers to encourage skills conversion into ACFTA-related disciplines, perspectives and opportunities. As an example, COMESA has established an annual research forum organised on a triple-helix basis; and a virtual university made up of 22 collaborating universities hosted by Kenyatta University, to teach and award a two-year multi-disciplinary Masters Degree in Regional Integration. The degree programme starts this May.
The moment for Africa is now but nothing is pre-determined and the efficacy of ACFTA will depend on how well the myriad constraints facing Africa are addressed. Nigeria and South Africa need to sign the agreement. A systematic ratification programme should be put in place and this should not be left to chance. Government, industry and academia-related constraints should be looked into and addressed. Innovation for new products, industries and processes should infuse ACFTA if it is to deliver the expected welfare. As Nelson Mandela said: “After climbing a great hill, one only finds that there are many more hills to climb.”
The author is director for trade and customs at the COMESA Secretariat.

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