Fair terms of trade are critical in speeding up AfCFTA opportunities

The agreement offers a chance to develop Africa’s economy in a way that realises its potential

The African Continental Free Trade Area (AfCFTA) agreement is an important step towards making African economies more competitive and helping to realise the continent’s development goals. Historically, Africa has been prized as a source of many of the raw materials that have powered the global economy. However, African countries have often found themselves trapped down the value chain, exporting relatively low-value-added goods and commodities while importing advanced manufactured goods.

To realise their economic potential and enable their people to thrive, African economies need to develop greater economic complexity, developing the advanced manufacturing and modern services that are the hallmark of advanced economies.

By deepening economic integration on the continent and boosting trade among African nations, the AfCFTA presents a chance to develop Africa’s economy in a way that realises its potential and serves the interests of the people of this diverse continent.

It can only do so by promoting trade in a way that supports regional industry and enhances productivity, putting African countries on an even playing field to compete with the world’s most advanced economies.

The continent is blessed with abundant natural resources and a young and ambitious population. It is estimated that by 2030 young people in Africa will constitute more than 40% of global youth. How can we support the continent’s economic growth in the near term and create a powerful economic foundation to enable the entrepreneurs and leaders of the future to realise their goals?

Of course, Africa is a large and diverse continent and there is no single economic strategy that fits every country. But it is clear that the AfCFTA is a great step towards greater cooperation and alignment, enabling African countries to support each other’s growth and, in turn, greater prosperity across the continent.

The World Bank estimates that the AfCFTA could increase Africa’s income by $450bn within the next 12 years. That should not be surprising when we consider that the agreement is set to create the world’s largest free trade area. However, the full economic and social benefits will not simply be spontaneously realised. To get the most out of AfCFTA, experts agree that we will need to invest in transport infrastructure to make intra-continental trade considerably more efficient and cost-effective.

Many analysts also observe that the agreement is an invaluable opportunity to reduce red tape on exports and harmonise customs processes. These measures will be critical to expanding the value and volume of trade, expanding business opportunities and increasing revenues.

After all, reducing barriers to trade on paper counts for little if the rail networks are optimised for exporting from Africa to outside the continent, and slow customs processes make exporting abroad more attractive, in some cases, than transporting goods to neighbouring countries.

In other words, making a success of the world’s largest free trade agreement requires a holistic, integrated view that accounts for the complex economic and social realities across the continent.

Equally important is the need to establish fair terms of trade that support and promote regional industry. After all, how can Africa develop a competitive and sufficiently advanced industrial base if it is threatened by uneven trading conditions, such as dumped imports from other countries?

We already have ample evidence of the economic damage unfair trade can cause. In SA, for instance, dumped cement from Asian markets has displaced locally produced cement, forcing local manufacturers to curtail production. While the local cement industry has the capacity to scale up production, creating quality local jobs, supporting communities and small businesses within the cement value chain, and investing in critical social welfare initiatives that help meet the country’s development goals, unfair terms of trade put these ambitions at risk.

A recent study on the cement industry helps quantify these issues. The report, by the Centre for African Management and Markets at the Gordon Institute of Business Science, shows that dumped cement imports put local production at risk. Substituting local production with imports would lead to job losses and a loss of income for many small business and communities that depend on the cement value chain.

Importantly, the report shows the irreplaceable economic and social value of complex industry.

While the local cement industry employs thousands of people directly, the overall economic impact is more significant. Analysing PPC’s value chain in SA, the study found that for every person directly employed by the company, more than seven more jobs are sustained in the national economy. This increases to almost nine when you include the informal sector.

Moreover, the broader cement value chain supports small, medium and micro enterprises and is an important source of revenue for the country.

As the study demonstrates, PPC’s value chain contributes R8.8bn to SA’s GDP. It is thus unsurprising that the report concludes that targeted tariffs will be an important economic tool to protect the local cement industry from unfair terms of global trade.

Accelerating local industry doesn’t simply have immediate economic benefits; it is important for the long-term economic security and stability of the region. For instance, we have noted the urgent need to invest in the continent’s infrastructure to take advantage of the opportunities presented by the AfCFTA. That will increase the demand for cement and other essential construction inputs.

While imports can provide a stopgap, they are of varying quality and subject to price and supply issues due to a volatile rand and fragile global supply chains. The reality is that imported cement may not always be available or affordable.

Compounding the issue, once the manufacturing capacity and skills are lost it is no simple matter to restore capacity to meet demand. Trade policy should therefore be geared towards supporting local production, especially where local manufacturers are providing world-class quality and service and making substantial contributions to the broader economy.

We are still at the early stages of AfCFTA implementation and its true value is yet to be realised. The scale of its success is up to us. Stakeholders within countries, and across the continent, need to work to align on a set of strategies that will enhance trade while simultaneously developing the industries that make our trading position as a continent more competitive.

That will require ongoing conversation, enabling policymakers, businesses and other organisations to adapt to a rapidly changing global economy.