Free trade area calls for wider planning
SA cannot escape its African destiny”, wrote Nelson Mandela in a famed article in Foreign Affairs over 30 years ago. It was a recognition by a statesman on the cusp of taking power that a part of the economic and diplomatic future of SA was inescapably interwoven with developments on the continent.
The transformation of SA and the continent’s economic base would require, as Mandela observed, “greater economic co-operation between the countries of the continent and the reshaping of trading networks”. Only through such co-operation, he suggested in the same article, would Africa cease to “be a battleground by contending forces in wider international conflicts”.
While proxy conflicts continue on our continent, it is indisputable that the “reshaping of trading networks” Mandela called for is an accepted position by African people.
In the next few days, hopefully to much fanfare, trading under the African Continental Free Trade Area (AfCFTA) will begin, having been gazetted by SA on Friday.
The AfCFTA is a continental response to the anomalous situation where global trade is characterised by uneven exchange and the historical “overhang” of colonialism and imperialism. Precious little trade takes place between African countries, and despite accounting for a sizeable chunk of the global population, the continent retains only a negligible share of what is produced.
Africa has 17% of the world’s population (and rising), but accounts for only 3% of global output and trade flows, 2% of manufacturing output and about 1% of world steel production. It is this anomaly the AfCFTA is intended to resolve.
The nature of contemporary economies is that in undertaking structural change they are reliant on lumpy and often risky investments that require economies of scale on the supply side and both consumer and producer demand on the other if they are to be viable. Such scale requires overcoming what Kwame Nkrumah observed as the tendency of neocolonialism to break up large areas into “small unviable states which are incapable of independent development”.
Economic planning (and what complementary institutions it may spawn) is an important part of what the AfCFTA will set out to achieve in the next few years. For SA, the bulk of our exports to the continent are value-added goods, suggesting that expanding regional value chains and network infrastructure would be beneficial to us.
While some of our leading firms in product markets, including many SA state-owned companies, are now fixated on existential issues and focused on domestic and perhaps southern African markets, we would do well to leverage the experience of some of these firms in the continent.
Examples include the export of mining machinery to West Africa, the export of capital and expertise to produce food and beverages close to burgeoning consumer markets in East Africa, Eskom’s foray into Uganda and the sale by Transnet Rail Engineering of capital goods to markets.
Strategic identification of import replacement opportunities in the wage and capital goods requirements of African nations alongside a protective perspective on product categories that are sensitive to injurious import competition is crucial for the domestic manufacturing sector.
However, there are some potential booby traps along the way. Africa remains the “battleground for contending forces” that Mandela observed in 1993.
Problems include conflict in the Horn of Africa, the debt crises confronting Zambia, Ghana, Ethiopia and latterly Kenya, and longer-term questions of the diversification of foreign exchange earners for commodity producers — Angola and Nigeria with oil, and SA and Zimbabwe with platinum.
What should such commodity producers do about the windfalls that occur in the shorter term, and the enterprise destruction that follows downturns?
If the AfCFTA is to herald a new African renaissance it must enable the conditions for wider planning to confront the vagaries of price volatility, disruptive conflict and the messy and lumpy tasks of building roads, bridges and planting cables between and across territories, which for too long have served as territorial neighbours but strange economic bedfellows.