How to ensure Africa’s bold Free Trade Area propels industrialisation
Statistics show that from 2004 to 2014, the value of African manufacturing exports more than doubled. Meanwhile, in 2016, UNCTAD calculated that the manufacturing sector now contributes approximately one-fifth of Africa’s inward FDI stock.
AFRICA’S industrialisation needs a boost. Implemented correctly, the AfCFTA could provide it. Here’s how. On March 21, dozens of African countries agreed to establish what could be a truly transformative trade deal. At a special African Union summit convened in Rwanda, 44 governments signed the African Continental Free Trade Area (AfCFTA) agreement. The majority of the remaining 11 AU member states signed the Kigali Declaration, a promissory note to ratify the AfCFTA. 27 additionally signed a separate AU Protocol on the Free Movement of People.
Africa’s two biggest economies — Nigeria and South Africa — did not sign the AfCFTA agreement. However, it is expected that they — along with the remaining member states — will do so following national consultations or the fulfilment of constitutional requirements for signing international treaties.
The agreement will enter into force once 22 African countries have ratified the deal. Given the current momentum behind the project, this process is expected to be swift and smooth.
The AfCFTA commits members to cut tariffs down to zero on imports covering 90 percent of tariff lines, as well as address a host of other non-tariff barriers. All this is expected to boost trade between African countries by an impressive 52,3 percent. This could have momentous repercussions for a trade area that would potentially contain 55 countries, 1,2 billion people, and a combined $2,5 trillion in GDP. It would enable significant scale economies and attract external investment.
More intra-African trade would also have crucial knock-on effects. Given that manufactured goods make up a much higher proportion of regional exports than those leaving the continent — 41,9 percent compared to 14,8 percent in 2014 — more intra-African trade means much more opportunity for industrialisation.
As noted in a recent report by the UN Economic Commission for Africa (ECA) and the Overseas Development Institute (ODI), Africa is bizarrely less industrialised today than it was three decades ago. In 2014, manufacturing contributed just 9,8 percent on average to Africa’s GDP, a quarter lower than in 1990. Africa’s exports today still predominantly consist of primary commodities and raw materials, with fuels alone accounting for 53,9 percent of exports in 2014.
At the same time, however, manufacturing in Africa is on the rise in absolute terms. Between 2009 and 2014, for instance, manufacturing production grew at an average 5,1 percent per year in real terms, with particularly strong performances in Chad, the Democratic Republic of the Congo, Ethiopia, Nigeria, Niger and Sudan.
Statistics show that from 2004 to 2014, the value of African manufacturing exports more than doubled. Meanwhile, in 2016, UNCTAD calculated that the manufacturing sector now contributes approximately one-fifth of Africa’s inward FDI stock.
Despite a disappointing backdrop, these trends are promising and suggest that with the right impetus, they could be accelerated.
Industrialisation matters The benefits of industrialisation — and the reasons it’s been central to national development strategies across Africa —are clear to see.
Manufactured goods are much less vulnerable to fluctuating global prices than extractive goods, meaning they can provide a more sustainable tax base. They are more frequently produced by small and medium-sized enterprises (SMEs), which comprise about 80 percent of all enterprises in Africa, and are therefore key to poverty reduction. And, perhaps most importantly, manufactured goods tend to be labour intensive, meaning they can better create jobs for Africa’s bulging youth population. — African Arguments. ◆ Read the full article on www. herald.co.zw