THE AFCFTA IS A GI­ANT STEP FOR­WARD

The Africa Report - - OPINION - TSHEPIDI T MOREMONG Head H of Africa cov­er­age for South Africa's Rand Mer­chant Bank and a for­mer co-chair of the African Ven­ture Cap­i­tal As­so­ci­a­tion

As the world’ s eco­nomic gi­ant – the United States – con­tin­ues to wage eco­nomic war against China, Mex­ico, Turkey and, more re­cently, In­dia in es­tab­lish­ing tar­iff bar­ri­ers against their prod­ucts, African coun­tries have opted to spurn pro­tec­tion­ism and em­brace in­trare­gional trade. A sig­nif­i­cant and his­toric step was taken on 30 May, as the African Con­ti­nen­tal Free Trade Area (AFCFTA) came into ef­fect.

What does this all mean, and is it cause for cel­e­bra­tion? A mar­ket po­ten­tial for goods and ser­vices of 1.2 bil­lion people, an ag­gre­gate gross do­mes­tic prod­uct (GDP) of $2.5trn, the reduction of tar­iffs and the free move­ment of labour is not to be sniffed at.

I know this, as I come from a coun­try of 2 mil­lion people and a GDP of circa $17.5bn. In­vestors want ac­cess to a large con­sumer base and the ben­e­fits of scale can­not be un­der­es­ti­mated for at­tract­ing for­eign di­rect in­vest­ment.

Yes, the agree­ment is in­deed a cause for cau­tious cel­e­bra­tion. The speed with which it has been brought into ef­fect from June 2015, when the ne­go­ti­a­tions first com­menced to es­tab­lish the con­ti­nen­tal fre e trade area, to May 2019, when 51 of 54 African coun­tries signed up, is noth­ing short of a mir­a­cle. We need to ap­plaud the tenac­ity of our lead­ers in getting here. The no­table ex­cep­tion is Nigeria, which is still con­sult­ing with var­i­ous stake­hold­ers.

As a con­ti­nent, i nt ra re gional trade is an eco­nomic imperative. Cur­rent l y onl y 1 2 % of t ra de i s within Africa, while 75% of our ex­ports to the re st of the world are still mainly min­er­als (crude oil and cop­per), ac­cord­ing to United Na­tions Con­fer­ence on Trade and Devel­op­ment. With the elim­i­na­tion of tar­iffs, in­trare­gional trade could in­crease by ap­prox­i­mately 15 to 25% in the medium term. The ex­pec­ta­tion of the AFCTFA is to stim­u­late fur­ther eco­nomic growth through in­dus­tri­al­i­sa­tion, im­proved in­fra­struc­ture and in­creased in­vest­ment.

How­ever, it takes more t han just the re­moval of tar­iffs to drive this growth. There are sig­nif­i­cant non-tar­iff bar­ri­ers that re­quire im­prove­ment be­fore we see the ben­e­fi­cial im­pact. Many of our sup­ply chains are un­de­vel­oped, with sig­nif­i­cant in­puts im­ported from the rest of the world lead­ing to costly fin­ished prod­ucts. Manufactur­ing com­pa­nies have had to back­ward in­te­grate, lim­it­ing spe­cial­i­sa­tion. The mere fact that many of our coun­tries con­tinue to still be pri­mary com­mod­ity ex­porters is cause for great con­cern.

So, is this agree­ment a panacea? Ab­so­lutely not. It is the be­gin­ning of a very long and com­plex jour­ney, with sig­nif­i­cant work ahead. It is sig­nif­i­cant work that needs to start at a national level for many of our economies, where our ba­sic in­fra­struc­ture is want­ing. Many e conomies are char­ac­terise d by poor transporta­tion and lo­gis­tics in­fra­struc­ture, which has im­peded the abil­ity to move goods from one part of the coun­try to an­other, let alone across bor­ders. In­ef­fi­cient and costly border pro­cesses cou­pled with poor cus­toms practices have cre­ated more bot­tle­necks and sti­fled eco­nomic growth.

The basi s for e f fe c t i ve i nt ra - re­gional trade is that each coun­try should at least have a com­par­a­tive ad­van­tage in the production of some good or service. Un­for­tu­nately, many of our economies are un­dif­fer­en­ti­ated, with lim­ited in­dus­tri­al­i­sa­tion and a sig­nif­i­cant de­pen­dence on im­ports for even ba­sic food­stuffs.

Am I be­ing too neg­a­tive? No, I am be­ing a prag­ma­tist. The end goal of the AFCFTA is an eco­nomic imperative that we ig­nore at our peril as an African con­ti­nent, es­pe­cially in the cur­rent con­text of global trade

wars. Cur­rently, busi­nesses face much higher costs when trad­ing within Africa than out­side of the con­ti­nent.

The how to get where we want to be is there­fore a crit­i­cal ques­tion. How do we put all of this into prac­tice? What can we learn from ex­ist­ing and in some cases highly suc­cess­ful re­gional eco­nomic com­mu­ni­ties (RECS) that have seen im­proved trade flows be­tween their mem­bers, like the Eco­nomic Com­mu­nity of West African States and the East African Com­mu­nity? How are smaller coun­tries pro­tected from larger and more di­ver­si­fied economies such as South Africa’s, Côte d’ivoire’s, Egypt’s and Kenya’s? For some economies, there are con­cerns about po­ten­tial rev­enue losses from re­duced cus­toms du­ties and taxes lead­ing to bud­getary pres­sures.

First and fore­most, our lead­ers must bring along their cit­i­zens. These sorts of agree­ments can­not be ne­go­ti­ated by tech­nocrats to the ex­clu­sion of the pri­vate sec­tor. Ex­ten­sive and mean­ing­ful con­sul­ta­tions with busi­nesses are re­quired to en­sure that gov­ern­ments un­der­stand cur­rent con­cerns and frus­tra­tions. Ef­fec­tive com­mu­ni­ca­tion to ex­plain the ben­e­fits of more open bor­ders for goods, ser­vices and labour is crit­i­cal if we are to see proper adoption and ex­e­cu­tion.

In­vest­ment in our in­fra­struc­ture is a crit­i­cal en­abler and non-ne­go­tiable foundation for suc­cess­ful in­trare­gional trade. Port, road, rail­way and telecom­mu­ni­ca­tions in­fra­struc­ture must be im­proved to re­duce trade costs. In ad­di­tion to hard in­fra­struc­ture, it is im­por­tant that lo­gis­tics, freight han­dling ser­vices and cus­toms pro­ce­dures are uni­form and transparen­t. The use of tech­nol­ogy and in­te­gra­tion into fi­nan­cial pay­ment sys­tems will be vi­tal in en­hanc­ing ef­fi­cien­cies at border cross­ing and ports.

It will be im­por­tant that AFCTFA leverages the lessons learned from the RECS. What has worked and what has not worked? How do we re­move non-tar­iff bar­ri­ers? Rules of ori­gin is­sues will re­quire deft ne­go­ti­a­tions – they should be simple, transparen­t and adapt­able.

The use of tech­nol­ogy and in­te­gra­tion into fi­nan­cial pay­ment sys­tems will be vi­tal

Lastly, can the agree­ment work with­out one of the con­ti­nent’s largest economies – Nigeria? I be­lieve Nigeria is nec­es­sary for this agree­ment to achieve its po­ten­tial. The most pop­u­lous coun­try, with one of the high­est costs of doing busi­ness, will ben­e­fit sig­nif­i­cantly and the spillover ef­fect into sur­round­ing economies will be enor­mous. It is there­fore im­por­tant that the pow­ers that be find a way to en­gage with Nigeria in po­si­tion­ing its piv­otal role in achiev­ing a truly pow­er­ful con­ti­nen­tal free trade area.

The road ahead is long and not with­out com­plex­i­ties, and the as­pi­ra­tions are am­bi­tious. This agree­ment and free trade area is long over­due. I hope the com­mit­ment that has been shown thus far by our lead­ers con­tin­ues and that the eco­nomic imperative far out­weighs any po­lit­i­cal machi­na­tions.

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