Unlocking The Potential Of Africa's Historic Trade Agreement19/06/2019
At the end of May, Africa’s landmark free trade deal came into effect, accompanied by widespread optimism that it could usher in a new era of intra-African trade possibilities and prosperity for the continent’s citizens.
The African Continental Free Trade Agreement (AfCFTA) aims to create a single market for goods and services, facilitate free movement of people and investments, and eventually a single-currency union. This has the potential to tackle one of the most fundamental problems holding back development and business expansion in African countries: the lack of a cohesive and uniform pan-African approach to trade.
African nations are increasingly empowered by an expanding global marketplace, diversifying economies and rapid improvements to tech infrastructure and mobile penetration. Combine that with a GDP of over $3tn and a growing population of young, ambitious and tech-savvy citizens, the countries which make up Africa’s regional bloc are bubbling with potential.
Unfortunately, existing World Trade Organisation (WTO) agreements and frameworks hinder African development. For the most part international trade agreements cement a status quo that disenfranchises African countries and makes it legal to expropriate their natural resources. Of course, these same agreements and trade imbalances have also undermined the stability and sustainability of the countries that created and enforce them. Growing global inequality and instability is the inevitable result of the “winner takes all” world, in which we currently live.
In order for global trade to be truly equitable, there needs be a level playing field between all participants - be they countries or global corporations. Such a playing field could be achieved if African countries worked together through an effective African Union (AU).
Studying the roots of the formation of the European Union (EU) provides a valuable blueprint which the African continent can learn from. In its early days the EU ensured that its member states were able to trade freely and equally with one another and bolster their own industrial capabilities to a level where they could compete on a global stage, before they attempted to do so. The success of these EU policies saw the continent shift from being dependent on rations in the 1950s to having a food surplus in under twenty years.
The African Union’s AfCFTA has the potential to do the same for Africa’s economies, eradicating costly customs duties, protecting them from exploitative deals with global partners, and allowing them to increase their trade capacities with their nearest neighbours on an even footing. Data from the UN Economic Commission for Africa (UNECA) has estimated that removing the high border tariffs between African nations could increase intra-African trade by 52% in less than five years. This would be a significant step in the right direction, and a real catalyst for the sustainable industrialization of the African continent.
According to UNCTAD, less than 20% of total trade conducted in Africa is between African countries - compared to 80% with the rest of the world. This is a huge disparity considering the vast natural and human capital resources held by the continent. By contrast, 60% of the EU’s trade is internal, ensuring the majority of resources and capital remains within the trade bloc. This demonstrates the vast potential an effectively implemented trade agreement like the AfCFTA could have on African development and value creation. It has the potential to create innumerable trading possibilities for companies across continent, boosting regional and global prosperity and ultimately, lifting people out of poverty and giving them a chance to make a real difference to the world.
However, in order for the AfCFTA to achieve these targets, it must focus more on local, African content and less on following international “norms” that force us to open our markets decades before they can compete.
From the WTO perspective there also need to be changes. Achieving global sustainability and prosperity in the parts of the world with the highest populations should be the new aim of the WTO. A prosperous Africa will lead to a prosperous world, while the converse is also true. Those who believe that the West can keep extracting raw materials from and selling finished goods back into increasingly impoverished African countries without devastating economic consequences are clearly mistaken. If instead the WTO focuses on policies that encouraged African countries to develop themselves, then it would create a win-win scenario for all. For example, instead of insisting solely on international IP protection laws being put in place, the WTO should insist that low income, high growth countries develop at least 50% of their IP locally. If more IP is created locally, a country will develop its own laws in order to protect that IP – in turn, this will mean the battle to protect international IP, which can be incredibly costly for high-growth low-income countries, will evaporate.
Changes in approach by the WTO will largely rely on being driven by African countries themselves.
The AU is our best hope of driving such changes quickly enough. Fortunately, the AU is moving in the right direction, with the output from and impact of the AU increasing year on year. We now need to fix the AfCFTA and accelerate the process of continent-wide integration so that we can level the playing field.