In a recent interview with UN Africa Renewal, the Secretary-General of the Africa Continental Free Trade Area (AfCFTA) Mr. Wamkele Mene underscored the crucial role of women and young people if Africa is to make the best gains out of a free trade area.
Mr. Mene explained that emphasis is on young Africans and SMEs led by women because they are the drivers of Africa’s economy. SMEs run by women account for close to 60 percent of Africa’s GDP, creating about 450 million jobs across the continent. Besides, young Africans are at the cutting-edge of technological advancements across the continent.
According to Mr. Mene, young men and women are developing the latest software that is driving e-commerce in Africa; hence the need to focus on developing them. “We will be making a big mistake if we don’t include these important segments of our society in the implementation of this agreement,” he told UN Africa Renewal.
Mr. Mene notes that the successes of AfCFTA will depend on shifting from the old models of trade agreements that benefitted only the big corporations. “We need to focus on young people and women-run SMEs; therefore, we have a mandate to negotiate a protocol on women and young traders. The trade agreement will not have credibility if it excludes important segments of society; it will be perceived as benefitting only the elites,” he added.
He pointed out the need to match young entrepreneurs and their SMEs with investment opportunities in new markets. In furtherance of this, AfCFTA will identify some value chains and link them with SMEs run by young women or a young entrepreneurs and negotiate with potential investors to invest in the value chain, so as to create export opportunities.
Another factor that will drive AfCFTA’s success is the availability and affordability of finance. The continental organisation is currently holding discussions with commercial banks in Africa to expedite the establishment of a Trade Finance Facility to support young people that venture into Small and Medium-scale Enterprises (SMEs). One key objective of the trade finance facility is to ensure that young Africans have access to financing. “We want to make sure that the criteria for financing qualification does not exclude young entrepreneurs,” says the Secretary-General of AfCFTA.
AfCFTA is also collaborating with Afreximbank to develop the African Trade Gateway and a digital platform to facilitate trade and payment. The African Trade Gateway will be a digital platform that features due diligence information about trader counterparts, including the rules of origin, Customs procedures, as well as a payment transfer platform. Indubitably, affordable trade financing will enable young entrepreneurs, including women, to establish and take advantage of a market comprising 1.3 billion people with a combined GDP of US$3.4trillion.
As AfCFTA goes into full gear, countries with huge export capacity will reap the benefits of free trade immediately, while countries with a weak export base might experience short-term revenue loss. Thus, Afreximbank as a financing mechanism will mobilise funds to support the short-term losers through an AfCFTA Adjustment Facility. This fund, according to Mr. Mene, will support specific value chains in specified productive sectors of the economy: for example, textiles and agro-processing. So far, AfCFTA and Afreximbank have mobilised US$1billion with a projection of increasing it to between US$7billion and US$10billion over the medium-term.
Additionally, the success of AfCFTA calls for a mindset change that treats tariffs not only as a revenue-generating tool but also as a tool for industrial development. Viewed in this light, tariffs could foster the development of productive sectors, and, where necessary protect infant industries and prevent dumping of foreign goods on African markets.
Moving forward, AfCFTA countries should focus on investing more into Special Economic Zones (SEZs) as a strategy to boost competitiveness and industrial capacity. In Asia for instance, SEZs are contributing to innovation, job creation and value addition. There good examples in Africa, too. According to AfCFTA, the country of Gabon has been successful in implementing valuations on timber. As a result, Gabon’s timber is now processed locally, and value addition is done in the SEZs for export. Another example is Senegal, which has a strong SEZs on pharmaceuticals. Of course, the success story of Mauritius in the SEZs has been well documented.
Though Ghana has a SEZ presence, the Ghana government should take cues from the recent successes of Senegal and Gabon. As the host of AfCFTA, Ghana needs to identify and develop specific products within the free zones enclave to take advantage of AfCFTA. Ghana potentially has competitive advantage in pharmaceuticals, rubber and plastics, iron and steel, and electrical cables. With the One District, One Factory policy growing stronger, Ghana is expected to make gains in AfCFTA over the medium- to long-term.
Of course, the issue of SEZ goods receiving unfair advantage and enjoying tax-breaks will continue to dominate discussions. However, the advantages of free zones outweigh the disadvantages – because SEZs have the potential to create jobs for young people, besides contributing to innovation and rapid industrialisation. For this reason, AfCFTA needs to ensure that goods produced in those zones become part of the AfCFTA value chain.
Common payment system
It is in the interest of AfCFTA and its member-states to expedite action on the Pan-African Payment and Settlement System (PAPSS) to facilitate free trading. It is expected that the piloting of PAPSS in six countries of West Africa should lead to a continental implementation soon; with Afreximbank providing liquidity for the settlements and technology. AfCFTA states that the cost of currency convertibility is annually estimated at about US$5billion. This cost needs to be reduced drastically if AfCFTA is to improve the competitiveness of its SMEs established by young entrepreneurs.
A key milestone for AfCFTA thus far is operationalisation of the Protocol on Dispute Settlement. An adoption of the rules for appointing members of the appellate body of the dispute-settlement body should send strong signals that Africa is ready to abide by the rules of trade-law. Trade agreements are very complex and technical, and have far-reaching obligations for countries that negotiate them. Nevertheless, a fast dispute settlement mechanism will boost intra-African trade and investment.
One year on, a number of developments give cause for celebration. Firstly, the number of countries that have ratified the agreement has reached 39, while 15 others are yet to assent to the protocol for various reasons. According to the Secretary-General, this makes AfCFTA the fastest instrument to be ratified in the African Union. “It demonstrates the seriousness and commitment that our heads of state have for market integration and free trade,” he added.
Secondly, AfCFTA has reached about 87.8 percent agreement on the rules of origin, which is a very high consensus threshold. There are close to 8,000 products under the World Customs Organisation’s Harmonised System of rules of origin and tariffs. Impressively, AfCFTA has reached agreements on more than 80 percent of these products. “At this stage, there’s no point reaching a 100 percent agreement on all the products before AfCFTA can go into full gear,” says Mr. Mene.
With this milestone, AfCFTA will be able to speedily conclude negotiations on the rules of origin. Outstanding products are automobiles, textiles, clothing and sugar – which account for about 12 to 15 percent of the tariff book. The ideal is to reach 100 percent rules of origin convergence to enable businessmen and women to trade with certainty and predictability. Rules of origin are important for rapid industrialisation of member-countries, as well as for certainty and predictability of the market.
Trade negotiation challenges
One of the key challenges AfCFTA faces is to harmonise and build expertise in areas such as trade in goods, trade in services, investment protection and trade remedies among others. Currently, there are 39 state parties to the AfCFTA agreement; which calls for technical and capacity-building support to state parties across all the protocols. “We need expertise in every area where we have a protocol. We need to develop the expertise internally; we don’t need to go outside the continent to get consultants to work for us,” says Mr. Mene.
The biggest challenge for AfCFTA is the five countries on the continent with differentials in level of economic development and level of industrial capacity. While some countries have the industrial capacity to export immediately under AfCFTA rules, other countries will need more time to develop their capacities.
Though there is agreement on trade facilitation, transit and harmonised Customs procedure rules, enforcement of the harmonised rules remains a challenge because countries are at different levels of readiness. This necessitates continuous capacity building so that the AfCFTA Customs authorities can be equipped and enabled to enforce the rules of origin.
Implications of COVID-19
With the onset of COVID-19, some 42 countries in Africa, including Ghana, were in a full or partial lockdown. This unforeseen development brought many economies to their knees. Nevertheless, the pandemic signalled the importance of e-commerce and the need for having rules that govern trading on digital platforms.
Besides, there are two lessons that emanated from the emergence of COVID-19. The first lesson is that the pandemic has underscored the importance of Africa accelerating industrial development and self-sufficiency, while establishing regional value chains across the continent. While it may not be prudent to disconnect from global value chains, Africa needs to accelerate its self-sufficiency and be ready to solve its own problems. Africans need to be each other’s keepers, rather than overly relying on foreign partners whose desire is to maintain Africa as a dumping ground for their goods and services – while extracting our natural resources.
The second lesson justifies the need to strengthen the rules on intellectual property rights to serve Africa’s industrial development and public health imperatives. A proper legal framework for AfCFTA’s intellectual property rights may support the capacity to produce vaccines without patent violations.
The government of Ghana is leading the drive for vaccine production and needs the support of other countries. For once, African leaders must embrace the need to rally around this continental vaccine initiative if we are to break the west’s dominance in vaccine production. At least, COVID-19 has taught us the lesson that in times of pandemic western countries tend to ignore Africa.
The reality is that Africa is too dependent on the west, to detriment of its own competitiveness and scientific/technological advancement. In the long-term, Africa may be able to establish its generic drug industry without the constraints presented by intellectual property rights pertaining to developed countries.
Kingsley, I. 2022. “Traders to have opportunities to scale-up and expand their markets in 2022.” UN Africa Renewal.