Discussing the introduction of the African Continental Free Trade Area (AfCFTA) agreement at the Africa Unlocked conference in Cape Town recently, panel members said that intra-Africa trade accounted for about 16% of Africa’s exports.
In contrast, levels in Asia have reached 55%, North America 49%, and countries within the EU 63%.
Given these statistics, the panel said examining whether AfCFTA is effective and what is required to make African products more appealing in global and intra-African markets was necessary.
A significant factor delaying African progress is its failure to become economically complex by using its available products to develop others that open opportunities in new fields. The principle of economic complexity, mastered in developed countries, has resulted in countries like the USA creating and exporting products based on oil more than a century ago.
Nigeria, which has the same access to oil, has not taken the step into complexity. As a result, the country is importing a product that could easily be locally duplicated. The same problem exists across many African markets where, for decades, beneficiation of raw materials has not occurred.
Ghana is no exception to this. Farihan Alhassan, Head Business and Commercial Banking, Stanbic Bank said: “Producers in Ghana have a unique opportunity to export their goods to African countries, taking advantage of AfCFTA and the Pan African Payment Settlement Systems (PAPSS) to facilitate payments across the African continent.
The introduction of these 2 platforms should significantly impact the intra-African trade over the next decade, significantly bringing Africa closer, improving commerce and driving economic growth on the continent.”
The COVID-19 pandemic has been another limiting factor for African trade. The continent is still recovering from the pandemic’s impact, and many parts of it are still grappling with the economic damage wrought by COVID-19. At the same time, Africa is still suffering the effect of having to shoulder a disproportionate disease burden that exceeds those existing on any continent on the globe.
Despite the disease burden, the continent still imports most of its healthcare needs, and its trade deficit continues to increase. Rectifying this situation and providing for a more significant portion of its healthcare needs would greatly assist the continent in becoming ‘healthier ‘at a lower cost, saving precious foreign currency and promoting competitive growth through intra-Africa and global trade.
The panel said three conditions must be present for trade to improve welfare levels and fulfil the mission of using intra-African and global trade to reduce poverty in participating nations and increase employment.
These are financial development, as when domestic private credit extension as a share of GDP reaches 18%, it is found that trade begins to reduce poverty.
Education is the second factor, as a better-educated labour force translates into enhanced capabilities and productivity. The final factor is governance.
Although trade oils the machinery of growth, research has shown that in countries with higher levels of sound governance across all sectors of society, trade is ‘massively’ more effective in reducing poverty.
Practically, promoting intra-African trade and global exports of African goods requires connecting buyers and sellers so that markets can be explored, and products and services can be evaluated and adopted.
For African countries, more attention must be paid to forming strong local and international links and taking the necessary steps to ensure that all potential importers and exporters are fully aware of regulations, pending legislation, and other important factors impacting their potential partners.
AfCFTA presents its signatories with an opportunity to aggregate volumes across the continent and leverage Africa’s power. Pooling procurement can help simultaneously realise the promise of African industry and lessen the continent’s reliance on imports.
Accompanying this with a review of the incentives offered to industry by countries like India, which includes economic zones, soft trade loans, subsidised land, water, electricity, and tax breaks, and countering it with African offers could assist Africa’s trade development.
Although the continent may not be able to offer the depth of incentives of a country like India, a start could be made by removing tariffs on the continent to help close the gap. The African tradition of exporting raw materials and then importing products containing these products at massively increased prices is counter intuitive.
Trading as one may require adjustments across the continent, but as AfCFTA matures, there is no doubt that the present concerns about trading across Africa and the potential impact on local business in participating countries will dissipate as the promises of growth and prosperity are realised.
