BY EMEKA EJERE
The Secretary-General of the African Continental Free Trade Area (AfCFTA) Secretariat, Mr Wamkele Mene, recently identified an efficient implementation of the intra-African free trade agreement as a critical tool in the hands of the continent’s leaders to stimulate and re-inject dynamism into Africa’s post-COVID-19 economy.
Mene, who participated as the guest speaker in a virtual conference that was hosted by the American Business Council (ABC), Nigeria, in Lagos, said the AfCFTA remains the continent’s hope for economic recovery. The African Union (AU) had in July 2019, launched the operational phase of the AfCFTA, which will be the world’s largest free trade area in the world by the number of participating countries once it’s fully up and running.
After years of talks, the goal is to establish a single market for goods and services across 54 countries, allow the free movement of business travellers and investments, and create a continental customs union to streamline trade and attract long-term investment. The agreement is seen as critical to the growth and job creation for Africa and its 1.27 billion people. Clinching Nigeria, Africa’s biggest economy’s agreement and moving into the operational phase last year were seen as a significant step.
Intra-Africa trade has been historically low. Intra-African exports were 16.6% of total exports in 2017, compared with 68% in Europe and 59% in Asia, 55.0% in America and 7.0% in Oceania, pointing to untapped potential.
The COVID-19 pandemic is expected to hit African economies extremely hard. According to the World Bank biannual Africa’s Pulse report, as a result of the pandemic, economic growth in sub-Saharan Africa will decline from 2.4% in 2019 to between -2.1% and -5.1% in 2020, depending on the success of measures taken to mitigate the pandemic’s effects. This means that the region will experience its first recession in 25 years.
The decline will be primarily due to large contractions in South Africa, Nigeria, and Angola driven by their reliance on exports of commodities whose prices have crashed as well as other structural issues. This will inevitably affect Africa’s participation in trade and value chains as well as reduce foreign financing flows.
According to the World Bank, given the limited regional market, trade with the rest of the world is vital for Africa. Before the pandemic, Africa’s trade with the rest of the world had been showing good momentum. According to UNCTAD’s Economic Development In Africa 2019 report, from 2015 to 2017, total trade from Africa to the rest of the world averaged $760 billion in current prices, and the share of exports from Africa to the rest of the world ranged from 80% to 90% in 2000 –2017 in Africa’s total trade. The only other region with a higher export dependence on the rest of the world is Oceania.
However, the AU estimates that implementing AfCFTA will lead to around a 60% boost in intra-African trade by 2022. But the agreement which was supposed to be implemented on 1 July 2020 has now been postponed due to the pandemic.
“It is not possible to commence trade as we had intended on 1 July under the current circumstances,” Mene said speaking about the coronavirus.
Mene noted that no African country has the financial muscle to initiate a significant economic stimulus package the way the United States of America has done when it launched more than $1 trillion as a stimulus package.
He added: “I believe that even with the challenges of COVID-19, which I see as a crisis with an opportunity, most developed countries have introduced economic relief packages to re-inject dynamism and growth in their economies. The United States of America introduced over $1 trillion stimulus package. The European Union has introduced $500 billion and may increase it to close to a $1 trillion.
“The USA also packaged $60 billion to its aviation sector in the form of grants and loans. But many African countries do not have the monetary policy space, neither do they have the fiscal policy space to provide such substantial economic relieve packages, which means that for us as Africa, the implementation of the AfCFTA agreement is our stimulus and economic relief package.”
He also explained that effective implementation of the free trade area agreement would significantly boost intra-African trade and investments and stave off the severe contraction in the Gross Domestic Product (GDP) of between 2.5 and five per cent of the GDP that was predicted for the continent by the World Bank.
Mene added: “The AfCFTA is actually the driver of economic growth in Africa and a critical tool that we have at our disposal. As I said there are very few countries in Africa that can put on the table the substantial amount in stimulus packages that we have seen elsewhere. So this AfCFTA is Africa’s stimulus and economic recovery plan.”
He stated that the AfCFTA would liberate the continent from inhibitive trade policies of the western world that have consigned African countries as the producer and exporter of primary commodities with the imposition of 1000 per cent tariffs or more on the export of processed primary products like leather from Africa.
He also said the agreement would ignite industrialisation in the continent by encouraging member states to add value to their primary products and sell them within the continent at zero tariffs.
“What we require is an action plan for the implementation of an industrial development plan strategy across Africa in a disciplined manner over a number of years. This, to me, is the important factor as we implement the free trade agreement,” he said.
He, however, stated that he was concerned about the difficult challenges member countries would face while implementing the agreement and playing by its rules despite the optimism and political will shown by African leaders at African Union’s session about the AfCFTA.
“What I worry about is the inability or willful lack of compliance because sometimes conditions are difficult. The worry I have is the implementation and compliance with the rules.
“Where the bigger challenge will be is from the border (custom) officials in the remote parts of the member states and whether or not the officials will adhere to the rules that required them to apply the AfCFTA procedures. This is the number one concern for me,” he said.
Mene revealed that the AfCFTA the African Export-Import Bank (Afreximbank) has set aside $1 billion facility to assist countries that are state parties to the agreement, to cushion revenue losses they might suffer due to the implementation of the agreement. The facility, according to him, would help countries to make the adjustments required by the transition and cushion the loss of revenue forgone from duties and tariffs, noting that “there will be winners and losers.
Speaking at the second edition of United Bank for Africa (UBA) Africa Day conversations recently, the president & chairman of the board of directors of Afreximbank, Professor Benedict Oramah, noted that the pandemic presents an opportunity for Africa to be independent and promote its growth and development as a people without external help, pointing out that COVID-19 has taught Africa that there comes a time when every group of people will fend for themselves.
While calling for the swift implementation of the AfCFTA agreement, Oramah said, “The priority of government should be to make sure that the AfCFTA gets implemented without delay. If there was any doubt about the importance of that agreement, this pandemic has told us that this is the way to go.”
Knowing the rules
Accordingly, the Afreximbank is teaming up with International Trade Centre, ITC, to train small-business owners and young entrepreneurs in Africa to trade with other African countries as part of the AfCFTA agreement. The training programme, ‘How to Export within the AfCFTA’, is being launched as the new free-trade area comes on stream and amid the economic strain of climate change and the coronavirus pandemic.
The training is aimed at giving business owners the knowledge and skills they need to engage effectively in cross-border trade under terms of the emerging free-trade area for Africa.
“Against the backdrop of the current COVID-19 health and economic crisis, African micro, small and medium enterprises (MSMEs) need support to take full advantage of the continental market,” ITC acting Executive Director Dorothy Tembo said. “Through this partnership, African businesses will have the opportunity to learn, plan and succeed in growing their business by taking full advantage of the AfCFTA.”
Kanayo Awani, managing director of Afreximbank’s Intra-African Trade Initiative, said that the initiative was necessary because increasing intra-African trade through exports of goods and services by small and medium-sized enterprises (SMEs) was the cornerstone of the AFCFTA.
“It signals an optimal strategy to aid businesses and develop regional value chains, which have become more relevant with the advent of the COVID-19 pandemic,” she said. “Our joint initiative with ITC is a proactive way to support the implementation of the AfCFTA and to provide SMEs with the tools to respond more effectively to the economic and social challenges presented by the global pandemic.”
Maximising the bloc
Commenting on the possibility of Nigeria benefitting from the regional trade agreement, Director-General, Lagos Chamber of Commerce and Industry (LCCI), Dr Muda Yusuf said the only way Nigeria could maximise the benefits of AfCFTA is to increase the total value and volume of non-oil exports by scaling up productivity in the real sector of the economy.
“If you look at the structure of our export, it is about 95 per cent oil and gas, the remaining five per cent is for agric and manufacturing, most of which goes to the neighbouring countries.”, he said.
“So, if we are going to trade internationally, it is not just about import, it is also about export. So what exactly are we going to put on the table if the only thing you have is oil and gas? How will that benefit the economy?
“We need to scale up very rapidly, issues of productivity in the real sector of the economy. If we don’t strengthen that, we will not be able to get the right kind of value that we need to get.”
Adedayo Bakare, a Lagos-based economist agrees with Yusuf. He said, “Perhaps now, the country will invest strongly in its non-oil sources of income. Because we have a country that is not doing enough to care for its citizens and a world that is moving quickly to be efficient in how it trades and perhaps leaving Nigeria behind.”
Experts at various fora have, however, noted that it will be a challenge to make way for easy and quick facilitation of people and goods in Africa because there is so much fragmentation, with economies at widely varying stages of development.
But while the reality is there will most likely be winners and losers, the role of the AU will be to ensure shared prosperity on the continent, creating supportive policies, eliminating monopolies, and stamping out uncompetitive behaviours.