THE ROLE OF THE AfCFTA IN BUILDING AFRICAN ECONOMY POST COVID-19
Our country and other countries across the African continent and the rest of the world are engaged in a monumental battle to restore the economy in the midst of an ongoing onslaught from an invisible enemy that has destroyed lives and livelihoods; the COVID-19 pandemic. The pandemic outbreak gave rise to a myriad of disruptions to the global supply chains that continue to cause damage to the global economy. With constrained public resources and subdued economic prospects in many countries, Africa faces a particularly daunting task in mitigating the effects of the pandemic.
One of the instructive lessons learned from this crisis is that economic resilience is critical. Given that many of the African countries do not have the means to cushion themselves against the resultant economic devastations it is critical to build up industrial capabilities, trade and supply chains across African countries. Greater supply-chain resilience needs to include efforts to spread risk by enabling the greater geographic spread of manufacturing. This resonates with bringing to fruition the goal of ‘Made in Africa’ initiative. To this end, the architecture of the AfCFTA should be weaved in such a way that it boasts localisation and pre-empt transhipment.
It is imperative for us to look beyond our borders to accomplish the task of inclusive economic growth and job creation. In this regard, we have to seize the opportunity presented by the African Continental Free Trade Area (AfCFTA), which is a flagship project of the AU’s Agenda 2063 aimed at boosting intra-Africa trade. Our country accounts for approximately a quarter of intra-trade in the continent and will benefit massively from driving the consolidation of Africa’s integrated market. The creation of capacity to produce PPE in the fight against COVID-19 has also given us the opportunity to become a supplier to the SACU communities and broader African continent.
The AfCFTA was launched in Kigali, Rwanda in March 2018 as a milestone that marked Africa’s commitment to the creation of an integrated and diversified market in Africa of approximately US$3.4 trillion with a population of over 1.2 billion people.
While original ideas for African integration go back many decades to the immediate post-colonial era in the late 1950s and 60s, the African Union (AU) first conceptualized the idea of an African Continental Free Trade Area (AfCFTA) in January 2012, at its 18th session in Addis Ababa, Ethiopia. Our leaders recognized that the promotion of intra-African trade is a fundamental factor for sustainable economic development, employment generation and effective integration of Africa into the global economy, therefore, a call for an AfCFTA.
One of the immediate tasks is to ensure that the tariff schedule, listing all products covered by the AfCFTA agreement for tariff liberalization and the Rules of Origin are finalised to ensure we meet the new implementation date of January 2021 which was deferred from the original date of 1 July 2020 due the Covid-19 outbreak.
The imperative of Africa’s economic integration agenda is more urgent than ever as we contend with the impact of the global economic downturn and growing uncertainty exacerbated by the aftermath of the pandemic.
Africa’s vulnerabilities and limited participation in global trade is a function of its traditional overdependence on the export of low value raw materials and commodities and the import of higher value-added manufactured goods and services. The continent’s full potential will remain unfulfilled unless we address the challenges ofpoor infrastructure, small and fragmented markets, under-developed production structures and inadequate economic diversification.
Intra-Africa trade currently stands at approximately 16%-18%, which is comparatively low to other regions, namely intra-Asian trade at 52%, intra-North American trade at 50% and intra-EU trade at 70%. However, for most African countries, intra-African trade is already considerably more important than the aggregate figures suggest. Indeed, the shares of intra-African trade in African countries’ total exports shows that Africa is by far the second most important export market for most African countries behind Europe. Contrary to the impression given by the aggregate figures for intra- African trade, Africa represents a significant export market for many African countries.
It is also important to note that over three quarters of intra-African trade takes place within regional trading blocs demonstrating that our regional integration programmes are the most important avenues for deepening intra-African trade.
More importantly, while commodities dominate Africa’s exports to the rest of the world, the content of intra-African trade is value-added products. The AfCFTA should therefore build on – and not seek to replace - the integration already achieved in the established Regional Economic Communities of the African Union. This is well captured in the agreed AfCFTA principles that call for the preservation of existing trading arrangements such as SADC.
The importance of African trade in South Africa’s overall trade continues to grow. In 2019, 27% of South Africa's world exports and 12% of world imports were intra-Africa. South Africa continues to record a large trade surplus with the rest of Africa, exporting mainly mineral products, machinery, chemicals and iron and steel products, which accounts for over 50% of its total exports to the rest of the continent. South African exports to African countries account for approximately 26.5%, which are primarily value-added goods, including iron, steel, motor vehicles, basic chemicals and refined petroleum products. 11.9% of all SA imports is from Africa and comprise of nuts and seeds, agricultural goods, animal products, oil and fuel products.
Access to the markets of the rest of the African continent is important, because those are relatively fast growing economies. Exports of value added goods to these markets create employment in South Africa. An integrated market must, also work to foster the development of regional value-chains and ensure that the costs and benefits are equitably shared amongst all African economies.
In this regard, the AfCFTA Rules of Origin are a vital industrial policy tool and aim to ensure that African economies enjoy the benefits of the larger market.
The AfCFTA will encourage industrialization on the continent through the development of regional value chains, and the more diversified nature of intra-African trade. South Africa is almost entirely self-sustaining in terms of food production, consequently tariff removal, cheaper agricultural products and animal products from Africa may damage the sector. The AfCFTA undoubtedly holds the promise of significant opportunities for South Africa and could be an important catalyst in igniting the economy but it should not be seen as the panacea for development nor as a short term fix for economic growth in the country.
The success of the AfCFTA depends on our collective efforts and coordinated action to effectively implement the program and achieve the vision that our forbearers set for us decades ago.
The developmental integration places an accent on market integration, infrastructure development, and industrial development, to boost intra-Africa trade, which to date hovers around less than 20%. To this end, the developmental integration will support sustainable economic growth and structural transformation in the continent.
In light of the above, it would also be incumbent on South Africa to put its developmental integration paradigm approach in motion. For instance, infrastructure deficit in many African countries presents an opportunity for these countries to source for infrastructure equipment from South Africa. Accordingly, it would augur well for South Africa to consider extending outward development finance that supports the major industrial and infrastructure projects in the continent.
It is important to note that some individual economies and economic blocs are also prioritising their domestic or regional recovery. The European Union now speaks of taking action to address its ‘strategic vulnerabilities’ in production of medical products; the United States of America is pursuing an America-first strategy; and China and India are focussing on economic recovery. Global economic integration comes with clear benefits, through the access to the technologies and innovations from across the world. However, the benefits of highly integrated supply-chains come with enormous vulnerabilities when they are disrupted.
African countries are learning the hard lesson that they cannot remain simply exporters of raw materials and importers of medical supplies and food products. African countries imported US$476 billion from countries outside of the continent in 2019. This import of goods from outside of the continent, constrains the opportunity for industrialisation across the continent and for the creation of jobs. The Covid-19 pandemic has underscored the need for an Africa that has deeper levels of industrialisation, more jobs for young people and greater wealth-creation. That is the goal and the African Continental Free Trade Area is the means.