On the occasion of the birth of the African Continental Free Trade Area, the African Union publishes a study detailing the arguments in favor of the Pan-African initiative. Which will be nothing if it is not accompanied by deep economic reforms in every country. Extracts.
The Covid-19 pandemic delayed preparations for the start of trade under the AfCFTA. But she highlighted the potential role this project could play in generating recovery and sustainable growth.
This is essential if Africa is to be able to meet the demographic challenge of integrating its 252 million young people (aged 15 to 24) into productive activities, while making progress in gender equality.
This is the conviction of the African Union, which compiles in a study all the arguments in favor of free trade in Africa. Beyond the economic arguments, the report provides case studies by activity and by country, all supposed to benefit, sooner or later, from the lowering of tariffs and non-tariff barriers.
During the 2020s, the AfCFTA will be part of the recovery effort. By making the most of the number and quality of jobs demanded by Africa’s demographics, trade is the most reliable means of sustainable and inclusive growth. Liberalized trade provides a context and an incentive for the restructuring of African economies through diversification, promotion of intra-regional trade and better and more stable integration into regional and global value chains.
The AfCFTA relies on the regional markets of the RECs (Regional Economic Communities) to provide a basis for the growth of informal Very Small, Small and Medium Enterprises (VSEs) in Africa. These companies already provide most of the jobs and income.
Therefore, the project presents an opportunity for continent-wide reforms to reduce trade costs, reduce the thickness of borders and improve the efficiency of trade governance. While the AfCFTA is not a silver bullet, its impact is expected to extend beyond the immediate realm of trade reform.
If well conducted, the project can help shape Africa’s response to major global trends expected in the 2020s. As governments take action to better prepare for future pandemics, the liberalized continental market provides by AfCFTA presents an opportunity for the local production of pharmaceuticals and health care supplies.
We see that the “green agreements” increasingly frame public policies, which require that trade and investments be climate-friendly. Here, the AfCFTA provides a ready-made framework for coordinated green growth strategies among African countries.
Great efforts to be made!
Likewise, as businesses seek efficiencies through digitization, using accessible and affordable technologies, the AfCFTA can help ensure policy coherence on issues such as digital competition, data governance and taxation of digital products and services.
As foreign aid flows continue to decline and donor countries have other budgetary priorities, trade is – and will continue to be – the largest source of public and private income flows to African countries.
There is no doubt that integrating Africa’s fragmented markets by creating a preferential trading area for goods and services requires great effort. Further negotiations are planned to establish protocols on investment, intellectual property rights, competition policy and electronic commerce.
Depending on the commitment of African countries, positive gains can be expected for GDP, exports, intra-African trade and its sectoral composition by 2040. A win-win scenario is possible as the gains will benefit as well. least developed countries on the continent than developing countries. The loss in tariff revenue is expected to be modest and offset by gains in general welfare.
In terms of Africa’s GDP growth, the annual gains would be between 0.35% of GDP (or $28 billion) and 0.54% ($44 billion) by 2040, depending on the ambition of reform. All countries should benefit from it. For all, exports are expected to increase between 1.5% and 2.2% by 2040. We will no doubt have to expect a slowdown in trade with the rest of the world, however.
Significant gains are expected in all major sectors (i.e. agriculture and food, industry, energy and mining) which could increase in value by 15% ($50 billion) at 25% ($70 billion). More than two-thirds of the gains will be captured by the manufacturing sector, followed by textiles, clothing, leather, wood, paper, vehicles and transport equipment, and electronics.
More than three-quarters of the gains from intra-African trade of least developed countries will come from industry, while for developing African countries, industry will account for just under two-thirds of their intra-African trade gains.
Indisputable human gains!
On the services side, the removal of non-tariff barriers should generate additional gains, poorly understood by economic models. Because services are accompanied by the purchase of goods and are therefore also catalysts for trade in goods. An expansion of key service sectors such as tourism, finance, communications, transport and professional services would be beneficial, especially as these sectors should be liberalized quickly. Some African countries may specialize in service sectors, as has been the case for several Gulf countries.
Along with the gains come the expectation of continued progress in education, skills development, health and other human development indicators. Provided that emphasis is placed on the modernization of infrastructure related to trade activities, factor mobility, the provision of trade finance, especially for small players, and the improvement of trade facilitation processes at the borders.
Zlecaf for young people!
These are all essential elements to succeed in this bet. The role of the private sector should not be overlooked either. MSMEs, many of which are led by women and young people, are essential for growth; they represent around 80% of businesses on the continent. Young people are 1.6 times more likely to become entrepreneurs.
Young people have a strong presence in service sectors such as heritage, culture, music, fashion, design and digital innovations. With targeted support, SMEs are well positioned to overcome low productivity, harness economies of scale and use the continental market as a springboard to expand into overseas markets. This, in particular through continental supply chains and global value chains.
Many are already involved in cross-border activities under the trade agreements of the RECs. Gender equality is explicitly mentioned as an objective of the AfCFTA in the preamble to the framework agreement. Its application could lead to higher wages and help reduce the gender pay gap, thanks to larger increases for unskilled workers and for women.
For women!
Production in labor-intensive industries such as textiles, clothing and leather is expected to increase. These sectors tend to employ more women. Women’s wages are expected to increase faster than men’s in almost all parts of the continent.
For example, job gains are particularly expected in agriculture and agro-processing where women represent about half of the workforce. Women are also employed in education, health and tertiary services, but underrepresented in high productivity sectors such as vehicles and transport equipment, electronics and other industrial goods and manufacturing.
Women can also benefit from the improved challenges they face as small cross-border traders. When engaging in such activity, small businesses (70% owned by women) are particularly vulnerable to harassment and violence. By reducing tariffs, the AfCFTA makes it more affordable to use formal channels, which offer more protection.
However, acknowledges the AU report, the expected benefits for women need to be qualified. The limited property rights of women farmers lead to low levels of investment, which affects the full potential for export-led growth.
Zlecaf will prevent the migration of young Africans to often hostile lands
Likewise, women and youth may be constrained by earnings in agriculture because of barriers to accessing finance, productive resources and other assets. Finally, foreign investments are focused primarily on activities offering high productivity and more established export operations, to capture economies of scale. This can help widen the gap with activities run by women.
Women must be actresses, producers, not a “source” of comparative advantage, because of their lower wages.
