Free Trade in Africa: All for one, and one for all
The intention is great, but it’s completely in its infancy. Success depends on the implementation of its measures.
Amadou Diallo, CEO DHL Global Forwarding Middle East & Africa
Stitching a continent together
In the longer term, AfCFTA can provide a much-needed path to better continental integration by replacing the current patchwork of regional agreements that result in some very lopsided arrangements.
“The key to this sits in the execution and will be dependent on how quickly these reforms are executed at ground level, i.e., at the borders,” explains Heymans. “It will hinge on how quickly custom regulations will be adapted and their officials trained, how quickly and effectively borders will be automated and corruption eradicated, and how quickly and effectively the different trade blocs will adopt this new trade agreement.”
“Currently it’s easier to travel to Kenya from Paris or from China than it is from Senegal,” says Diallo, who comes from Senegal. “Visa applications are very difficult across Africa; many countries don’t have representation in others. Hence, it’s easier for Germans or Brits to travel to East Africa.”
The key to this sits in the execution and will be dependent on how quickly these reforms are executed at ground level, i.e., at the borders.
Hennie Heymans, CEO, DHL Express Sub-Saharan Africa
Playing the long game
Yet the challenges are vast. Even AfCFTA’s Secretary General Wamkele Mene cautions that “it’s going to take us a very long time.” He notes that some countries that have ratified the agreement lack the customs procedures and infrastructure to facilitate tariff-free trade. Other critics more bluntly say that there are African countries decades away from being able to comply.
“Everyone struggles to put vision into practice, that’s the case all over the world,” Diallo says. “There are too many negative and distracting conversations. People talk about small African countries being particularly challenged. Mauritius is a small country, but it aspires to be the next Singapore. In Europe you have Switzerland, which is influential. What’s more important is the people living in a country and what they do.”
Nevertheless, intra-African trade remains monopolized “by a handful of countries selling a handful of products,” Foreign Policy reports. While this situation is improving, simply increasing intra-African trade would not resolve the root issue. Diversification of trade while enhancing the value chain is needed for Africa to benefit fully from the free trade agreement. This requires the amendment of current trade agreements that favor raw materials such as agriculture and mineral products being exported – approximately 70% of value addition occurs outside the continent – to the detriment of processed product exports. Scaling the value chain, however, depends on more capacity for processing and packaging. But the power needed to conduct those operations is often inadequate, expensive and unreliable.
Such hurdles could be mitigated by neighbor countries providing what another country lacks until it develops the necessary resources, Diallo notes. Foreign investment and assistance remain key, too. A 2020 report from the management firm Palladium notes that the “mobilization of global private capital” can “drive mutually beneficial economic growth that addresses key priorities including job creation, infrastructure development and improved social services.”
Trade experts say an African single market can offer investors economies of scale, potentially enabling them to manufacture goods in one country and export them tariff-free to the whole continent. Jeffrey Peprah, CEO, Volkswagen Ghana, has said he hopes eventually to export cars assembled in Accra to other West African countries. The World Trade report notes that the AfCFTA’s payoffs could add $76 billion to global income.
It’s been noted how the U.S. under the new Biden administration already has a suite of tools and institutions that can help drive investment toward the AfCFTA. At the policy level, this includes the likes of Power Africa, a U.S. Agency for International Development initiative, which could help address the energy supply challenge by creating more than 30,000 megawatts of cleaner, more efficient electricity generation capacity and 60 million new home and business connections through private-public partnerships.
DHL is also actively committed and involved across key markets in Africa – for example, with the deployment of its GoTrade initiative, which seeks to help developing countries and their SMEs to access the global market, in cooperation with the German governmental agency Gesellschaft für Internationale Zusammenarbeit (GIZ). “Two key projects include our Pan-African e-Commerce Initiative (PeCI) in Kenya, Rwanda, Ghana and Tanzania; and the pre-arrival and pre-department processing program in Kenya, Ghana, Rwanda, Cote d’Ivoire and Tanzania,” says Heymans.
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Making it happen during a pandemic
The goals of the AfCFTA have an added urgency given the economic ramifications of COVID-19. Due to the pandemic, AfCFTA is also unrolling in a world that is markedly different from the one in which it was created. The pandemic caused major disruptions in trade across Africa during 2020, resulting in an estimated $79 billion in output losses. The continent faces “an unprecedented health and economic crisis that threatens to throw the region off its stride, reversing the development progress of recent years and slow the region’s growth prospects in the years to come,” states the International Monetary Fund in its report on sub-Saharan Africa, “COVID-19: An Unprecedented Threat to Development.”
But Diallo points out that, given Africa’s size, the continent’s percentage of the global number of infections (about 3.5%) and deaths (roughly 4%) from COVID-19 is surprisingly small. And while the pandemic’s impact on western countries is forcing them to focus on domestic markets, potentially reducing Africa-bound trade and investment, this is compelling African countries to reduce their dependence on foreign exports.
