The African Continental Free Trade Area (AfCFTA) will spur Africa’s industrialization and deepen regional integration provided the continent institutes supportive policy reforms and foster trade, experts predict.
The AfCFTA which entered into force in May 2019, is the world’s largest free trade area and a single market for goods and services of almost 1.3 billion people across 55 countries in Africa. The trade area aims to reduce tariffs among members and covers policy areas such as trade facilitation and services, sanitary standards and technical barriers to trade.
Speaking at a panel discussion on Industrializing Africa: Renewed commitment to inclusive and sustainable growth, trade and economic experts noted that Africa can leverage the AfCFTA to drive its industrialization and economic transformation by implementing the right trade measures.
The discussion, hosted by the International Growth Centre and the Firoz Lalji Institute for Africa at the London School of Economics and Political Science, was part of events to mark the Africa Industrialization Week 2022. It explored key questions regarding the industrialization strategies that different African countries have adopted and on how the AfCFTA will influence industrialization strategies that contribute to poverty reduction and environmentally sound industrial development in Africa.
Contributing to the discussion, Mr. Stephen Karingi, Director, Regional Integration & Trade Division at the United Nations Economic Commission for Africa (ECA) said the African Union Summit on Industrialization and Economic Diversification, hosted by the Republic of the Niger from 20-25 November 2022, discussed industrialization on the continent extensively. Key discussion themes included the question of regional value chains and special economic zones, standards and quality policy, decarbonization and industrialization.
“There is consensus that one of the key reasons we have the AfCFTA was basically to foster industrialization and transformation of the continent. The questions is how do we do that,” Mr. Karingi told the panel discussion moderated by Mr. David Luke, Professor in Practice and Strategic Director at the Firoz Lalji Institute for Africa.
Describing the questions of creating regional value chains are critical, Mr. Karingi said while African countries had committed to tariff reduction and removing non-tariff barriers to boost inter-African trade, AfCFTA sought to exploit the comparative advantages in the different African economies.
“There is a question of how do you have regional value chains that allow you to get intermediate inputs from other African countries considering that today a lot of the raw materials that are being used in most of the global value chains are normally coming from the continent,” said Mr. Karingi, remarking that special economic zones were a perfect tool to promote regional value chains.
“The African consumer is as demanding as any other consumer outside Africa and so it is important for African consumers to be able to demand and buy what is produced under the industrialization agenda of the continent,” Mr. Karingi said, noting that with some African manufacturers being uncompetitive, the AfCFTA was an opportunity to trade in services.
According to the World Bank, the AfCFTA is a major opportunity for countries to boost growth, reduce poverty, and broaden economic inclusion by lifting an estimated 30 million Africans out of extreme poverty and boost the incomes of nearly 68 million others. Furthermore, implementing the trade area would boost Africa’s income by $450 billion by 2035 and increase Africa’s exports by $560 billion, mostly in manufacturing and agro processing.
Mr. Olawale Ogunkola, Professor of Economics, Department of Economics at the University of Ibadan, Nigeria, said by all indicators industrialization was still low in Africa as some policies and strategies that would foster value addition were not effective as were established special economic zones.
“We moved to export strategies but we are yet to take off in terms of increasing manufacturing value addition not only for our benefit but to address some of the basic things we think will help us in terms of development,” said Mr. Ogunkola.
“For some countries economic zones are like military zones, keep off. They are so disconnected from the domestic economy,” charged Mr. Ogunkola, calling for special economic zones to be connected to the economy of host countries in terms of sourcing of inputs and skills training. He added that an integrated kind of approach and policy coherence were key in making special economic zones relevant.
While, Ms. Fatima Haram Acyl, Vice-President, Central African Economic and Monetary Community (CEMAC) said the ACFTA is an enabler of employment opportunities but it must be inclusive of women who make up half of the population on the continent and constitute 58 of self employed people yet they suffer from gender wage gap.
“If we are serious about our development we cannot operate at half of our capacity. We need to include women all over and we need to empower them … policy makers need to be deliberate and intentional with regard to complementary policies in higher education with emphasis on STEM,” said Ms. Acyl.
Commenting on the financing gap for infrastructure development in Africa, the panelists felt that integration was key to infrastructure financing. Multilateral finance institutions should be part of the free trade area and countries need to enhance their capacity to come up with bankable projects that will attract funding.
The African Development Bank estimates that Africa needs $170 billion a year for infrastructural financing with an estimated gap of about $100 billion.
Mr. Karingi noted that involving the private sector was one way of fixing the infrastructure financing gap as well as tapping innovative finance through instruments such as carbon credits.
Published on: ECA