More Intra-African Trade will hasten Post-COVID-19 Economic Recovery

COVID-19 has caused unprecedented challenges in every region of the world. Africa has been particularly hard hit due to the continent’s frail health sector and lack of decent infrastructure. While these underlying characteristics have presented a unique set of challenges, Africa has experienced a relatively low mortality rate compared to the rest of the world, accounting for just 3 percent of global deaths.

Governments responded to COVID-19 by imposing full and partial lockdowns to combat the spread of the virus. The lockdowns had devastating effects on the economy and pushed tens of millions of Africans back into extreme poverty. According to the African Development Bank Group (AfDB), Africa experienced a 2.5 percent contraction in GDP in 2020, signaling its worst economic contraction in half a century. Micro, small and medium enterprises (MSMEs), which make up 95 percent of Africa’s businesses and typically get by on razor-thin profit margins, were most affected by the lockdowns.

As countries relax lockdown restrictions, governments are attempting to regain lost economic growth, which has compounded government and private debt and reduced the quality of life of many people. African leaders must take initiative and commit to a post-pandemic approach built on resilient and sustained economic recovery⁠—with intra-African free trade at the center of the agenda. Deviating from this path will cause economic growth to stagnate and reverse the growth Africa experienced in the last decade. 

Even more importantly though, the new African Continental Free Trade Area (AfCFTA) is expected to increase intra-African trade by 81 percent and, in doing so, lift 30 million Africans out of extreme poverty with a further 68 million from moderate poverty by 2035. The adoption of the AfCFTA alone is not enough to ensure such positive results. Other measures must be simultaneously put in place to benefit the African people.

Reduction of Tariffs

The ultimate aim of the AfCFTA agreement is a 97 percent reduction of tariffs on goods and services. The reduction in trade barriers will cause intra-African trade export value to increase between 15 percent ($50 billion) and 25 percent  ($70 billion) by 2040. Such an increase will be extraordinarily helpful in increasing the prosperity of the African people.

While smaller economies depend on customs and import duties as a key source of revenue, adequate compensation plans must be ensured to make up for the lost revenue in order to facilitate robust intra-African free trade. It will help create new economic opportunities within the framework of the agreement. 

Free Movement of People

The availability of labor is a crucial factor in the success of the free trade agreement. Governments must commit to the implementation of the Protocol on Free Movement of Persons, which is a key part of Agenda 2063 and is vital to the success of the AfCFTA. Doing so would create a visa-free zone for nationals of member states, allowing both skilled and unskilled workers to find higher-paying and more competitive employment. 

As COVID-19 restrictions are reduced, industries are looking to increase output and replace workers who were laid off during the peak of the pandemic. A visa-free zone for AfCFTA members will create unique opportunities for labor to be adequately supplied where needed, boosting overall productivity. 

However, caution must not be thrown to the wind. As the number of COVID-19 cases reduces, adequate testing and vaccination roll-out must be maintained continent-wide. 

Industrialization

Industrialization is a prerequisite for economic development and poverty eradication. Africa’s industrialization pace has been gradual, which accounts for its lack of development compared to Europe and Asia, where manufacturing has been a key driver of their impressive economic growth. 

The core objective of the AfCFTA is to “enhance competitiveness at the industry and enterprise level through exploiting opportunities for scale production, continental market access and better reallocation of resources.” As trade barriers are reduced and the economy grows, demand for goods and services will be on the rise, creating a large market for producers and manufacturers. 

The AfCFTA agreement complemented by other continental initiatives like Protocol of Free Movement of Persons, Right to Residence and Right to Establishment, Single African Air Transport Market (SAATM) provides an incredible framework that supports industrialization in the long run. These initiatives alongside the AfCFTA offer investors, business owners, and individuals, opportunities to invest and trade in areas captured in the agreement, making the AfCFTA more elaborate than a traditional free trade area. 

With the implementation of the free trade agreement comes a centralized market and large supply market, which will greatly depend on specialized manufacturing efficiency. As Africa navigates toward post-pandemic recovery, the manufacturing sector, which is predicted to hit $666.4 billion by 2030 is key to unlocking vast potentials across the continent.  

Africa can harness the opportunities of the 4th industrial revolution by overhauling her educational system to meet the demands of the future of work. The educational system must begin to prioritize the integration of digital skills from elementary school to tertiary institution. These developments would improve the industrial sector and increase the general value production of the continent.

With at least 60 percent of the African population below the age of 24, and a rising unemployment index, young people would benefit from this agreement through gainful employment in the emerging job market. Getting young people involved at the core of this industrial revolution will create unlimited opportunities in terms of digital trade, e-commerce, and technological inventions.

Government and policymakers on the other hand must adopt policies that provide credit and tax incentives to manufacturing companies and startups, as well as support funds targeted at research and innovation.

While the economic recovery of developed nations is predicated on economic diversification, Africa must commit to nurturing its growth in the industrialization sector through stability. An aggressive and swift implementation of the AfCFTA, which will boost intra-African trade, and reduce reliance on the global value chain while setting a new direction for the regional value chain, is the best economic recovery tool for the continent. 

The COVID-19 pandemic and other challenges have stalled the implementation of the AfCFTA, governments must now work on creating the necessary structures to facilitate more intra-African trade for the benefit of all. 

Oluwatobi Ojo’s interest is in corporate communications and public policy. He writes from Nigeria.

Photo by AMISOM via Iwaria.