Business Development

Making open trade a reality in Africa

Arancha

By Albert M. Muchanga and Arancha Gonzalèz

On 1 July 1960, Ghana became a republic and Kwame Nkrumah was sworn into office as Ghana’s first president. Exactly 60 years later, on 1 July 2020, a longed-for objective of Nkrumah’s Pan-Africanist dream will become a reality when the first goods and services are set to be traded under the terms of the new African Continental Free Trade Area.

It is also fitting that Accra, the capital of Ghana, will host the institution that will oversee the new trade bloc, with African Union support from its base in Addis Ababa, Ethiopia, on the other side of the continent.

Covering a market of 1.27 billion people over 70% of whom are young people, a combined GDP of over $6 trillion (PPP terms), over $4 trillion business and consumer spending power, all but one of the 55 countries of the African Union Member States have signed on – a triumph of diplomacy, high political will and a significant rebuke to the deterioration of trade relations in the rest of the world. Where others are raising tariffs, Africans want to remove them. This is a huge opportunity not for only a large market but also a huge opportunity for industrialization given the abundance of natural resources.

Why? Firstly, the level of intra-African trade is poor compared with other global regions – 16% in 2018, against 68%, 60% and 55% for Europe, Asia and the Americas respectively. Looked at another way, more than 80% of Africa’s exports leave the continent – mostly in the form of raw materials and commodities for others to realize value by making finished goods, some of which are re-exported into Africa at great cost. This model impoverishes most sectors in Africa while the AfCFTA aims to promote a raft of trade-easing measures to keep that value inside Africa.

How? By lifting tariffs on goods. As Asia and Europe have shown, low or no tariffs between neighbouring nations stimulate trade in manufactured goods that accumulate value through processing along regional and international value chains. And with high impacton local communities such as higher incomes and better creation of wealth and decent jobs, especially for women and the growing youth population.

Yet, in many ways, tariffs are the blunt instruments of a bygone era: eliminating them alone will not bring about the switch to the more productive economy that Africa needs. Other factors that control and influence the quantity, quality and price of tradable things – such as quotas, duties and regulatory standards – are also in line for removal or reform. Trade growth linked to tackling these “non-tariff measures” has been put at over 20%, much more than the13% analysts from the International Trade Centre expect to see with the removal tariffs alone. And the opening up of services trade will help build the competitiveness of the African economies.

But Africa can only hope to trade with itself when vital improvements are made on hard and soft infrastructure – roads, railways, ports and border crossings as well as energy. With improvements in physical infrastructure, quality infrastructure, trade facilitation and energy, Africa will is the next frontier for investment as both transaction and production costs will be reduced tremendously. The framers of the new trade bloc have made sure it is compatible with the World Trade Organisation agreement on Trade Facilitation designed to streamline the infrastructure of trade. To be effective both deals should be enacted in lockstep.

Likewise, some African leaders have committed to an open skies agreement to create a unified air transport market. Figures suggest that if 12 strategic African countries increased connectivity in the air passenger market, they would create an extra 155,000 jobs and $1.3 billion in annual GDP. Cargo is clearly just as important. Africa’s largest freight carrier and passenger airline, Ethiopian Airlines, is building strategic alliances with airlines across the continent. For example, a new alliance in GHANA will  improve links in West Africa, as well as facilitating better connections between all-African institutions in Accra and Addis Ababa.

The Chairperson of the African Union Commission, Moussa Faki Mahamat, thanked the “founding fathers” of the new era of open trade, including Nkrumah, when the agreement was finalized at a summit in Niger earlier this year.

The Ghanaian president had spoken of “the development of our potential wealth and the cultivation of our social relations in such a way as to eradicate the causes of poverty and squalor, degradation and unemployment, depression and want”.

Africa’s aims have not changed. The key now is to ensure that the dreams of the founding fathers translate into action and that the trade and economic integration of the continent advances. The coming epoch of more open trade across the continent will help achieve them and at this year’s annual Africa Industrialization Week (AIW-2019) event, Africa will showcase what it has to offer and how to network for trade and investment opportunities.

Albert M. Muchanga is the commissioner for Trade and Industry of the African Union Commission and Arancha Gonzalèz is the Executive Director of the International Trade Centre.

The African Union’s Africa Industrialisation Week and the International Trade Centre’s World Export Development Forum, supported by the Government of Ethiopia, takes place in Addis Ababa on 18–22 November. 

About the author

Byron Adonis Mutingwende