AfCFTA: Sealing the cracks in the broken jar

Kigali – ‘Africa cannot just remain a story, about the huge potential that never materializes. Something has to give’ Paul Kagame, President of Rwanda and AU Chairperson (2018).

On March 21, 2018, an Extraordinary Summit of the African Union (AU), was held in Kigali-Rwanda, for the signing of the agreement establishing the African Continental Free Trade Area (AfCFTA).

For this to be the African century, our leaders ought to make bold, game-changing moves. The AfCFTA, which has just entered into force, is set to expand the market to 1.2 billion people.

It is common knowledge that Africa is a reservoir of natural resources, yet what sets the continent apart is its demographic dividend. Africa is a youthful continent.

450 million Africans are aged between 15 and 35 and that number will double by 2050 (AfDB, 2018).

The youth, however, need access to factors of production and employment. Skills, access to finance, markets and a conducive tax environment. As a continent, Africa faces three major bottlenecks to its economic upsurge: Poor integration, deprived infrastructure, and unskilled labor.

All three can be addressed by concerted political will.

The intra-African trade is not optimal. While in regions such as East Africa trade averages 26 percent, at par with Southeast Asian countries. In regions such as North and West Africa, trade among countries remains below the 5 percent mark.

Also, 10 to 12 million African youth enter the job market every year to compete for 3 million jobs created in the same period. Closer to home, there are at least 1.5 million young people who are unemployed in Rwanda and 2500 thousand more enter the job market every year.

The AfCFTA has the potential of addressing all three bottlenecks starting with full, continental economic integration. The second bottleneck on deprived infrastructure will be mitigated by strategic investment in roads, railways and power lines. The third bottleneck - the skills gap, will be responded to by prioritizing investment in human capital, which, in fact, is good business

How will all this be funded? Economic diversification and policy reform in many African countries have played a great role in preventing the fleet of capital, which represents around 45 percent of the continent’s GDP (see Ndikumana, Boyce and Saloum Ndiaye, 2014), and attracting Foreign Direct Investment (FDI). African nations need to gradually phase out conditional aid with its heavy transactional costs and tap into concessional loans available on the market and thus have their hands free to invest in ventures that are beneficial in the long term. However, the bulk of the investment needs to come from the local private sector especially through Private-Public-Partnerships (PPP).

Africa does not have the luxury of divorcing the role of government with that of the private sector. The 2018 ‘Ease of Doing Business Index’ indicates that four African economies, namely Zambia, Rwanda, Malawi and Nigeria rank in the top 10 globally on access to credit, reporting a record 83 reforms operated only in the last year.

Funds are available, but they are risk-averse. Africa does not have rating companies or audit firms of global repute – the so-called ‘Big Three’ and ‘Big Four’ respectively. As a result, the risk in African projects is arbitrarily overestimated. Equally, there are no strong African finance advisory institutions to convince the markets that they can de-risk African projects and bring them to a bankable scale. In a dramatic speech at the world economic forum this year, the head of the world bank advised African countries to limit spending on big western consultancy firms (BCG, Bain, McKinsey…etc.) for their expertise was not cost-effective for countries grappling with financial deficits.

Also, the AfCFTA will give Africans a common front, in facing overseas economic blocks, which have typically negotiated preferential tariffs with fragmented African markets, at times practicing what is known as ‘regulation arbitrage’, pitting one country against the other. Overseas companies are often interested in the extractive industry and export of raw material; sectors which provide limited employment opportunities, have dire consequences on African people’s livelihood, stability, and the environment. African companies, on the other hand, are interested in sectors such as agriculture, food, garment, technology, and services: labor-intensive, clean and peaceful commodities, whose production is known to create more jobs in-country, foster cohesion and sisterhood among citizens across borders.

AfCFTA will first benefit African companies, smallholder farmers, small and medium enterprises and encourages foreign direct investment in manufacture and in technology.

For countries relying on customs’ tax, who see potential loss in implementing the AfCFTA, the economics can be conceived differently: instead of taxing African goods upon entry in a one-off tax collection, the same goods will be taxed in the country, after employing the trader, the transporter, the value-adder, and the buyer (through VAT). AfCFTA should thus encourage effective tax collection. Modern technologies can be leveraged for business registration, monitoring, and optimum tax collection. Prioritizing online, paperless tax payment platforms would reduce red tape and increase citizens’ confidence in the system.

As a legacy of colonialism, many African countries are landlocked. By opening borders, African nations will offer a single market of 1.2 billion people, potentially making it the third most attractive market on the globe and 2.5 Trillion USD – the top eighth GDP globally. The economic transformation powered by the AfCFTA will foster industrialization, stimulate competitiveness, expand productivity and create abundant employment to our youth, bringing an end to the perilous migration flux, which exposes them to death, human trafficking and modern-day slavery.

The young people on the African continent yearn for closer integration, first because they see themselves as members of the same Pan-African creed, divided only by lines drawn in centuries past by non-Africans. But secondly, they wish to come together to leverage the abundant natural and human resources at their disposal to build growth and wealth.

African entrepreneurs see value in a continental free-trade area because it expands their market size, whilst youth see value in Visa Free Africa because it expands their range of employability. African manufacturers see value in integration because it removes non-tariff barriers and reduces the cost of transport for raw material as well as manufactured products.

Sadly, Africa’s continental demarcation in its current form is designed to thwart any rapid and significant economic growth. The markets are separated from products; factors of production; namely manpower, raw material, and energy are separated from industries; while consumer and finished goods are separated from markets; it is a conundrum.

African integration is thus an attractive business opportunity, calculated to foster south-south trade, creating jobs and wealth, and ultimately balance the trade deficit favoring other continents at Africa’s expense. Free Trade Area is immune to the zero-sum game: it is inevitable where some might see challenges, diligent investors see pockets of endless opportunity. It is no secret that Africa’s market is capable of rewarding any investment, tenfold. It has always been up to leaders to do the right thing, namely, not stand in the way of business, ‘kufanya biashara’ as East-Africans would put it.

Karl Marx once said: ‘The philosophers have only interpreted the world, in various ways. The point, however, is to change it.’ The time for epic Pan-African rhetoric went with late Kwame Nkrumah; although there remains at the University of Nairobi a charismatic Pan-African preacher by the names of Prof. PLO Lumumba: utmost respect, it is Niger’s President ISSOUFOU, the AfCFTA Champion, who best captures the AfCFTA’s zeitgeist in a quote from King Ghezo of the great Dahomey Empire (1818- 1858): ‘if all the children of the land, with their hands unified, were to seal the cracks in the broken jar, the country shall be saved.’

The views expressed in this article are of the author.

ADVERTISEMENT