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Home Opinion Welcome to History - Cheers to the Launch of #AFCTA

Welcome to History – Cheers to the Launch of #AFCTA

On January 1, 2021, the African Continental Free Trade Area officially took off. It is the culmination of interminable years of political momentum towards Africa-wide free trade.

Vidur Ramdin

The AfCFTA, will boost intra-African trade, it will promote industrialisation and competitiveness and contribute to job creation, and it will unleash regional value chains that will facilitate Africa’s meaningful integration into the global economy. The AfCFTA will also improve the prospects of Africa as an attractive investment destination. It will help advance the empowerment of Africa’s women, by improving women’s access to trade opportunities, which will in turn facilitate economic freedom for women, and expand the productive capacity of countries.

The AfCFTA promises a virtuous circle of greater market opportunities, triggering more trade and investment, and allowing greater value addition and productivity growth – leading to more and better jobs with social inclusion, and thus further enlarged markets. But for the full benefits of the AfCFTA to accrue to African countries and citizens, numerous additional policy enablers – measures, reforms and investment – are also key, not least in infrastructure, transport corridors and logistics, as well as to improve the business climate in African countries.

“To support this, we must strengthen women’s participation in the continental economy by ensuring there is greater public procurement earmarked for women-owned businesses. We must ensure that there is sufficient support given to women-owned SMEs and cooperatives in both local and regional economies.”

In addition to increased trade flows both in existing and new products, the AfCFTA has the potential to generate substantial economic benefits for African countries. These benefits, according to the International Monetary Fund, include, “higher income arising from increased efficiency and productivity from improved resource allocation, higher cross-border investment flows, and technology transfers. Besides lowering import tariffs, to ensure these benefits, African countries will need to reduce other trade barriers by making more efficient their customs procedures, reducing their wide infrastructure gaps, and improving their business climates. At the same time, policy measures should be taken to mitigate the differential impact of trade liberalisation on certain groups as resources are reallocated in the economy and activities migrate to locations with comparatively lower costs.”

 

The expectation is that services and goods should be flowing freely in and out of the participating countries, making the continent the biggest free trade area in the world. The free trade initiative could create an integrated market with a total GDP of over $3 trillion, according to US think tank, Brookings Institution. The AU says that the agreement will create the world’s largest free trade area. It also estimates that implementing AfCFTA will lead to around a 60% boost in intra-African trade by 2022.

The continent currently lags behind other regions of the world in terms of continental trade. According to the African Development Bank (AfDB), intra-Africa exports amount to only 16.6% of total trade. In 2018, the African Export-Import Bank reported that only 15% of international trade by African countries takes place within the African continent. This percentage compares unfavourably with other continents such as Europe (67%), Asia (58%) and North America (48%).

Intra-regional trade in sub-Saharan Africa is currently very concentrated, with some 66% of the regional demand for intra-regional exports accounted for by just 10 countries, including Côte d’Ivoire, the Democratic Republic of Congo, South Africa and some other Southern African countries. Tensions continue to exist between smaller and larger states across the continent when it comes to trade and market access. This is because the possible forward and backward linkages between their economies – the creation of trans-border value chains – have not yet been established.

“Once studies have been done, it will be possible to establish which countries can specialise in which elements of which supply chains. For example, the South African car industry uses leather, but South Africa is not a major leather producer; but other African countries could supply the leather. So, the key is to establish these linkages. Once the agreement is ratified, the opportunities will emerge.”

Mauritius exports to South Africa(major African partner) were US$195.98 Million during 2019, according to the United Nations COMTRADE database on international trade. Simply put, Mauritius is not doing much trade with other African countries and the AfCFTA represents a veritable opportunity to expand trade, grow the economy and engender development.

The service sector makes up 65% of the world’s output and over half of Mauritius’s economy, “for Mauritius to fully reap the benefits of a closer Africa, it needs to think beyond the ancient focus on goods and position itself to win in the services game. The service sector is an escalator for new economic growth in Mauritius and plays a more significant role than industry in the economy through its contribution to Gross Domestic Product (GDP), capital imports, and employment.

Supply side constraints such as the current government’s topsy-turvy macroeconomic and monetary policies as well as the geographic location, freight costs and institutional infrastructure (Mauritius in the FATF Grey List) remains a threat to Mauritius’s effective participation in and efficient derivation of critical trade and economic benefits from the AfCFTA. Thus, while market access is there, supply-side constraints limit the country’s ability to respond to the opportunities inherent in the AfCFTA and remain a barrier to Mauritius’s competitiveness.

Mauritius’s inability to take advantage of the US designed African Growth an Opportunities Act (AGOA) might be pointer to the country’s ability to take advantage of AfCFTA. The AGOA project initiated by the United States of America in the year 2000 was to help develop trade and facilitate exporting numerous goods into America with no tariff. The trade agreement primarily set out to galvanise the African economy. However, as per the AGOA Info website, the treaty has been under utilised by Mauritius. Though AGOA programme has been on for the past 20 years, Mauritius has never taken full advantage of the potentials specially; the SMEs are the ones never aware of the potential benefits.

It is going to be pertinent if Mauritius responds to the opportunities presented by AfCFTA by designing policies and promote market access for Mauritius’s exporters of goods and services, spur growth and boost job creation. In order to tap on the vast areas of potential opportunities awaiting the Manufacturing, Financial, Education as well as Marine Sectors, Mauritius has to express keen relevance to the AfCTA. However, one major question remains! Who will drive the AfCTA Strategy for Mauritius? Since 20 years post AGOA, Mauritius has miserably failed in Africa. May it be MAF, Smart Cities in Africa, African Airline Corridor and the latest one in 2019, SBM miserable failure in Kenya.

With the high-level political momentum around the AfCFTA, its ultimate success will depend on African states not only ratifying, but fully implementing and complying with the AfCFTA, while also investing in the necessary enablers. We need to have a strong Mr. Africa who has lived in the continent, understand the markets, knows the cultural, language & political barriers and can put up a realistic and realisable African Strategy in place. He needs to spur the industrialisation of the country by providing an expanded platform for local manufacturers and service providers for connection to regional and continental value chains, improve competitiveness, and stimulate increase in exports of goods and services across the continent. With the help of the government, he must also provide a platform for Small and Medium Enterprises (SMEs) integration into the regional economy and accelerate women’s empowerment.

Vidur Ramdin

Young African Leader

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