AfCFTA crucial for Africa’s economic recovery and growth

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Food security concerns and runaway inflation have compounded economic woes and threatened to slow down Africa’s economic recovery and growth.

  • Africa seeks an entirely new economic growth path, capitalizing on the potential of its people and resources.
  • The AfCFTA is the world’s most extensive free trade area in terms of size and number of nations, with a combined GDP of around $3.4 trillion.
  • The private sector is essential to making regional economic integration work for Africa.

Africa’s economic outlook

Africa is a diverse continent with natural and human resources capable of creating inclusive growth and eradicating poverty. The continent now has the world’s most extensive free trade area, with a market of 1.2 billion people. Africa seeks an entirely new economic growth path, capitalizing on the potential of its people and resources.

Economic growth in Sub-Saharan Africa (SSA) was estimated at 4 per cent in 2021. However, growth in the area is likely to slow down in 2022. Growth has been affected by a global climate characterized by new shocks, volatile markets, and uncertainty. The economy is expected to grow by 2.7 per cent in 2022, down from 4 per cent in 2021, as it struggles to gain traction amid a downturn in global economic activity, supply disruptions, high inflation, and growing financial risks as a result of increasing vulnerable debt levels.

Soaring food and energy costs are straining many nations’ fiscal balances and raising concerns about food insecurity. Alarmingly, 39 million additional people plunged into severe poverty in 2020 and 2021, reversing a long-term downward trend for poverty reduction.

When the African Continental Free Trade Area (AfCFTA) was first presented at the African Union(AU) summit in 2012, it had two goals: first, to establish a pan-African trade and cooperation agenda. Second, through introducing major economic improvements and cooperative legislation, a vast majority of people would be lifted out of poverty. The bloc formation was a watershed moment in African trade and economic growth. Lessons learned in the last two years on supply chain complexities have proven that Africa needs free but secure trade.

READ MORE: Enhancing intra-African trade will heighten economic recovery and promote food security

Key benefits of AfCFTA

AfCFTA’s successful implementation can boost trade and promote Africa’s economic recovery and growth. The AfCFTA is the world’s most extensive free trade area in terms of size and number of nations, with a combined GDP of around $3.4 trillion.

Increased integration would improve incomes, generate employment, stimulate investment, and make establishing regional supply chains easier. In comparison to Africa’s external trade, intra-African trade remains tiny. In 2020, just 18 per cent of exports went to other African nations.

Furthermore, the World Bank believes that if effectively implemented, the AfCFTA would raise 30 and 68 million Africans out of severe and moderate poverty by 2035. By 2035, the AfCFTA could grow intra-African trade by 81 per cent and raise wages by 10 per cent.

Importantly, intra-African commerce has a lower proportion of commodities and a more significant proportion of manufactured products than African trade with the rest of the world. Primary goods make for more than 70 per cent of inter-African exports. However, manufactured items account for roughly 45 per cent of intra-African exports, with primary commodities accounting for the remaining third.

As a result, intra-Africa trade is less vulnerable to global commodity price volatility and is better positioned to promote structural reform. Consequently,  African policymakers have more leeway in crafting an economic recovery plan that turns away from commodity reliance but towards regional integration.

Although the AfCFTA has been in effect since January 2021. Signatories agreed to origin rules for 87.7 per cent of tariff lines earlier this year (the aim was to liberalize 90 per cent of tariff lines). This tariff agreement allowed trade to commence after the governments had implemented local changes to their respective rates.

However, Africa might not enjoy the full advantages of the AfCFTA until non-tariff trade obstacles are removed. According to the IMF, reducing non-tariff constraints might be up to four times more valuable than tariff reductions in increasing trade.

Trade under the African Continental Free Trade Area (AfCFTA) kicked off on January 1, 2021. [Photo/AU]
READ MORE: The EAC should integrate to benefit from AfCFTA

Addressing food security through AfCFTA

Food security concerns and runaway inflation have compounded economic woes and threatened to slow down Africa’s economic recovery and growth. As nations look to reboot their economies, many governments have adopted food and energy subsidies to shield vulnerable populations against rising costs. However, such interventions have proven unsustainable as they present significant fiscal challenges to African economies.

Thus, boosting intra-African trade could pave the way for food security. Africa has enough food to shield its citizens from hunger. However, the nations must cooperate to ensure trade contributes significantly to food security.

To ensure food availability and handle price volatility, Africa must link agricultural markets, offer production incentives to surplus regions, and boost cross-border trade. African nations must embrace the opportunity to promote intra-regional business and firm up interventions for the seamless exchange of agricultural goods and services for food security. The AfCFTA will help Africa achieve these goals.

The crucial role of Africa’s private sector

The private sector is essential to making regional economic integration work for Africa. While governments sign trade agreements, the private sector recognizes businesses’ challenges and can capitalize on the opportunities presented by such agreements and regional trade strategies.

A lack of trade finance prevents Africa from achieving its full economic potential. Africa’s trade finance gap stood at more than $80 billion before the pandemic, which is definitely larger today. This gap complicates the cross-border movement of goods and businesses’ ability to innovate, create jobs, and drive economic growth.

Private finance institutions have an essential role in raising trade financing in Africa. However, a deeper public-private partnership must support these commitments to keep funds flowing to meet the ever-growing financing demand.

The gap in African logistics has proved that digital access can no longer be a luxury for the privileged few. Creating secure and reliable digital infrastructure is an urgent priority for the continent. And harnessing the power of the private sector is the fastest and most effective way to achieve it.

Regional integration under AfCFTA

To achieve the goals of African regional integration, African governments must provide greater room for the private sector to participate actively in the integration process rather than relegating the industry to a passive position. African nations must improve the private sector’s ability to boost trade under the AfCFTA. The interventions could include reforming the business environment by protecting property rights and relaxing labour restrictions.

Countries must take the chance to assist in Africa’s economic recovery and growth. They must embrace trade through the AfCFTA when the multilateral trade system is under tremendous pressure. Policymakers must consider how the region can effectively handle the negative impacts of both the pandemic and the Russia-Ukraine crisis. Thus, they must advance public-private partnerships to promote full AfCFTA implementation for Africa’s economic recovery and growth.

Africa has a once-in-a-generation moment of possibility. The continent has the chance to create a better, greener, and more inclusive future for its citizens. That vision is within reach. Still, nations will only be able to seize it by prioritizing long-term investments over short-term fixes. Building trade infrastructure, lifting small businesses, nurturing trade—these investments pay off for generations. They are the moves that will make the foundation for Africa’s future.

READ MORE: Africa’s road infrastructure is crucial for enhancing economic growth

I am a writer based in Kenya with vast knowledge in Business, Economics, Blockchain, Law and Environmental Conservation.

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