AfCFTA – A launchpad for accelerated economic growth

By Justin Mahlahla

AFRICA cannot wait to begin meaningful trade among its member states. The African Continental Free Trade Area (AfCFTA) was finally signed on the 5th of December 2020 by 54 out of 55 African Union member states, heralding the start of a new era of improved trade governance as intra-continental trade is boosted and African trade arrangements across regional economic communities are harmonised.

The establishment of the AfCFTA is a milestone in the history of Africa and the African Union, as it comes hard on the heels of the outbreak of the global coronavirus, which has restricted trade and economic activities to regions, continents and countries. For Africa, the continental trade agreement is a panacea to a fragmented African voice in terms of airing out the concerns of the continent on the world market. Finally, Africa has a single voice that should reverberate throughout the European and Western hegemonic corridors of power. The African Report argues that of all the legacies of colonialism, one of those which have mostly hampered economic growth and the alleviation of poverty is – neighbours with different currencies, regulations enabling trade with Europe but not with other Africans, and a neglect of intra-African transport and infrastructure links to facilitate this trade.

While global economies are shrinking and dwindling due to the coronavirus pandemic, Africa must seize the moment to come together and begin to promote the African brand, African products, African services and African ideals. This is the moment for Africa to emerge as the next best alternative for global investment, the best global destination for tourism and commerce. The continental free trade area presents a rare opportunity for Africa to lift 30 million people out of extreme poverty, as it connects 1.3 billion people across 55 countries with a combined gross domestic product (GDP) valued at US$3.4 trillion, according to the World Bank. An African economy is now being created, which should make an impact at home and across the globe.

Economist Professor Gift Mugano says the AfCFTA provides a large market for Zimbabwean products.

“It presents a market opportunity of 1.2 billion people, similar to the population of China. And that is what is driving China’s business because they have a large market in its own country. So we leverage on the continental population to promote exports. Buttressed with that, we have a GDP combined of around US$3.5 trillion on the whole continent, again, which is higher than our close to 20 billion dollars economic size,” he says.

Zimbabwe must shift its focus to satisfying the African market and re-align its trade policies towards that goal.

“So from a Zimbabwean perspective what we need to do is to recalibrate our marketing of the country as we are engaging investors. We need to then begin to understand that our market is not 15 million people; our market is not constituted by a 20 billion dollar economy, rather our market now as a country is a 1.2 billion people economy, because we are in a single market with 3.4 trillion US dollars.”

Professor Mugano contends that Zimbabwe’s investment strategy should also change to meet the demands of the continental market.

He says, “So the narrative in our investment promotion should change. We should be outward looking. We need to borrow the strategy of Mexico. When they signed their trade agreement with America under the North America Free Trade Agreement, which was made up of America, Canada, and Mexico, they did not contextualise their economic profiling in the context of Mexico alone. They had to look at the economic potential around the three partners and in that regard they went to Germany and persuaded the Germans to come and invest into a plant, motor vehicle investments in Mexico and presented them with an opportunity to export to two big markets, that is Canada and America, and on that basis they were able to attract investment.”

Professor Mugano is of the opinion that Zimbabwe can take advantage of her central position in the Southern African Development Community (SADC) in particular, being in a better position in terms of a gateway to trade and trade facilitation.

He says Zimbabwe must lure investors and guarantee that her products and services can reach most parts of Africa, “since we are kind of in a central position and also closer to the sea with Durban and Mozambique. So that is an opportunity which we must exploit.”

Nevertheless, Professor Mugano asserts that Zimbabwe must overcome a lot of challenges in order to fully benefit from the AfCFTA.

“The starting point is that we have challenges regarding production capacity. Do we have the capacity to export to these countries? We have challenges of competitiveness in terms of the micro-economic side, issues of energy availability and cost of water, information communication technologies, those things must be dealt with, including our road network. We need to revamp those through Private Public Partnerships and also funding from government, of which I think in the 2021 National Budget there was a substantial amount of money going towards infrastructure, taking about 31 per cent of the total budget. That is good,” he says.

According to Professor Mugano, Zimbabwe needs a robust investment promotion drive that begins at home.

He says, “We need to attract investments. But charity begins at home, we need to start by getting Zimbabweans getting confidence in the economy by investing in their own economy before we think of foreigners, so this requires us to continue to deal with the issues of the macro-economic environment – ease of doing business, the exchange rate issues which are being managed through the auction system.”

Indeed, Zimbabwe like every other African country and member of the AfCFTA, must now find ways of penetrating the African market and create a vibrant local and regional economy. If Zimbabwe can export to Europe, she must also find ways of exporting to other markets on the region.

According to economic analyst Shepherd Kembo, the AfCFTA removes and or deals with the neo colonial economic boundaries that had been affecting member states. It makes member states benefit from other member states’ industrialisation and provides an opportune source of job growth.

“The trade agreement is transformative for African states. It provides export and import markets for member states and offers opportunities for value chain growth and value addition since Africa traditionally has been known for exporting most, if not all of its raw materials and importing only finished products. The AfCFTA therefore creates more employment through value addition and rumped-up production,” Kembo says.

Kembo adds that the trade pact makes Africa and member states look at and consider and take advantage of beneficiation. This augers well with Zimbabwe’s thrust in recent years to beneficiate its resources such as minerals in order to export finished products and derive maximum profits from her natural endowments. The recently-launched National Development Strategy – One is anchored on beneficiation of minerals which, among other facets, should see the country achieve a US$12 billion mining industry. Such an economy should definitely find partners, investors and markets on the AfCFTA.

Kembo further states that the AfCFTA comes with a bigger and diversified market for African entrepreneurs benefiting from a bigger and larger surface area due to a number of more member states participating.

“It makes entrepreneurs benefit from human capital from member states. It makes entrepreneurs to produce quality and compete at regional scale and make them up their game and think regionally and globally. It makes entrepreneurs benefit from the economic ecosystem that comes with such member states’ interaction, especially manufacturers and farmers,” he explains.

However, according to Kembo, the AfCFTA’s major drawback is that other entrepreneurs may find competition tough especially those that may be coming from member states with restrictive and punitive labour costs.
“Entrepreneurs from countries that do not formulate industrially favourable policies may find themselves hamstrung with their own government and economic policies,” he says.

Luke Chanhuwa, another economic analsyst, concurs with Kembo regarding the opportunities created for local businesses.

Regarding Zimbabwe, Chanhuwa says, “The AfCFTA creates a foreign market for the locally produced goods and services, hence generates more foreign currency for the companies and economy at large. The agreement promotes foreign direct investment from member countries, as it allows free movement of people and capital. Zimbabwe stands to benefit more from its central location within the SADC region by acting as the regional economic hub. Zimbabwe tends to generate more foreign currency from diaspora remittances from exporting its educated and competitive workforce to member states.”

Chanhuwa however urges caution in the assumption that the benefits associated with joining the AfCFTA will come easy.

“The opportunities or benefits are not guaranteed as they depend on country productivity and competitiveness. Zimbabwe manufacturing sector is currently operating at very low capacity, which will in turn increase the cost of production, which makes our products price uncompetitive in this single market. In addition, this will result in cheaper products from member states flooding the country.

“As a follow up to the above, this may also result in de-industrialisation as companies will move their manufacturing plants to productive and competitive markets as free movement of capital is guaranteed under the bloc. The free movement of people might result in brain drain to countries with better remuneration and living standards, leaving the country with few skilled workforce to turn around the economy,” Chanhuwa says.

It therefore rests on individual governments, Zimbabwe included, to enact laws and create environments that promote industrialisation at the local level to boost local economies and prepare them for mutual and positive competition on the continental stage.

Kevin Tutani, a political economist, posits that the AfCFTA is a formal commitment by African states to enhance intra-African trade. It was founded in 2018. It has become effective from January 1, 2021. The member states include 54 African countries except for Eritrea.

“The essence of this agreement focuses on creating a huge single market whereby Africa is integrated and businesses across the continent can enjoy the pertinent economies of scale as they serve this huge market. This will arise from deepening economic integration amongst African countries as a result of the AfCFTA,” Tutani says.

His views are in line with what the secretary-general of the AfCFTA, Wamkele Keabetswe Mene, said in a recent media interview. Mene said that African countries have collectively undertaken commitments to liberalise substantially all trade by eliminating tariffs on 97 per cent of tariff lines — over a specified period of time.

The removal of trade barriers will go a long way in assisting struggling economies realise their full potential and grow an African economy that leaves no one behind.

Tutani adds, “The AfCFTA was created to establish a market which is liberal and free from some inefficient government influence towards the operation of the market. Liberal markets encourage competition which leads to efficiency without which local governments and consumers will pay for the inefficiencies of a controlled market through budget deficits and high cost of goods and poor quality products, among other things.”

According to Tutani, some aspects of the AfCFTA began to be implemented on 1 January 2021, though certain matters must still be finalised.

“For example, final tariff schedules have not yet been agreed but lower preferential rates, to the extent available, will govern trade among the relevant member states. Thus interim arrangements will be in place to allow for trade to begin. The sooner that the AfCFTA is fully implemented, the better.”

It now remains to be seen how quickly African Union member states will collaborate with the AfCFTA to expedite outstanding terms of the agreement and kick-start meaningful economic activities at local and regional levels. Indeed, the sooner Africa starts to trade, the better the prospects of economic development for each and every member state.

Apart from the Constitutive Act of the African Union, the AfCFTA is the first agreement to quickly enter into force in the history of the union, showing the need for trading that has been identified in the continent while also emphasising on the political will of African Union member states. The AfCFTA is Africa’s gateway to economic independence for the entire continent and its people. As jobs are created, local value chains will be strengthened and manufacturing enhanced. The time for Africa to be the next global economic powerhouse is finally here.

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