‘Africa pact is global game changer’

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Launched on January 1, the AfCFTA is an exciting game changer.

The agreement aims to reduce all trade costs and enable Africa to integrate further into global supply chains – it will eliminate 90 percent of tariffs, focus on outstanding non-tariff barriers, and create a single market with free movement of goods and services.

Cutting red tape and simplifying customs procedures will bring significant income gains. Beyond trade, the pact also addresses the movement of persons and labour, competition, investment and intellectual property.

To overcome many current challenges, and to build back better in the wake of COVID-19, now is the time for more trade and greater co-operation. If fully implemented, what would this exciting new agreement bring to Africa and to the world?

 

Reducing Poverty

According to a recent report by the World Bank, the pact will boost regional income by seven percent or US$450 billion, speed up wage growth for women, and lift 30 million people out of extreme poverty by 2035. Wages for both skilled and unskilled workers will also be boosted by 10,3 percent for unskilled workers, and 9,8 percent for skilled workers.

The AfCFTA highlights the significant and increasing commitment of the African Union to reducing poverty through trade – a link that is increasingly recognised. As Ngozi Okonjo-Iweala, candidate for the WTO Director General, recently stated: “Trade is a force for good, and properly harnessed can help lift millions out of poverty and bring shared prosperity.”

 

Varied Economic Positives

It is estimated that the agreement will increase Africa’s exports by US$560 billion, mostly in manufacturing. Intra-continental exports would also increase by 81 percent, while the increase to non-African countries would be 19 percent.

According to Mo Ibrahim Foundation, if successfully implemented, AfCFTA could generate a combined consumer and business spending of US$6,7 trillion by 2030. Furthermore, markets and economies across the region will be reshaped, leading to the creation of new industries and the expansion of key sectors.

 

Empowering Women

According to the Economic Commission for Africa, women account for around 70 percent of informal cross-border traders in Africa. Through such work, women can be vulnerable to harassment, violence, confiscation of goods and even imprisonment. Tariff reductions under the AfCFTA will enable informal women traders to operate through formal channels, bringing better protection. Furthermore, a growing manufacturing sector would provide new job opportunities, especially for women.

As AfCFTA Secretary-General Wamkele Mene stated, “(The AfCFTA) will be the opportunity to close the gender income gap, and the opportunity for SMEs to access new markets”. This is significant, since small and medium-sized enterprises account for 90 percent of jobs in Africa.

 

Trade Integrity

The AfCFTA offers an opportunity to promote good governance both globally and across Africa, through the concept of “Trade Integrity” – defined as international trade transactions that are legitimate, transparent and properly priced – as a way to ensure the legitimacy the global trading system.

 

COVID-19 Cushion

The African Development Bank Group’s African Economic Outlook 2020 Supplement estimates that Africa could suffer GDP losses in 2020 between US$145,5 billion (baseline) and US$189,7 billion (worst case), from the pre-COVID–19 GDP estimates. Further, trade in medical supplies and food has been disrupted. It is being fully recognised across the continent that AfCFTA presents a short-term opportunity for countries to “build back better” and cushion the effects of the pandemic. In the longer-term, the pact will increase the continent’s resilience to future shocks.

 

Example to the World

Across the world, countries are questioning trade agreements and economic integration, alongside turning away from global co-operation, leadership and collective action. Political dynamics are driving short termism, polarisation and isolationism. Yet our multiple threats demand long-term thinking and greater co-operation – and this is precisely what the AfCTFA represents.

While the world turns in one direction, the African Union is moving in the other by deepening ties across the continent.

Caroline Kende-Robb is a Senior Fellow at the African Centre for Economic Transformation. This article has been excerpted from the original, published by on the World Economic Forum website

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