From UNCTAD, a trade deal that could change the African continent

Opinion and Analysis

President Uhuru Kenyatta with his Zimbabwe counterpart Robert Mugabe (second left) and Hailemariam Dessalegn (left), the Ethiopian prime minister, during the launch of negotiations for the Continental Free Trade Area in South Africa last year. PHOTO | FILE 

By MUKHISA KITUYI

In Summary

• Planned Continental Free Trade Area (CFTA) has the potential to spur trade growth, industrialisation and economic transformation.

After a decade of strong economic growth at the start of the millennium, Africa now faces a less favourable external economic environment — which has led to a slowdown in the economy at home.

The planned Continental Free Trade Area (CFTA) has the potential to reinvigorate Africa’s development at this watershed moment. It could prove crucial for the creation of well-paying jobs, especially for Africa’s youth, but political leadership focused on African integration will be decisive.

Weaker commodity prices and slowing demand in emerging economies have dampened the outlook for Africa’s commodity export revenues.

Western donor attention has substantially shifted to the refugee and migrant crisis in Europe, and tighter external financial conditions for Africa’s frontier markets have led to sizeable capital outflows.

At the same time, we’re still seeing illicit financial flows, in part down to weak taxation regimes and a race to the bottom for investment incentives. Severe drought in parts of Southern and Eastern Africa is also putting millions of people at risk of famine.

There is also a strong chance that Africa could be left behind on the technological front — as we have seen before.

Manufacturing value chains in Africa are often depicted as the next logical place for foreign investment to flow, as the price of labour gets more expensive in China and the country is moving its focus away from exports to domestic consumption.

But with innovation rapidly making a robot workforce a real possibility in countries like the US, China, Germany and Japan, and low-cost energy and stagnating wages meaning manufacturing jobs are undergoing a “reshoring”, it is now possible that Africa’s low-cost advantage may not materialise.

A weaker global economy and lack of import growth in Europe are further casting a shadow over Africa’s aspirations to integrate into manufacturing networks.

In the context of this and Africa’s declining influence in multilateral trade rules-making, Africa needs to set her sights on a new frontier of hope.

A game-changer

The CFTA could be the game-changer that reverses this state of affairs. Today, cross-border trade deals, such as the ‘mega-regional’ Trans-Pacific Partnership, Trans-Atlantic Trade and Investment Partnership, and the Regional Comprehensive Economic Partnership, focus on regional arrangements as the source for creating new trading, employment and income-generating opportunities.

The time is now for Africa to work towards its own ‘mega-regional’. Africa’s CFTA has substantial room to increase trade growth dramatically, and to pave the way for the industrialisation and economic transformation necessary for African countries to achieve the ambitious targets of the global Agenda 2030 and Africa’s own Agenda 2063.

The United Nations Conference on Trade and Development (UNCTAD) estimates that implementing the CFTA will roughly double the share of intra-African trade (currently around 13 per cent of African exports) by early next decade. And if past experience is any guide, tariff reductions may even increase trade tax revenue.

The manufacturing sector will be the biggest beneficiary, in line with current trends that suggest the sector is already doing well in intra-African trade.