African countries are forging ahead to complete negotiations for a continental free trade area between 55 countries by early next year. The idea, adopted by the African Union in 2012, is to create a single market which includes the free movement of goods, services and people. The integrated African market covers 1.2 billion people and a combined GDP of over USD$3.5 trillion.
Large markets are job-creating as they support more trade in goods, services and assets. It is expected that a well designed agreement would help Africa boost industrial development, promote economic transformation and create new wealth. The benefits won’t be automatic but will require continuous national, regional and continental efforts.
Large regional markets are also essential for industrialisation. This is because they attract investment into firms that can diversify their product lines and stimulate the creation of related industries. This includes the supply of spare parts, distribution of goods and provision of advisory services. Some of these may start as their supplies but they may also grow into independent enterprises.
Viewed against the odds of success in getting 55 countries to foster meaningful regional integration, Africa has made commendable progress in crafting its own creative approach. But reports from recent talks and a slowdown of regional integration efforts suggest a disturbing trend.
Some government delegates are likely to seek to include protection for existing products and industries. This would be detrimental to the process if these lists ended up shaping the final agreement given the 2018 signing deadline. Such a retreat would run counter to recent advances in Africa’s trade integration efforts. In 2015 for example, three regional trading blocs, covering 650 million people in 26 countries, signed the landmark Tripartite Free Trade Area with a combined GDP of over USD$1.5 trillion.
The trade agreement nevertheless needs to be carefully thought out, particularly given that Africa is starting with a low intra-regional trade of 15% compared to 19% in Latin America, 51% in Asia and 72% for Europe.
There is the risk that rushed negotiations could result in an agreement with too many exceptions to cover protected industries. This could include using non-tariff barriers – like safety measures – to protect local industries. A range of African countries use non-tariff barriers to curb imports of goods such as maize, milk, sugar, food oil products, and steel and iron.
Sensitive and excluded products – like sugar and dairy products – might in some cases cover up to 600 tariff lines (product codes used at the national level). But these exceptions should be used sparingly to enable domestic industries to access the larger regional and global markets needed for their growth.
In addition, the trade agreement needs to address the effects it may have on existing industries, environment, peace and security. It also needs to provide the policy space needed for governments to promote social policies such as job creation that could provide new performance standard for industries. Such policies should also balance between social goals and the need to be competitive on the global market.
Concerns over the expansion of foreign imports, rather than regional trade integration, also needs to be carefully assessed to avoid the free trade area becoming a conduit for imports. This could undermine Africa’s goals to increase its industrial and trade capacity. At present, nearly 85% of the goods traded in Africa come from outside the continent. Only 15% of the goods traded in Africa are produced locally, leading to an annual food import bill of over USD$35 billion.
But the focus of the negotiations should not be the fear of imports. Rather the focus should be on scaling up export production in existing niche markets through the creation of new industries. Examples of growing industries include the supply of semi-processed processed foods that are turned into final products by importers. African firms such as the Agro Chemical and Food Company in Kenya are also producing speciality chemicals which are used in a variety of medical and manufacturing industries.
Moving away from protectionism
The alternative to protection is therefore market growth. This involves having deeper knowledge of markets through the collection of key information market, eliminating trade barriers, reducing subsidies and upgrading the quality of infrastructure. It also involves building capacity to manage the rules of origin of products to avoid illegal dumping of goods, customs and trade procedures and reporting and resolution of trade barriers.
The negotiations need to shift their focus from protectionism to greater regional trade integration. One way to do this is to set up a high-level expert committee or panel – drawn from government, private sector, academia and civil society – to include other relevant perspectives on issues such as infrastructure, technological capacity, and industrial growth. This would help to broaden discussions to reflect Africa’s current needs of trade as an instrument for economic transformation.
This committee would be guided by evidence-based research as well as by Africa’s own regional trade experiences. There are many examples that show how quickly Africa is learning about the risks of using bans and exemptions to restrict regional trade. For example, Zambia’s positive decision to reverse a ban on fruit and vegetable imports.
The committee would also need to draw on lessons from other regions of the world. As I set out in Emergent Africa: Evolution of Regional Integration, Africa has a lot to learn from regional trade integration, especially the Association of Southeast Asian Nations .
The bloc’ approach to integration transcends the traditional focus on the free movement of goods. It includes measures such as the creation of industrial parks to foster industrial development. The region also uses technology-based agreements covering key fields such as information and telecommunications technologies. This is particularly important because of the role of engineering and technology in all aspects of trade covering product design, production and distribution through international logistics chains.
The future is open
The challenges facing African trade negotiators are not easy. Africa’s regional integration efforts are the most complex ever undertaken. They are not just about emulating trading rules used in other regions of the world. They are about remaking the continent to create new networked interactions between sovereign states in a flexible way. This makes for a more open future with expanding possibilities to use regional trade integration to spread prosperity.
Africa Day, held on 15 November within COP23 in Bonn, was the springboard for the official launch of Africa NDC Hub, the African Platform for Nationally Determined Contributions (NDCs). This African Development Bank (AfDB) initiative is intended to help the 54 African countries fulfil their commitments under the Paris Agreement, in other words, to put their respective NDCs into action without neglecting their own development priorities.
"This platform is a response to requests made by various African countries," said Amadou Hott, AfDB vice president for electricity, energy, climate change and green growth, as he unveiled the new initiative to a gathering of Heads of State, ministers, policy makers and representatives of civil society, among others, from across the continent. “It should be seen as an "opportunity to accelerate investment in climate action in Africa through NDCs," he said, noting that it will facilitate "better coordination among partners to provide a collective and effective response", for and by the whole of Africa.
A statement in the AfDB website reads ‘this platform should be a catalyst for concessional funding for climate-related projects in Africa which will, in turn, help raise private finance. This is a most timely initiative, bearing in mind that, US$ 4 billion will be required to implement the NDCs, according to recent studies’.
While all 54 African countries signed the Paris Agreement, 43 have ratified it and 53 (the exception being Libya) have submitted their NDCs, 85% of which are conditional upon financial aid from abroad while only 15% are on the basis of domestic budgets. And Africa is already the poor orphan when it comes to world climate funding, capturing less than 5% of the total. Thus, the announcement of this new platform was warmly welcomed.
To date, Africa NDC Hub has 10 partners other than AfDB: the African Union Commission (AUC), the United Nations Economic Commission for Africa (UNECA), the NEPAD Planning and Coordination Agency, the Food and Agriculture Organization of the United Nations (FAO), the United Nations Development Programme (UNDP), the United Nations Environment Programme (UNEP), the Economic Community of West African States (ECOWAS), the World Wildlife Fund (WWF), the International Institute for the Environment and Development (IIED) and the secretariat of the United Nations Framework Convention on Climate Change.
Almost twenty years after the launch of the first Forum on China-Africa Cooperation, China-Africa relations remain unbalanced. Bilateral trade has leaped over the past ten years (a total of $123 billion in 2016), driven, up to 2014, by exports, which have fallen by 51% since the peak. The region now has a trade deficit with China. While exports remain mainly concentrated on natural resources (90% of exports to China), imports are more diversified and include manufactured goods, transport equipment, and machinery (51% of the total) before minerals and precious metals. This trade imbalance also reinforces the risk of "Dutch disease" which, in economics, links the decline of the local manufacturing sector to the economic development of raw materials.
The slowdown in the Chinese economy and the reorientation of its growth model towards private consumption are reflected in a weakening of demand for commodities from Africa. This will have inevitable consequences for exporters. According to Coface economists' calculations, sub-Saharan Africa had a significantly higher export dependency ratio (on a 0-to-1 scale) than other emerging countries in 2016, at 0.24 compared to 0.16 for South-East Asia (one of China's largest trading partners) and 0.19 for Russia, Brazil, and India. The differential is even greater with the European Union (0.07) and the United States (0.12).
Unsurprisingly, the countries that have benefited the most from China's expansion and those with a less diversified economy are likely to feel the effects of lower demand more acutely. The strongest trade dependency is concentrated around crude oil exports and, according to the index established by Coface, South Sudan has been at the top of the ranking since its independence was declared in 2011, followed by Angola and Congo. The Gambia, which produces wood, is not far behind. Eritrea, Guinea, and Mauritania are also among the most dependent countries because of their exports of metal ores (iron, copper, aluminium).
Despite this strong dependence on exports to China, the China-Africa relationship could turn into a win-win cooperation. Africa’s export basket is gradually diversifying, incorporating higher value-added processed raw materials, raw wood, and, to a lesser extent, some agricultural products (tobacco, citrus fruit, seeds, and oleaginous fruit), matching the needs of China’s emerging middle class. Even if such a change maintains the vulnerability of commodity-rich countries to international price developments, this could increase local incomes and foster employment and technology transfers.
Diversification also includes FDI flows and loans from China. Chinese investments in Africa are no longer extractive in nature and now extend to services, processing industries, transportation, and utilities. Existing initiatives, such as the One Belt, One Road, will ultimately boost regional connectivity and reduce export costs.
However, since FDI and financing flows are much lower than trade flows, African countries that are heavily dependent on China remain highly vulnerable to weakening demand or a further decline in the prices of raw materials. Moreover, the risk for African governments would be to increase their vulnerability to changes in China’s foreign policy and to those of its demand because Chinese interests in the region are, first and foremost, based on a complex network of political and economic objectives.
“The latest developments seem to be moving in the right direction but efforts are still needed to move from a marriage of unbalanced convenience to a partnership based on win-win cooperation,” said Ruben Nizard, Coface’s economist in charge of sub-Saharan Africa and co-author of the study, “China-Africa: will the marriage of convenience last?”. (Coface)
The 4th Global Business Forum on Africa, organised by the Dubai Chamber of Commerce and Industry, has called for increase in investment flows between the UAE and Africa in several key sectors, including trade, financial services, logistics, and tourism.
A poll conducted during the two-day forum revealed that 48% of delegates considered trade to be the most promising sector for investment, followed by financial services (24%), and 14% for both logistics and tourism sectors.
Participants labeled the above sectors as key areas where Dubai can offer its expertise and investment to boost African economies.
Over the last five years, Dubai Chamber of Commerce and Industry has stepped up its efforts aimed at strengthening economic ties between Dubai and Africa by opening four representative offices on the continent and organising the Global Business Forum on Africa in Dubai.
The Chamber recently announced that it has invested about $27.7 million to raise awareness of trade and investment opportunities in Africa, and promote Dubai as an attractive business hub for companies on the continent.
Other activities carried out by the Chamber in recent years include organising frequent trade missions to African countries, conducting specialised research and studies, and developing the Africa Gateway app to expand is members’ access to opportunities opening up in the fast-growing market.
President and CEO of Dubai Chamber, Hamad Buamim explained that these efforts have given a major boost to UAE-Africa trade ties by facilitating cooperation between businesses and investors on both sides.
He noted that the Global Business Forum on Africa was launched in 2013 with the intention of establishing an ideal platform to explore business potential in Africa, adding that participation in the forum has increased significantly in recent years.
He revealed that Dubai’s non-oil trade with Africa has grown to exceed AED 700 billion in the last five years, while 10,000 African companies have joined Dubai Chamber over the same period, bring the total number of African businesses registered with the Chamber to over 17,000 today.
“There are different sectors that investor from different part of the world look at in Africa and infrastructure is one of the very important sector, we see construction as an opportunity for businesses in our part of the world because of the experience we have in developing infrastructure in Dubai and the Gulf region,” he said.
According to a number of Africa-based entrepreneurs, African countries have come a long way in terms of connectivity, by expanding digital infrastructure and opening up their economies to new growth opportunities.
Emirate the world’s fourth largest airline and the largest in the Gulf with a 6 percent passenger growth in Africa in 2017 recently announced an increase of more destinations in Africa as a means of improving business integration with the continent.
The Senior Vice president, commercial operations for Africa, Emirates, Orhan Abbas said they have a hub in Dubai that caters to all the connectivities in each point in Africa”
“As you know the African continent is large and huge from the north to the south, many hours of flying and off course any flight you take on Emirate stop at the hub in Dubai. We operate in 22 countries in Africa, if a passenger is coming out from Morocco, and stop over at Dubai, they have a choice of four flights a day from Johannesburg or three flights a day to Cape Town or Durban,” he added.
The Chief executive officer, Dubia Corporation for Tourism, Issam Kazim noted that they are leveraging on the social media and the digital spaces as well to hit the mass audience within Africa.
“I think for us, it was important, we had a very good experience working with one of the movie stars in Nigeria and Africa as well, which is the wedding party. We participated in the award ceremony, and we had an amazing reaction from the market, so that gave us the incentive to actually work with the same producers to shoot their sequence in Dubai. It encourages people to really get an experience of these celebrities that they are familiar with what they are doing in Dubai and how they experience Dubai as well,” Kazim said.
The Global Business Forum on Africa, organised by Dubai Chamber, is the largest event of its kind that is hosted outside of the continent, while it remains one of the most high-profile international forums dedicated to exploring investment opportunities in fast-growing African markets.
This year’s forum, held under the theme “Next Generation Africa”, examined the role of young African entrepreneurs who are stimulating economic growth, and building relationships and partnerships with companies around the world. In addition, sessions focused on how technology and digitalisation are reshaping African economies and meeting the demand of a growing middle class.
Africa’s mobile internet connections are set to double in the next five years, a study showed on Monday, thanks to affordable smart phones and the roll-out of high-speed networks.
A report by research and consulting firm Ovum in London estimates that mobile broadband connections will rise from 419 million at the end of this year to 1.07 billion by the end of 2022.
“Data connectivity is growing strongly in Africa, and there are also good prospects on the continent in areas such as digital media, mobile financial services, and the Internet of Things,” said Matthew Reed, Practice Leader Middle East and Africa at Ovum.
“But as Africa’s TMT market becomes more convergent and complex, service providers are under increasing pressure to make the transition from being providers of communications services, and to become providers of digital services.”
Mobile phone operators such as MTN Group, Orange and Bharti Airtel are investing heavily in high-speed networks to meet demand from users who are increasingly using phones for everything from paying their bills to streaming videos and surfing the internet. (Reuters)
American car-maker Ford said it would invest 3 billion rand ($211 million) in its South African assembly plant to meet rising domestic and international demand for its Ford Ranger pickup truck, the company said on Friday.
“This significant investment reaffirms Ford’s ongoing commitment to South Africa as a local manufacturer, exporter and key employer in the automotive sector,” Ockert Berry, vice president operations for Ford Middle East and Africa said in a statement.
The World Bank is set to unlock $600 million for an infrastructure project to facilitate trade in East and Central Africa and provide an alternative route to the sea for Burundi, Tanzania, Zambia and the Democratic Republic of Congo.
“We are talking about improving infrastructure along the Central Corridor, specifically Lake Tanganyika,” said East Africa Community Secretary General Liberat Mfumukeko.
It will improve the transportation of goods coming from Dar es Salaam by railway to Kigoma, from where “it can be shipped to Bujumbura or Kalemi and Uvira. This project will improve infrastructure in Tanzania, Burundi and DR Congo,” he added. According to the EAC Secretariat, the new infrastructure project will cut the cost of transporting goods from Dar es Salaam port by 40 per cent.
More than 50 million people living around Lake Tanganyika are expected to benefit from the new project. For instance, 80 per cent of Burundi’s imports come through the Central Corridor from Dar es Salaam.
“It was the aspiration of the people of East Africa to come together and tackle the problems of their people by providing the necessary facilities,” said Kirunda Kivejinja Uganda’s Second Deputy Prime Minister and the chairman of the EAC Council of Ministers.
The Community is expected to invest more than $10 billion within the next 10 years, mainly in infrastructure projects. The standard gauge railway from Mombasa to Nairobi is already complete. When fully complete it is expected to join up Uganda, Rwanda and Burundi.
Alternative routes of transporting goods from the ports will see a cut in the cost and time of transporting goods within the region and trigger a decline in consumer prices.
Non-tariff barriers have been a major challenge for the East African Community in easing the free movement of goods in the region, transporters and traders say almost every month a new NTB is introduced.
Dar es Salaam port receives three million tonnes of goods annually for the EAC, but the quantity is expected to rise after the new railway is completed. (All Africa)
The Department of Trade and Industry of the African Union Commission is organizing the fourth Meeting of the Technical Working Groups (TWGs) of the CFTA from 6-17 November 2017 to consider the draft Texts of the CFTA Agreement, its Protocols and its Annexes.
The Meeting is being attended by Chief Negotiators and Trade experts from AU Member States, Trade Experts from the eight Regional Economic Communities (RECs) recognised by the AU, members of the CFTA Continental Task Force (CTF), African Development Bank (AfDB), United Nations Economic Commission for Africa (UNECA) and United Nations Conference on Trade and Development (UNCTAD).
While welcoming participants, Mr. Edet Sunday Akpan, Permanent Secretary at the Federal Ministry of Industry, Trade and Investment of the Federal Republic of Nigeria, pointed out that the CFTA is a priority agenda for the African Union Assembly.
“It is of vital importance to continue to keep in mind that the CFTA is a significant mandate to the African Union Summit. It is the hope of the leaders that significant achievements are recorded in the near future,” he said.
He reminded the Meeting that the timeline for concluding the CFTA is next month and highlighted the advantages of the establishment of the CFTA and urged participants to do all that is required to be done to finalize their work as the Technical Working Groups. “I am confident that you are up to the task,” he concluded.
In her opening remarks, Mrs. Treasure Thembisile Maphanga, Director for Trade and Industry of the African Union Commission recalled the achievements of the last Session of the CFTA Negotiating Forum in Addis Ababa, in October 2017 and expressed her appreciation for the commitment of the Member States in moving the CFTA forward.
“We have witnessed the CFTA Chief Negotiators confirming their commitment to conclude the CFTA Agreement by end of 2017. They have clearly outlined the benefits that will accrue from the establishment of the CFTA,” she underscored.
She announced that AU Ministers of Trade are expected to meet in Niamey, Niger from 1-2 December 2017 to consider the Draft Texts on the Agreement Establishing the CFTA, Protocols and annexes. The Director for Trade and Industry acknowledged that the assignment ahead of the participants is very critical to the conclusion of the CFTA Negotiations by end of this year.
Mrs Maphanga indicated that the Draft Agreement Establishing the African CFTA should be ready by end of this month together with three protocols namely the Protocol on Trade in Services, the Protocol on Trade in Goods and the Protocol on Dispute Settlement Mechanism. According to her, the Protocol on Trade in Services will have two Annexes, namely, Schedules of Commitments and Regulatory Frameworks. And the Protocol on Trade in Goods will include; Tariff Liberalization Schedules, Rules of Origin, Customs Procedures and Cooperation, Trade Facilitation, Transit and Transit Facilitation, Non-Tariff Barriers, Technical Barriers to Trade, Sanitary and phytosanitary Measures, and Trade Remedies annexes.
Before she concluded, Mrs. Treasure Maphanga emphasized that the journey before Member States is to create One Africa with One Market and One Strong Voice, in line with the AU Agenda 2063’s vision of “an integrated, prosperous and peaceful Africa, driven by its own citizens and representing a dynamic force in global arena”.
“We owe it to ourselves and future generations to create an integrated market that expands opportunity for our socio-economic progress,” she concluded.
In his speech, Amb. Chiedu Osakwe, Nigerian Chief Trade Negotiator and Director-General of Nigerian Office for Trade Negotiations (NOTN) pointed out that the Continent’s best chance to address the dual pressure of the dramatic increases in Africa’s population and associated unemployment pressures, is to create the Single Market for Trade in Goods and Services on the legal and policy framework of the African Continental Free Trade Area (CFTA).
“On the basis of the CFTA Africa can grow intra-African trade, expand investments, modernize our economies, integrate our businesses into regional and global supply chains and hence (create) more jobs for Africans,” he underlined.
He went on and quoted Professor Yemi Osinbajo, Vice-President of the Federal Republic of Nigeria who opened last week the High-Level Forum on Trade and Investment Facilitation for Development, and reaffirmed the core position that: “On the CFTA, there is no plan B for us. We absolutely must succeed!”
“The final stretch is always the hardest part. I am confident that we shall get it done. The stakes in the CFTA are very high and it is a win-win for all our countries,” he concluded.
The 8th Meeting of the Continental Free Trade Area Negotiating Forum (CFTA-NF) will kick off from 20-25 November, 2017 in Abuja, Nigeria to undertake negotiations on the text of the Agreement Establishing the CFTA, undertake negotiations on the Protocols on Trade in Goods, complete negotiations on the Protocol on Trade in Services, and conclude work on several Annexes.