The case for an integrated African market – the costs of ‘non-AfCFTA’
The signing of the African Continental Free Trade Agreement (AfCFTA) on March 21 in Kigali by 44 countries represented a milestone towards achieving the long-standing goal of creating a unified African market. Yet we are only halfway there, for a number of reasons.
First, there is a need to achieve 22 ratifications by March 2019 for the agreement to go into force – and so far, only seven countries have done so.
Second, because it is not enough to have political agreement – countries still need to win the hearts and minds of the private sector and civil society, who will be the true implementers of the AfCFTA.
In the late 1980s, the European Commission was confronted with an uphill struggle to persuade citizens and member states to support the implementation of their Single Market Programme.
There were plenty of naysayers at the time – many Europeans, particularly in the “periphery” (Greece, Spain, Portugal, and Ireland), were worried about the consequences of opening up their markets to the high productivity firms of northern Europe.
Echoing today’s concerns, there were also fears about the scale of intra-regional migration and capital flows.
In an effort to allay those fears, European researchers published a series of in-depth research papers on the costs of “Non-Europe,” to make clear what was at stake.
The resulting “Checcini Report,” published in 1988, made a strong case for the Single Market, paving the way for its eventual implementation on January 1, 1993.
Overnight, the border posts between member states disappeared and goods, services, investment and workers flowed freely across frontiers.
Subsequent research suggested that the Single Market raised intra-European trade by more than 100 per cent, and member states’ GDP by an average of 4.4 per cent.
African researchers, think tanks and policymakers need to make a similar, vigorous and clear case for the costs of a “non-AfCFTA.” What are those arguments?
Africa’s trade with the rest of the world over the past five or six decades has not delivered the promised diversification or development of economies.
Since the early 1970s, African countries have been beneficiaries of “preferential trading agreements,” whereby they were granted reduced tariffs to high-income countries’ markets.
While this is a good thing in principle, preferential market access has not led to a notably stronger export performance or more diversified economies.
The design of those preferential agreements is partly to blame, with strict rules of origin and unnecessarily tough phytosanitary and product standards. In addition, African firms have displayed a lacklustre response to the opportunities.
However, the Achilles heel of these agreements has been their impermanence – they are concessional and can therefore be suspended or simply not renewed (requiring as they do a special dispensation through the World Trade Organisation).
The recent suspension of Rwanda from certain provisions of the Africa Growth and Opportunity Act (Agoa) because of a disagreement over its policy designed to reduce the imports of secondhand clothing is one example.
But it is not the only case in the region: Madagascar was suspended from Agoa in 2010, and Kenya has been threatened in the past with suspension due to alleged rules-of-origin violations in its textile sector.
For the business community, suspensions or the threat of them make it difficult to make a long-term plans and invest in a beneficiary sector when it is uncertain whether preferential market access will still exist in the future.
Nor should we think that extra-African trade relations with other developing regions have brought better results.
For instance, EAC trade with India and China has soared over the past decade and a half. The EAC now sources a third of its imports from these two countries (nearly three times the imports from the entire European Union).
But exports from the EAC to India and China have performed poorly. The EAC now sustains a deficit of nearly $9 billion a year with the two Asian giants and, in a pattern reminiscent of trade relations with high-income countries, those exports have been mainly primary commodities.
This is despite the fact that for the past decade India and China have also had preferential market access for developing countries.
The AfCFTA is fundamentally different as the market access it provides is not concessional – and hence puts trade relations among African countries on a much firmer footing.
In stark contrast to the composition of our exports to the rest of the world (which are still essentially unprocessed primary commodities), as much as two thirds of intra-African trade is in industrial goods. So the AfCFTA could provide a significant boost to the industrialisation and diversification of our economies.
We also need to dispel the idea that the AfCFTA will detract from regional integration processes like the EAC.
The continental market should be seen as complementary – not a substitute – to regional integration efforts. While the EAC has achieved a relatively high share of intra-regional trade (at around 20 per cent of total trade), in recent years that share has fallen.
Last year, Kenyan exports to other EAC countries fell by 6 per cent.
UNECA’s preliminary simulation work suggests that the AfCFTA could help expand intra-EAC trade by 34 per cent. The continental agreement would integrate the EAC economy, as a bloc, into the wider African economy.
Our estimates suggest an increase of 66 per cent for EAC trade with the rest of Africa. Furthermore, the beneficiary sectors would principally be the employment-intensive manufacturing sectors like processed foods, light manufacturing and textiles.
One well-known definition of madness is to keep doing the same thing and expecting different results. Preferential market access from Africa to the rest of the world has been tried and tested, and it has been found wanting. The region is clearly in need of a new approach. That approach is the AfCFTA.
Andrew Mold is the Acting Director of the UNECA Subregional Office for Eastern Africa.