AfCFTA could rescue African economies amid Covid-19
THE second Africa Regional Integration Index (ARII 2019) which was launched last Friday by the Economic Commission for Africa (ECA), the African Development Bank and the African Union Commission (AUC), with a call to action to African economies to deepen their integration makes it evident that speeding up the African Continental Free Trade Area(AfCFTA) could provide a way out for African economies that have been ravaged by Covid-19.
The 2019 Index, which builds on the first edition published in 2016, provides up-to-date data on the status and progress of regional integration in Africa. It also helps to assess the level of integration for every Regional Economic Community (REC) and their member countries.
The report observed that although 20 countries score above average, no African country can be considered well integrated in its region. Even the most integrated country, South Africa, scores 0.625 less than two-thirds of its potential on the scale.
We are reminded in 2018, 44 countries signed the African Continental Free Trade Area at an extraordinary summit in Kigali. There are now 54 signatories. The agreement will create a tariff-free economic environment to spur business growth, boost intra-continental trade, spark industrialization, and create jobs.
The AfCFTA paves the way for Africa, with 1.2 billion people and a cumulative GDP of US$2.5 trillion – to become the world’s largest common market. But with the coronavirus hitting the global economy, a worldwide recession is looming. The crisis is bound to have destabilizing effects on our fragile economies as the health crisis worsens.
Africa must be prepared. Although the COVID-19 pandemic is affecting Africa the least, the majority of African countries have chosen to pre-empt the crisis by restricting non-essential travel and gatherings and closing schools and universities. It is impossible to know whether these measures will stem the health contagion, but Africa will no doubt experience economic contagion.
Aside from the health effects, the looming global recession is bound to destabilize Africa’s economies and transform their structure, trade, and commercial channels, as well as how people work and study. Under these circumstances, Africa has no choice but to rely on its own resilience, strengths, and agility, rather than hoping for external salvation, to mitigate the impact of the coming crisis and prepare for the next cycle of globalization.
More than ever, new technology will be called upon to play a critical role. African companies must speed up their digital transition to remain attractive, which means that governments must accelerate their rollout of essential telecommunication infrastructure, including fiber optics and high-speed Internet, and invest in human capital and capacity building. The effort will be complex and demanding, but the time has come for large-scale mobilization.
In this context, there is a pressing need to reduce the continent’s high trade dependence on non-African partners. The AfCFTA can help facilitate this, but that means dismantling tariff and non-tariff barriers as much as possible, and intensifying the economic regionalization processes that have now begun. The liberalization of tariff barriers on 90% of products, for example, was originally scheduled to take place over five years. This timeframe must be reduced.
As it stands, Africa is the least integrated continent. Intra-African trade accounts for less than 16% of the continent’s total trade. Once fully operational, the AfCFTA could boost intra-African trade by 60% in just three years. The agreement will be a catalyst for endogenous development, through trade, with the extension of value chains across the continent helping to lay the groundwork for industrialization.
The acceleration of the AfCFTA is above all a matter of political will. The cost of dismantling the customs taxes that weigh on intra-African trade amounts to $3.5 billion, which is just over 0.1% of the continent’s GDP. Rescinding these taxes will result in virtually no shortfall, and will unlock the continent’s endogenous growth potential.
Maximizing the possibilities of the AFCFTA will be an effective shock absorber as long as the pandemic, and uncertainty about its course, keeps the global economy depressed. It will also make Africa an attractive proposition when the global economy turns around. The continent has no time to lose.