Facilitation mechanisms for enhanced intra-African trade

For economic progress in Africa, cooperation among African countries is inescapable. Moreso on trade matters. Africa is a highly diverse continent; language, culture, food, art, currency and even economic geography. Of the 54 countries in Africa, more than half are least developed countries. 32 countries officially classified as least developed countries (LDCs), 16 are landlocked developing countries (LLDCs) and six are small island developing states (SIDS) [1]. Thus, any continent wide initiative must take the economic deficiency of LDCs that make up half the continent to heart. Should this principal reality be neglected, well intentioned continent-wide or regional policy making initiatives may remain unworkable.

The African Continental Free Trade Agreement (AfCFTA) is a well-intentioned continent wide initiative for the establishment of a continental free trade area to bolster the creation of one African market. A key step needed to achieve the African Union’s (AU) agenda, to create the Africa that Africans want by 2063 [2]. AfcFTA was signed in March 2018 in Kigali, Rwanda, and is aimed at elevating the current depressed state of intra-African trade. Contrary to intra-Asian and intra-European trade which stand at 59% and 68% respectively, intra-Africa trade stands at a miserly 17% [3].

AfcFTA aims to enhance manufacturing capabilities and industrial development in Africa. Africa would not only have the largest free trade area in the world, but Africans (in a few decades) will enjoy the perks of having a single market on the continent for the exchange of goods and services among Africans. Better standards of living, higher incomes, enhanced innovation, better infrastructure and improved productive capacity will be within reach of the average African.

While the mouths of Africans water in anticipation of the fulfillment of the AU’s promise through AfCFTA, it is worth reflecting on the current state of mechanisms for trade facilitation among African countries, especially LDCs. It is vital to consider the state of mechanisms such as primary commodity export dependence, customs administration, rules of origin, physical infrastructure, among others and their viability in driving AfCFTA to fruition. Examining the state of these mechanisms would reveal the extent to which this continental free trade area can successfully boost intra-African trade.

Primary commodity export dependency

At the basic level, AfCFTA’s expectation is laudable. Increased trade among African countries. The question then is what do African countries currently trade in? Truth be told, what Africa offers the world are primary products which make up a large percentage of trade. For example, data from the Observatory of Economic Complexity shows that in 2019, total exports from Mali were $4.87Billion. Gold exports accounted for $4.5 Billion of this amount (92.4% of Mali’s exports). The United Arab Emirates (not an African country!) imported $3.22Billion worth of gold from Mali in 2019. Reflecting back on AfCFTA, in the spirit of intra-African trade facilitation, I am currently unaware of any African country that would import this much gold from Mali.

Source: https://www.visualcapitalist.com/mapped-top-export-in-every-country/

The heavy dependence on primary commodity export in Africa has long expanded the continent’s appetite for importing intermediate and final goods from outside the shores of Africa, leaving the development of internal manufacturing capacity of less priority. This challenge of not diversifying exports into lighter, less bulky manufactured goods and having enough continental demand for primary commodities has historically hampered African economies competitiveness in global trade and remains a stumbling block for AfCFTA.

One may argue that this is not the case since South Africa and Kenya have well established manufacturing sectors. Countries like this are rare, making up a small percentage of the continent. I do applaud the effort of these countries. However, a look at South Africa’s top exports and top imports tells a different story. In 2019, South Africa’s top exports were Gold and Platinum, top imports: cars, refined petroleum and crude petroleum. If a more advanced African country (manufacturing-wise) like South Africa still has its top export as Gold, imagine the struggle of African LDCs? If it is arduous for LDCs to diversify primary commodity exports and they make up half the continent, what can be done quickly to enable better participation in AfCFTA? Three solutions: collaborate, diversify and innovate.

Collaborate: Africa does not need to start from scratch, collaboration and partnerships on trade can speed up AfCFTA’s processes. Member countries can tap into training and product/sector specific trade strengthening initiatives. The World Trade Organization (WTO) Trade Facilitation Committee has dedicated experience-sharing workshops to facilitate cross-learning between more advanced trade regions to developing ones [4]. Attendance at these workshops have been increasing but more can be done through AfCFTA to encourage attendance [In 2019, the WTO’s Trade Facilitation Agreement Facility organized a retreat for Geneva-based LDC officials, only 60% of LDCs were present]. AfCFTA needs this level of collaboration to advance knowledge and manufacturing capability. And to enhance the adoption of existing frameworks that have proven to be effective in delivering trade initiatives around the globe.

Diversify: To get African countries less dependent on primary commodity exports, providing the much-needed preparedness for participation in AfCFTA, diversification strategies are required.

In West Africa, 25% of unused cottonseed products are wasted and valued to be over $ 237 million [4]. Africa has primary commodities. But increasing capacity to fully refine them is necessary. If primary products like cotton cannot be fully refined or processed within Africa and then traded within Africa, there is the need for initiatives to encourage this. The cotton-by product processing and value chain integration program launched in 2018 is a prime example. Technical assistance and technology transfer to develop Mali, Chad, Burkina Faso and Benin’s potential to process unused cotton by-products is in the works [4]. AfCFTA can expand these types of initiatives across other primary commodities through collaborations with international partners.

Innovate: To increase the pace of processing and the integration of product value chains, expanding innovation especially in the use of renewable energy is vital. Industrial manufacturing capabilities can be enhanced through improved production, processing, freezing and storage processes. Also, manufacturers require access to electricity and potable water to enhance their manufacturing and sanitary processes. These are initial focus areas to develop Africa’s industrial capabilities. Innovation does not always equate expensive and foreign, AfCFTA can encourage home-grown solutions with indigenous materials and knowledge.

Custom administration and infrastructure

A last point of reflection is the poor state of customs administration infrastructure on the continent. How developed is Africa’s customs administration process? There have been significant improvements in customs infrastructure for some countries in Africa, no doubt. Burkina Faso improved transport and logistics operations at the Tema Ouagadougou Corridor between 2008 and 2012 by increasing transparency and reducing corruption at the border, necessary border payments declined by 50% [5]. Mali also curtailed duplicates by reducing the number of agencies at the border from 14 to 5 and Rwanda’s one-stop customs clearing system which is now digital cut the time for clearing goods by 40%. The savings from this have been estimated to be up to USD 17 million a year for these countries [5].

While it is worth rejoicing that Mali, Rwanda and Burkina Faso have sped up the clearing routes for trades, some LDCs still have outdated customs processes, long border delays and outdated border regulations, which would significantly hinder their effective participation in intra-African trade.

How does Africa overcome this? An existing mechanism that AfCFTA can tap into is the Trade Facilitation Agreement (TFA) that developing countries and LDCs concluded with the WTO, which came into force in 2017. The TFA sets out measures for effective cooperation between customs and other appropriate authorities and lists how countries can expedite the movement, release and clearance of goods with available technical assistance. The uniqueness of TFA is that it allows developing countries and LDCs the flexibility to tailor their commitments and implementation schedules according to their specific needs and commensurate with their levels of development [6].

African leaders are quick to deposit instruments of ratification but groan when the time to implement comes [The African Trade Network is already moaning about the massive legislative, policy and infrastructural changes to live up to the standards of the TFA. Financial support, which they state was earlier referenced in the TFA’s text and has now been removed- is really all Africa needs. Isn’t massive customs administrative change exactly what AfCFTA needs to facilitate trade? At least a plan, a commitment, before financing]. So far, South Africa and Morocco are the only 2 African countries with over 90% implementation rates to the TFA to date [7]. Definitive TFA implementation dates were agreed to and AfcFTA should motivate and ensure African countries implement these commitments.

Rules of origin

For a free trade area to function, the premise is that goods traded among trade bloc participants have been sourced (at least some percentage) from within the trade bloc for enhanced manufacturing capability within the trade bloc. Continental free trade agreements such as the AfCFTA would require that member countries meet an ‘originating status clause’. This means goods traded must have some portion originating in the continental trade area [8]. With the state of customs administration in African countries, the border processes required to monitor if goods traded are truly ‘Made in Africa’ is limited. A survey of LDCs for four years from 2010-2013 revealed that LDCs found that for manufactured products, of all the measures implemented by various trading partners to facilitate trade which LDCs found to be the most difficult, 35% related to rules of origin and the customs infrastructure and paperwork required to put this in effect [8].

To avoid future scenarios where all goods traded by AfCFTA member countries are ‘Made in China’, rules of origin should initially be flexible. This may seem counterintuitive. Why allow AfCFTA members flexibility in sourcing requirements if the goal is to enhance local production? Starting out with strict ‘rules of origin’ would deter trade. The reality is member countries need adjustment time to identify sectors where compliance with the rules of origin are most difficult. Time to also enhance customs monitoring capacity is required.

In addition to the above mechanisms, the state of transport infrastructure to support intra-African trade (roads, rail), the state of banking systems in Africa, the issue around currency value stability, exchange and unification are other areas to consider. Are the obvious oversights of primary commodity export dependence, lack of appropriate physical and customs administration infrastructure significant blunders that the AU/AfCFTA have overlooked in boosting intra-African trade and in creating one single African market? Would a ‘single’ market not also benefit from having a ‘single’ currency and a more integrated banking system? Though, AfCFTA presents the opportunity for a single market for Africa, given the state of trade facilitation mechanisms for intra-African trade, the implementation of AfCFTA may not go as smoothly as contemplated.

References

1. https://www.intracen.org/news/A-common-African-market-for-a-shared-African-future/

2. https://unctad.org/system/files/official-document/aldcafrica2019_en.pdf

3. https://www.weforum.org/agenda/2021/02/afcfta-africa-free-trade-global-game-changer/

4. https://www.wto.org/english/res_e/booksp_e/strengthening_africas_capacity_to_trade_e.pdf

5. https://www.oecd-ilibrary.org/development/aid-for-trade-at-a-glance-2015/reducing-trade-costs-for-least-developed-countries_aid_glance-2015-9-en;jsessionid=L4q2X05DORTyAwIOG_J_1SlS.ip-10-240-5-11

6. https://www.wto.org/english/res_e/booksp_e/strengthening_africas_ch_05_implementation_of_the_trade_facilitation_agreement_e.pdf

7. https://tfadatabase.org/implementation/progress/map

8. https://unctad.org/system/files/official-document/aldcafrica2019_en.pdf

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Author's bio

Oluwatobi Ogundele's economics experience and interests have been in the areas of competition law and policy, health and migration. She has masters degrees in Economics and in International Public Policy with specialization in International Economic Relations and Global Governance.