Can Africa’s Economic Growth do better under the Africa Continental Free Trade Area (AfCFTA)?

Posted On Monday, 20 May 2019 12:03
Kennedy Manyala giving a presentation on the impact of AfCFTA on the EAC region at Media Policy Breakfast facilitated by Strathmore  Business School in collaboration with the Business Advocacy Fund Kennedy Manyala giving a presentation on the impact of AfCFTA on the EAC region at Media Policy Breakfast facilitated by Strathmore Business School in collaboration with the Business Advocacy Fund

By Kennedy Manyala

The signing of the Kigali Declaration on the African Continental Free Trade Area (AfCFTA), in March 2018, by African Heads of State and Government, marked a significant shift in expectations by Africa’s business community, for Africa’s future economic growth and development.

The Declaration introduced enhanced intra-African trade, achievable through AfCFTA as a sure way of achieving elusive sustainable economic development, employment creation all over member states, and most importantly, reversing the declining economic growth and development trend in the continent.

Over the past fifteen or so years, most countries in Africa experienced sustained economic growth, with the rates often exceeding 5% a year. Between 2000 and 2010, the continent achieved average real annual GDP growth of 5.4%, adding US$78 billion annually to GDP. This growth inspired optimism around and about the continent’s socio-economic prospects and in its ability to deliver better socio-economic welfare gains to the people.

However, this was not the case. Between the years 2010-2015, Africa’s economic growth slowed down. Growth dropped to an average of 3.4% per year thus sending shockwaves through the leadership of Africa and the entire business community. Despite this decline in the performance of mentioned economies, the rest of Africa’s economies were able to maintain stable growth rates in general. Nonetheless, African economies amid many internal and external shocks have been resilient. According to the World Bank Review (2018), growth in Sub-Saharan Africa is estimated at 2.3% for 2018, down from 2.5% in 2017. Economic growth remains below population growth for the fourth consecutive year. This trend created a shockwave among economic policy makers in Africa, the continents leadership, and the entire business community.

‘Africa cannot continue playing catch-up all the time’

Realizing that the time for economic growth and development ‘catch-up’ is over, and that spiritual, economic, and political history would judge them harshly, the African leadership moved swiftly and agreed to establish the Continental Free Trade Area (CFTA) by 2017. In so doing, they endorsed a road map and architecture for fast-tracking the establishment of the CFTA and the Action Plan for Boosting Intra-African Trade by: fast-tracking the EAC, COMESA and SADC (Tripartite FTA), overseeing the completion of Free Trade Agreements (FTAs) and, Consolidating the Tripartite and other regional FTAs into a CFTA initiative. It is believed that a more open Africa through the CFTA will grow intra-Africa trade from its current levels. Under the present policy environment and physical conditions, intra-African trade remains low. In the trading period 2017-18, intra-Africa exports accounted for 16% of Africa’s total exports. The share of intra-African exports as a percentage of total African exports increased from about 10 % in 1995 to around 17% in 2017 with some slight improvement expected in 2018, but it remains low compared to levels in Europe (69%), Asia (59%), and North America (31%).

But isn’t the initiative ambitious?

No doubt, the AfCFTA among other commitments Africa’s leadership has made in the past such as the Comprehensive Africa Agriculture Development Programme (CAADP) and the Programme for Infrastructure Development in Africa (PIDA), to name a few, is probably the most ambitious commitment we have ever seen in recent times.

Though it looks good on paper and in economic spirit, Africa’s economic development planning history shows us that the AfCFTA could be a public relations exercise. That is unless African governments through their respective Regional Economic Communities (RECs) act on trade barriers, physical infrastructure challenges and overall national competitiveness.

Africa must do the following:

Africa must make AfCFTA work. African governments through their respective RECs must have the courage to read and implement the Economic Textbook requirements. We understand that structure, nature and physical dynamics in Africa can be intimidating to intra-Africa trade and its CFTA policy component of free movement of goods. But Africa must have the courage to fix it.

First, Africa through the AfCFTA must try to remove trade barriers within and across all RECs and allow the free movement of goods, services, and people across Africa. The CFTA could help to increase combined consumer and business spending on the continent to $6.7 trillion by 2030. Second, Africa has poor road and rail network that has stood against intra-trade. Africa must put its road and rail infrastructure in place. All roads connecting countries and every RECs will be key in speeding up the movement of goods and reducing transport costs. For example, a road from Mombasa (Kenya) to Matadi via Kinshasa (DRC) or from Mombasa, Kampala to Kisangani and Bangui, would expose trade with the Central Africa Region. Third, Africa must engage, promote and participate in a massive private sector development agenda that would primarily start with national completeness programs that are cascaded down to the SMEs. Such a programme would make the AfCFTA work for the African consumer, as well as make African goods globally competitive.

Kennedy Manyala is an applied microeconomist with a deep understanding of issues worldwide ranging from the Americas, European Union, Asia, Middle East, and Africa to the East Africa Community (EAC) especially on strategic public and private investments in non-tourism sectors and tourism and socio-economic development issues