Trade is an often-prescribed cure for economic diversification and transformation in Africa. However, the COVID-19 crisis has posed unprecedented challenges and according to the World Trade Organization (WTO), trade will shrink between 13% and 32% this year. The added challenge for Africa is that even before the pandemic, the continent was a minor participant in the international trade arena with only 2 per cent of the global trade volumes. With current trade being affected so drastically and the acceleration of international de-globalization, robust global economic recovery is in peril. Africa is not only not immune to these trends, but a subject to them and in danger of being further sidelined. Yet, this does not come to say that trade cannot facilitate economic recovery because it can but it has to be “Trade 2.0”, trade reimagined for Africa’s context-specific scenario.
This new chapter has to be characterized by African countries prioritizing each other, focusing on intra-African trade and placing regional multilateralism above global aspirations, as no country can be competitive internationally until they are competitive regionally. The African Continental Free Trade Area (AfCFTA), to be implemented in early 2021, is the vehicle that has the full potential to deliver on trade’s promises.
It is the most ambitious trade project since the WTO itself and will create a single market for over 1 billion people with a GDP of more than $2.5 trillion, thus, transforming the continent into the largest free trade area in the world. The opportunities are vast since only 18% of the current trade is within Africa, a minor improvement from 10% in 1995, making it the least integrated continent. More than mere trade volumes, one needs to take into account the ability of trade to boost product sophistication, which is particularly important for the major commodity-exporting countries. The fact that 14.8% of global exports are manufactured goods as opposed to 41.9% of the regional ones, signals that product upgrading is more attainable through closer integration of neighbouring countries and can facilitate the long-promised diversification which in turn will allow for economic resilience in the face of shifts in demand. Further benefits from the AfCFTA are the reduced dependencies on foreign partners, especially when it comes to imports, and strengthened regional value chains. Finally, the agreement establishes co-operation and trust as the modus operandi on a very fragmented and poorly linked continent.
For trade to facilitate the post-pandemic economic revival, we need to focus on a few areas that are guided by the rule that what is best for the recovery is what is best for the long-term sustained growth.
First, we need to look beyond the immediate challenges and circumstances and commit to pivoting and perfecting the AfCFTA. Short-term tools such as establishing trade corridors for essential goods are stepping-stones for testing and perfecting the supply chains on which future trade will be based.
Second, need to keep our supply chains, which are heavily strained during the pandemic going. The cancellation of passenger flights has been a reasonable response to mitigate the spread of the virus but now that some African countries have been closed for almost 5 months, this has resulted in decreased air cargo availability and at least 30% price spike. Ports with poor automation levels have introduced extra procedures, which additionally slow down the movement of goods and are heavily impacted by the availability of labour. We have to focus on enhanced trade facilitation to keep goods moving.
Third, we need to incentivise investment into infrastructure, as poor trade logistics are the biggest barriers to trade on the continent. By 2040 there will be a 15 billion dollar gap between the infrastructure investment needed and the amount provided and that gap will be wider on continents like Africa where the population of young and fast-growing. When 1% of GDP is invested in infrastructure, economic output increases by 0.4% in the first year and 1.5 by the fourth year; in low and middle-income countries there is a $4 return for every $1 spent on infrastructure. The governments need to work on attracting investors and companies that will build infrastructure that is robust, sustainable and technologically advanced in order to serve as the backbone of trade logistics.
Finally, we must be aware and open to new opportunities. Earlier this month I spoke at the prestigious Dhaka Forum a new “Davos for the Global South” that discussed new opportunities for South-South cooperation between Asia and Africa. Such dialogues will remain important if Africa, and Asia, are to fulfil their development goals through trade.
Gergana Urdarevska is the managing director of Freezone Watch, a consultancy.