Thursday, August 6, 2020

African market has potential to drive inter-continental growth

The agreement establishing the AfCFTA entered into force on 30 May 2019 for the 24 countries that had deposited their instruments of ratification and was scheduled to be implemented from 1 July 2020. But this has since been pushed out until 2021 because of the impact of COVID-19 and the need for leaders to focus on saving lives. 

In a virtual panel discussion to mark Africa’s inaugural Integration day last Tuesday, the Economic Commission for Africa (ECA) Executive Secretary, Vera Songwe said Africa does not need a Marshall Plan to ride out the ongoing coronavirus crisis but can turn to the AfCFTA to accelerate regional and economic integration.

The Marshall Plan is known to be an American initiative passed in 1948 for foreign aid to Western Europe following the devastation of World War II. The Plan provided more than US$15 billion to help finance the rebuilding efforts of the continent.

Some thinktanks believe that the impact of COVID-19 will only worsen these structural weaknesses. The ECA on the other hand has reported that between 300,000 and 3.3 million people could lose their lives if appropriate measures are not taken. 

As it battles with Covid19, Africa’s growth is estimated by African Development Bank is at -3.4 percent in the worst-case scenario for 2020, with a rebound to 3 percent in 2021, whilst the ECA estimates a drop from 3.2 percent to -2.8 percent to about zero percent growth as a result of COVID-19. 

What is key in the integration

Songwe pointed out that integration is key for Africa’s growth and attainment of Agenda 2030 for sustainable development. “We need to talk about Africa and AfCFTA. Our Marshall Plan is the AfCFTA. The AfCFTA is our plan so let us take it and run with it,” she told the virtual panel conference. 

She even went onto emphasise that it is crucial for Africa to integrate its financial systems to create a mutualised system of financial stability that works for the continent or regional monetary cooperation as in East Asia. She noted that, the Afreximbank Exchange Facility is an excellent step in the right direction. But more is needed to integrate Africa economies and financial sectors. 

“So, we do not need to go the long distance of common currency to get a mutualized system of financial stability that works for the continent. We need to ensure that as we build the AfCFTA and trade integration, we begin to build stronger, much more robust monetary and fiscal systems that can ensure that as a continent we can work with each other in a more effective way,” she said. 

Why is Africa more vulnerable to Covid19 and what could be done? 

Africa is more vulnerable to the impact of COVID-19 as it is highly dependent on imports for its medicinal and pharmaceutical products and on commodity exports, this include oil, which has suffered a severe collapse in price. 

Other contributing factors are high public debt due to higher interest rate payments than Organisation for Economic Co-operation and Development (OECD) countries, a weak fiscal tax base, and the negative impact on Africa’s currencies due to huge stimulus measures taken by OECD countries.

African countries could accelerate intra-regional trade by focusing on the products of greatest need during the health crisis. Countries could also start building regional value chains to advance industrialisation, improve infrastructure and strengthen good governance and ethical leadership.

Building trade agreements in favour of small and less developed economies will contribute to fairer outcomes of the free trade deal.

Again, something to look at as African rulers is to take along their stakeholders, that is businesses, trade unions and civil society organisations in the national consultation process through effective and strong institutions that enable the fullest participation.

Cooperation is also key between Africa’s emerging entrepreneurs and industries to improve their competitiveness in global markets.

As a whole, Africa needs to take several steps to boost trade, such as fostering skills for entrepreneurship and providing more access to credit and capital. Business and political leaders will need to think creatively about continental joint ventures to build strong production and manufacturing networks across the continent. 

Where is Botswana?

Botswana is not party to the AfCFTA yet, however it is at preliminary stages of negotiations. Other key trade agreements that are currently in the stages of negotiations include Tripartite Free Trade Agreement, SACU + Mozambique Economic Partnership Agreement with the United Kingdom. Meanwhile, the SACU-European Free Trade Association, European Union-SADC Economic Partnership Agreement, SADC Protocol on Trade and African Growth and Opportunity Act (AGOA) are being implemented. 

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