The role of regional trade in Africa’s recovery

Over 11,000 African business leaders and policy makers assembled in Durban, South Africa, last month for the Intra-African Trade Fair (IATF). Following a year of delays caused by the Covid-19 pandemic, the second edition of the IATF was a key step forward in the continued roll out of the African Continental Free Trade Agreement (AfCFTA). As Africa faces the triple challenge of Covid-19, the climate crisis and economic development, the AfCFTA’s role in building self-sufficiency and driving prosperity is more important than ever. However, joined up thinking from businesses and governments alike will be needed to overcome the challenges that the world’s largest free trade area now faces.

As South Africa’s President, Cyril Ramaphosa, highlighted at the close of IATF, “restoring and rebuilding our respective economies is as important as the fight against the health effects of Covid-19”. With over $36 billion of new deals announced and participating delegations from 46 African countries, the Fair re-affirmed Africa’s continued commitment to further regional integration and strength in unity. Afreximbank has already made an investment of $25 billion over the last two years in the project as Africa’s regional leaders seeks to invest in resilience and set the continent on a path of long-term growth.

This push is much needed given the challenge posed by continued waves of the Covid-19 pandemic which have undermined growth and weakened global solidarity. The re-imposition of strict travel restrictions on much of Southern Africa following a year in which richer nations have monopolized vaccine supplies, has only reinforced the message that African self-sufficiency must be a policy priority. In this respect, the AfCFTA has always had bold ambitions with Wamkele Mene, Secretary General of the AfCFTA secretariat reminding delegates that “not a single Country in Africa will be able to compete globally alone, hence African Countries must integrate the market, something that evaded Africa since 1963.”

Despite these challenges, significant progress has been made in key areas in recent months. African countries are close to an agreement on rules of origin, a sticking point for any trade agreement. According to Ebrahim Patel, South Africa’s Minister of Trade & Industry, consensus has been reached on 88% of products with a target of 90% by the end of the year. This is an essential building block to making the AfCFTA operational, allowing businesses and communities to begin to take full advantage of its opportunities.

Significant progress has also been made on building the digital infrastructure to support intra-African trade. The Pan-African Payment and Settlement Systems (PAPSS), created by Afreximbank, promises to facilitate seamless and instantaneous cross-border payments across the continent. Currently, many African transactions are processed via banks outside of the continent. According to Afreximbank, this process costs Africans $5billion a year. In a globalised economy, investments in such digital infrastructure will be essential. For many businesses, transactions with European partners continue to be cheaper, faster and less risky than those with their own neighbours. As Mike Ogbalu, CEO of PAPSS, highlighted at IATF last month, this situation is not tenable and initiatives such as PAPSS can go a long way towards redressing the imbalance.

The urgency of this shift has only been further accentuated by the Covid-19 pandemic and the limited support Africa has received from richer nations. Africa is not the only region looking to onshore its supply chains to mitigate against future risks with Europe and the US seeking to reduce their over-dependence on China. However, the scale of the challenge and urgency of the task are heightened for a continent with a low manufacturing base and under-developed regional trade.

Only 17% of Africa’s trade is conducted within the continent, compared to 69% in Europe and 59% in Asia. The struggle to secure supplies of PPE, treatments and vaccines has exposed the weakness of this position. In this respect, the WHO’s backing of an mRNA technology transfer hub in South Africa and BioNTech’s agreement with Rwanda and Senegal to begin producing messenger RNA for vaccines on the continent were both welcome steps. However, progress has been too slow and the collaboration between multilateral institutions, governments and businesses seen at IATF will need to be expanded to set Africa on a new growth path.  

Throughout discussions at IATF the commitment to make AfCFTA a success was clear. It is important that the lessons learned during the pandemic are applied beyond healthcare to build resilient and thriving economies across the continent. There is not a single sector that does not stand to benefit from stronger regional ties. In mining and renewables, for example, a pilot project was launched in the DRC this week with the aim of building Africa’s first electric battery manufacturing base. With backing from the UN, Afreximbank as well as the Africa Finance Corporation and African Development Corporation, the project shows how policy makers can leverage private capital to transform Africa’s economic base. With 70% of global reserves of cobalt, the DRC only benefits from 3% of the value created by batteries and electric vehicles. The same is true in Ghana where despite supplying nearly one fifth of the cocoa used by the $130 billion a year global chocolate industry, the country only sees annual revenues of $2 billion for the crop. Heavy industry could also see strong growth with increased automotive production on the continent set to boost sales of new vehicle from 1 to 5 billion a year. Such strategic investments supported by AfCFTA can allow African countries to share in the wealth created by their goods across value chains.

As Africa battles with the ongoing challenges of the pandemic and grapples with the renewed disruption of the Omicron variant, IATF reminded us that we must not forget the bigger picture. If Africa is to build back better from the current crisis and improve its ability to respond going forwards, then boosting reginal trade must be a priority for governments and businesses alike. That is why it was encouraging to hear Prof. Benedict Oramah, President of Afreximbank, announce that preparations for IATF 2023 in Abidjan have already begun, calling on stakeholders to “leverage the progress of the AfCFTA over the coming two years to make IATF 2023 an even more resounding success.”