The AfCFTA – Iterating Towards African Trade for African Growth

Economic integration has long been understood to be a strategy worth pursuing as a means
to improve the trade performance and economic development of African countries. The second half of Africa’s 20th century saw two key movements that immutably impacted the politics and economics of the contemporary world: decolonisation and globalisation. As recently independent African states gained
more and more political autonomy, they joined a world order that recognised the
economic benefit of trade liberalisation and international trade.

In the present day, against the opportunity presented by more than 1.2 billion people and a combined GDP of USD 3.4 trillion, an intra-continental trade rate of only 13% pointed to major structural barriers to Africa’s traction towards regional integration. It is against this background that the African Union (AU) adopted the theme of “Boosting Intra-Africa Trade” (BIAT) to fast track the establishment of Pan-African Free Trade. The BIAT Action Plan entails significant policy interventions towards a continental environment conducive to inclusive and integrated African trade and economic development. The Action Plan was endorsed alongside the 2012 AU Assembly decision to establish a Pan-African Continental Free Trade Area which stated the AU’s intent to of intra-African trade as a means towards the sustainable socio-economic development of Africa.

The Agreement Establishing the African Continental Free Trade Area was adopted on March 21 2019. The objectives of the Agreement capture the desire of the 55 member states of the African Union to unify their economies in pursuance of the African Union’s Agenda 2063. It builds on initiatives and developments made by African states both independently and as regional economic communities towards deepening the economic integration of the continent.

The Agreement is the latest step in Africa’s long journey towards inclusive and sustainable economic development. The lessons that inform it, and the aspirations that create its need, are steeped in a history of exploitation, poor governance, and economic crises. Its principles, objectives and specificities are inclined towards organising Africa to move beyond this history and into a stable future of shared prosperity. Exploring the context of the Agreement allows for a fuller appreciation of its promise and the importance of its successful implementation to Africans.

Africa is a highly diverse region with a pallet of cultural identities forged around unique people groups that predate the colonial enterprise. The inorganic transmogrification of African identities from ethnic affiliation to nation states in the crucible of colonial administration created national boundaries that had little regard for the stable interrelation of these groups. The highly disruptive divide and rule tactics of the
colonial conquest pitted groups against each other
. The chaos and disunity created conditions that were favourable to colonialism but disruptive to the peaceful independence of the states it left behind.

Between 1950 and 1980, most African states fought and won their independence struggles and took the reins of their political and economic futures. Newly formed governments inherited the chaos of inconsiderate boundaries and disenfranchised peoples and hoped to forge stable prosperity out of it. The World Bank in its World Development Report 1980 identified two sources of economic growth that were dependent on government policy: stockpiling productive assets and human skills; and increasing the productivity of their countries’ assets, skills, and natural resources. Growth along these lines necessitates policies that efficiently direct the movement of capital and labour between sectors, develop capacity-building and regulatory institutions, encourage the invention and introduction of new products and production techniques, and that decrease costs and waste. Nationalist policies, targeted at uniting the disparate peoples that had been disenfranchised by their colonial administrators, drove African states to reinvest the returns of international trade on social services such as free education and healthcare that saw the quality of life rise. Decolonisation brought a wind of optimism that unfortunately died down quickly as African states realised the difficulty of trading the outside forces that brought them together for a sustainable internal sense of unity. The throes of recently independent states saw overt nationalism, weak governance and political instability stagnate the prospects of economic growth. This led the World Bank report to note with an air of pessimism that Africans were, on average, as badly off at the end of the 1970s as they were at the beginning with Sub-Saharan Africa having “the most disturbing outlook” globally.

In early postcolonial Africa, trade infrastructure was largely a relic of the colonial past with colonial-era transport links decisively shaping Africa’s economic development. Extant road and rail networks were designed to aid the extraction and export of raw materials from the African coast to the rest of the world. Newly independent states benefited from the ability to use these networks to buy and sell in the global market but, without good links to their neighbours, intra-African trade was comparatively more difficult and expensive. These states also lacked developed value-adding industries and exported raw materials considerably less valuable than the finished consumer goods being imported. Without developed industries, African states had little use for the raw materials that their neighbours were exporting even if they could access them. This meant that the demand and supply characteristics of African economies were decisively skewed against intra-African trade. There was no immediate reason to improve trade routes between African states. Resource-rich countries, and in particular those with the coastal access and infrastructure to import from outside Africa, were able to harness international trade for their own development. Even then, they traded low-value exports for high-value imports and saw little development of value-adding industries. The 1980 World Bank report noted that primary products constituted 80 – 100% of merchandise exports from African countries.

Differences in income growth among developing nations were determined more by the availability of natural resources than economic structure, institutional development, or human skills. Poorly endowed countries dragged behind their more fortunate African counterparts who were themselves still well behind developed countries. Trade in high-value goods and services predominantly moved from more- to less-industrialised countries. Protectionist policies and an overreliance on primary production among less-industrialised countries saw them excel at stockpiling excess capacity for similar exports. Even as regional economic integration emerged in Africa, people saw little benefit from joining a wider but homogenous market.

While African states took to reinvesting their revenues on nation-building social programmes, these developments rested on a fundamentally unstable foundation. The homogeneity and overreliance on extra-African trade left African economies particularly vulnerable to external shocks to the global economy. The two oil price crises of the 1970s and 1980s saw a reversal of the meagre GDP per capita growth African states had enjoyed in their independence booms. The 1990s is remembered as “the lost decade” for Africa as it saw economic failings compound with famine, conflict, and the Aids epidemic. The results were multiple five-alarm fires across all sectors of the developing African states that uncovered a real lack of economic independence. The rest of the world, and developed countries in particular, were considerably better able to pull themselves out of the economic rut as Africa spiralled into increased poverty.

Absolute consumption poverty rates. Source: THE ECONOMIC TRAGEDY OF THE XX­th CENTURY: GROWTH IN AFRICA

African raw materials supporting the stability and increased development and
sophistication of foreign economies, international trade put on the colour of
economic exploitation for Africa. Joining the globalisation party late and with
limited economic and political bargaining power meant that many African states
were unprepared to be full beneficiaries of international trade. They were,
instead, mere subjects floating unanchored in the unpredictable current of the
global economy.

Developing the Bigger Picture

In 2007, then president of the African Development Bank Donald Kaberuka assessed the African economy fifty years after independence and tackled the question of what caused Africa to fail to live up to its postcolonial optimism. He considered two explanations. The first explanation is structural factors which African states had little control over such as their peoples’ histories, arbitrary boundaries, the high concentration of land-locked countries, geography and ecology, and epidemics. These had an impact on the ability of states to monetise their natural resources as a route to growth and stability. The second explanation is choice factors—policies, governance, and institutions— over which the states had some degree of control but made bad decisions around. Compassionate but clearly inefficient choices such as the attempts to build welfare states on the back
of economic instability are a telling example.

Unfavourable structural factors are an impediment but certainly not an immutable destiny. Malaysia’s success story as a newly-industrialised nation begun with its government’s commitment in the 1970s commitment to decrease its reliance on agriculture and extractives. It was able to resist external shocks affecting the demand for its primary commodities through a diverse multi-sectoral economy that makes good internal use of its resources. In so doing, Malaysia was able to develop strong links to global value chains as a true beneficiary of globalised trade; thereby attained its big-picture goal of becoming an industrialised nation. Good choices, therefore, serve as an important conduit for sustainable economic stability and progressive development. To this end, good policies, governance, and institutions are measured on their commitment towards a bigger picture of economic prosperity. Africa is no stranger to development booms that were abruptly reversed by changes in policies and governance that failed to appreciate big-picture goals. Kenya’s fisheries sector offers a recent example as the aquaculture programme under the national government’s Economic Stimulus Programme was abandoned by newly-formed county governments after a constitutional referendum. Such reversals, especially when they abandon emerging sectors before they become self-sustaining, are bad choices that turn promising initiatives into sunk costs.

There is a
paradox in state building that needs to be carefully navigated. The end of the
20th century saw mass movements towards economic liberalisation as
Africans bemoaned the inefficiencies and corruption of state-dominated
economies. It was also apparent that a lack of stability from weak state
institutions and vacillating policy objectives were antithetical to sustainable

This leads
to two conclusions regarding choice factors in organised economic development.
First, there is an immediate need to lay the foundations for economic stability
on local diversification—both of economic sectors and of the dominance of
states over their economies vis a vis the private sector. Secondly, African
economic development needs to be oriented towards big-picture goals rather than
the government-of-the-day sensibilities that have been the norm.

Revisiting Regional Economic Integration

The lessons
of the past caution against the integration of states with overtly
nationalistic goals. Focusing on strengthening local production for exportation
to the rest of the world builds reliance on the rest of the world, and this is
a problem for the long-term stability of African states whose exports are
predominantly primary commodities. Homogeneous economies excelling at producing
primary commodities that they are unable to process do little to help each
other along the development curve. A concerted effort to build capacity around
comparative advantages makes for better neighbours that anchor the regional
economy amidst unfavourable changes in the global economic tide.

As global commodity prices plummeted in the context of the shocks experienced in the 1970s and 1980s, African states suffered greatly from economic stagnation and remained helpless as the rest of the world adjusted. The Lagos Plan of Action for the Economic Development of Africa 1980-2000, drafted in Lagos in 1980, begins by stating that the “effect of unfulfilled global development policies has been more sharply felt in Africa than in the other continents of the world.” It stated that these global policies did not benefit Africa’s economic situation but instead made it more susceptible to the economic and social crises suffered by industrialised nations. While appraising the unquestionable wealth in natural and human resources on the continent, the preamble continues to decry the unfavourable vestiges of the continent’s colonial history and the “neo-colonialist external forces which seek to influence the economic policies and directions of African States.” As a remedy, the Lagos Plan set out a framework for African countries to commit to the integration of their economies with a view of achieving self-sufficiency as a continent. It recognised that there was sense in a country relying on others for support in the development of its economy. Reflective on Africa’s proximate history, it firmly articulated that, without a commitment to common interests and mutual benefit, such reliance was likely to create conditions of unilateral dependence and exploitation. It was a definitive statement towards decreasing Africa’s dependence on developed countries by promoting intra-African trade. This spurred the development of a number of regional organisations committed to complementary economic development that would come to form the basis of future developments towards Africa’s economic integration.

The Treaty  Establishing The African Economic Community was signed in Abuja in June 1991 as a template for further economic integration in pursuance of a future of sustainable development for Africa. It was the next crucial step in the journey towards the integration of African economies that built on the Lagos Plan. The goals of the African Economic Community (AEC) were reflective of concerns over the inefficient trade strategies that led to the lost decade. The treaty, also known as the Abuja Treaty, stated as its first objective the desire to promote “the integration of African economies in order to increase economic self-reliance and promote endogenous and self-sustained development.” Article 3 of the Abuja Treaty articulated the principles that underpin the AEC which include: solidarity and collective self-reliance; inter-State cooperation, harmonisation of policies and integration of programmes; and the promotion of harmonious development of economic activities among Member States. The Treaty is only a template for an eventual AEC as it set the agenda for eight sub-continental regional economic communities (RECs) to serve as the harbingers and building blocks for an eventual continental trade bloc. There are more than eight RECs whose memberships overlap, but the following eight are recognised as the pillars of both the AEC and the African Union:

  1. The Arab Maghreb Union (AMU/UMA) in the north,
  2. The Economic Community of West African States (ECOWAS) in the west,
  3. The East African Community (EAC) in the east,
  4. The Intergovernmental Authority on Development (IGAD) also in the east,
  5. The Southern African Development Community (SADC) in the south,
  6. The Common Market for Eastern and Southern Africa (COMESA) in the southeast,
  7. The Economic Community of Central African States (ECCAS) in the centre, and
  8. The Community of Sahel-Saharan States (CENSAD) in the north.
Source: African Trade and Development Centre

Defragmenting African Trade – the African Continental Free Trade Area

In 2002, The Constitutive Act of the African Union established the African Union in furtherance of the 1999 Sirte Declaration wherein the members of the Organization of African Unity (OAU) committed to strengthening continental cooperation. The OAU had been an important rallying point for continental cooperation on decolonisation and moving African states towards stability. Nevertheless, members agreed on the need to reorganise African unity to address the shortcomings of the OAU and, in particular, accelerate the attainment of the AEC aspirations. With the wisdom garnered from the participation of the OAU, its former members established the AU as a more capable and better-organised forum for the collaborative pursuits of the aspirations of African peoples.

It was under the auspices of the AU that the African Continental Free Trade Area (AfCTFA) was established by the 2019 Agreement Establishing the African Continental Free Trade Area. The general objectives of the Agreement include the creation of a single liberalised market for goods and services; the movement of persons and capital; the promotion of diversification and industrial development; the eventual establishment of a Continental Customs Union; the development of regional value chains, specifically agriculture; and food security.

The implementation of the Agreement is targeted at defragmenting African trade to build healthy value chains for goods and services among African states. It entered into force on May 30 2019 and the operational phase was launched on July 7 2019.
Accra, Ghana, was selected as the seat of the AfCTFA secretariat which is charged with the implementation of the agreement.

The goals and promises of the AfCFTA will manifest progressively as it progresses through its implementation stages. This will be driven by negotiations on tradepolicies that harmonise the economic trajectories of individual states. As the short-sighted and nationalistic modus operandi of African governments are substituted for integrated, collaborative, big-picture goals, we can expect greater policy stability across a vast continental economy. Stability breeds investor confidence in the likelihood of the success of initiatives targeted at developing underperforming sectors and introducing new ones.

The AfCFTA represents the latest and most promising iteration yet of proper planning by Africans for an autochthonous collaborative trade-driven development. It offers a strong platform for progress in other areas that are, like the political alignment it embodies, non-negotiable components of true continental integration. There is still a need to develop the physical, digital and financial infrastructure, progressive policies

It is expected that the AfCFTA will increase intra-African trade from the current range of 15-18% by 52% by 2022, driving down the cost of intra-African imports. The free movement of people and capital will complement this by distributing human, natural, and financial resources efficiently towards the maximisation of Africa’s potential. This holds the prospects of Africa being a rich resource for inputs that it actively uses towards the betterment of its developmental outlook, rather than that of more developed nations. This, in turn, will spur investment in and development of value-adding industries, driving technological specialisation and creating high-value jobs and exports. The AfCTFA places priority on improving Africa’s food security, with improved efficiency and productivity in agriculture and food processing likely to be the most noticeable beneficiary of the regional integration of predominantly agricultural states. With a deliberate effort to jointly form and contribute to continental value chains, the Agreement could drive the diversification of African economies away from the homogeneity of the past. This is fundamental to the realisation of a self-sustaining industrialised African economy that looks inwards for the production of both primary commodities and consumer goods.

Truly sustainable and endogenous African economic development forms a strong base for
building Africa’s capacity to efficiently attain the Sustainable Development Goals. Through the AfCFTA, Africans have good reason to once again regard global development agendas with optimism.