Will the AfCFTA offer Africa the best chance to mitigate the economic effect of COVID-19 (and future pandemics)?

The novel coronavirus disease (COVID-19) pandemic has pushed Africa’s somewhat faltering economy towards its first recession in 25 years. The measures taken to contain the spread of the virus have brought economic growth to a halt across the continent. Countries are multiplying their efforts by putting in place fiscal measures and schemes to protect their economies, help businesses survive and protect livelihoods. However, in a context where many countries on the continent were already facing economic difficulties, it is not feasible to expect extended social protection schemes or stimulus packages as per those in the United States or Europe.

Importance of regional integration

In the last few weeks, there has been a visible effort through the African Union (AU) agencies and other multilateral organisations across the continent to coordinate efforts covering surveillance, prevention, diagnosis, treatment and responses to COVID-19. However, the means are lacking for a sufficient response to the impending economic crisis. As the COVID-19 shock continues to impact the global economy, Africa has to look at its own resources and capabilities and find novel ways to cushion its populations against the economic downfall.

Veepin Bhowon, Senior International Trade and Investment Climate Expert and Senior Associate with International Economics Consulting Ltd. based in South Africa, is of the view that the impact of COVID-19 and the consequent global recession will have a long-lasting effect on Africa.

As countries worldwide reel from the effects of a global recession, we can expect a change in consumer habits, in demand and supply, in national economic policies. Countries are already leaning towards reshoring part of their economic activities to decrease their dependency on foreign suppliers. Africa should also look towards developing more value-added activities to build up its capacities and reduce its dependence on increasing imports.” –Veepin Bhowon

Veepin points out that Africa is rich in natural resources and raw materials that it exports for processing elsewhere and which come back as finished products. Instead, this could be the moment for African countries to come together and rethink the manufacturing industry on the continent, as well as find more efficient ways to boost intra-African trade which has been historically low. This can only happen if countries show leadership, political will and commitment to regional integration. The United Nations Conference on Trade and Development (UNCTAD) reports that intra-African exports were 16.6% of total exports in 2017, compared with 68% in Europe and 59% in Asia, pointing to untapped potential.

Regional integration has a major role to play in saving Africa’s economy. There is a huge market on the continent and countries must work together to produce locally. We have the raw materials, we have the labour, it may cost a bit more, it may take time to build our capacities but as a continent, Africa has to decrease its dependency on foreign imports. For that, countries need to work together to allow for a greater movement of goods, services and people within the continent and remove trade barriers, among other measures. This is why a common market like the AfCFTA is important for the continent, especially in the long term.” – Veepin Bhowon

The role of the AfCFTA

Implementation of the African Continental Free Trade Area (AfCFTA) would create a single continent-wide market for goods and services in Africa and allow the free movement of business travellers and investments. It would also create a continental customs union to streamline trade and attract investments, and would be the largest free trade area by number of countries once it is fully functional. This would open borders to a new trade revolution in Africa. While the entry into force for trade in goods was expected in July 2020, this deadline has now been pushed back to next year in light of the COVID-19 pandemic.

Figure 1. A six-step roadmap from the AfCFTA to the African single market.

Source: UNECA-AU-UNCTAD. Assessing regional integration in Africa | Aria IX. September 2019.

 

Nonetheless, many experts see the AfCFTA as a means to mitigate the effects of COVID-19 on the continent. Ibrahim Assane Mayaki, former Prime Minister of Niger and current CEO of the AU Development Agency’s New Partnership for Africa’s Development (NEPAD), says in an opinion piece published by Project Syndicate, that implementation of the AfCFTA needs to be accelerated, with the original time-frame of 5 years to liberalise tariff barriers on 90% of products to be reduced, so as to decrease Africa’s high-trade dependence on non-African trade partners in the context of COVID-19.[1]

The UN Food and Agriculture Organisation (FAO) has also highlighted that the entry into force of the AfCFTA would likely expedite regional integration efforts and promote intra-regional trade in agri-food products. This would be crucial in reducing vulnerabilities to COVID-19-related market disruptions and mitigating its impacts on the poor by ensuring that agri-food supply chains and trade channels remain open.

The role of the RECs

But is the AfCFTA really Africa’s answer to the looming economic crisis? William Babigumira, Senior Trade Adviser based in East Africa and Consultant with International Economics Consulting Ltd., is quite sceptical about it.

I doubt the effectiveness of the AfCFTA because of the reality on the ground. Before even speaking of mitigating the economic effect of COVID-19, the way the countries work together to stem the contagion will be evidence enough of how the countries will be able to respond together to the economic crisis. Take the East African Community (EAC) for example, with regards to their actions taken to contain the virus. There is agreement on what needs to be done, but two out of the six Member States refused to go into lockdown.[2] This inconsistency puts all the EAC Member States at risk of protracted outbreaks if unrestricted movement within the economic area continue because some governments are not doing what should be done.” – William Babigumira

Another concern for William Babigumira is the dependence of the AfCFTA on the functioning of Regional Economic Communities (RECs). The Tripartite Free Trade Area Agreement (TFTA), made up of the Common Market for Eastern and Southern Africa (COMESA), the Southern African Development Community (SADC), and the East African Community (EAC), is one such building block of the AfCFTA, with the aim to gradually reduce the tariffs for all goods traded in the TFTA bloc to zero. However, William points out that it is difficult to see how the AfCFTA can fulfil its potential if the RECs on which it relies, have been unable to function to their full extent so far.

Regional integration vs national interests

William goes on to highlight the fact that COVID-19 has interfered with the timetable of ongoing negotiations. Under Phase II of the negotiations, intellectual property rights, investment and competition policy, and commitments on trade in services for non-priority service sectors were scheduled to be completed before the July 2020 deadline.

Figure 2. Agreement establishing the AfCFTA and its parts.

Source: UNECA-AU-UNCTAD. Assessing regional integration in Africa | Aria IX. September 2019.

 

The pandemic is also creating a situation where some AU countries may impose additional trade barriers to protect their economies and promote inward looking as well as beggar-thy-neighbour policies, effectively discouraging regional integration in favour of preserving the national economy, going against the principles of the AfCFTA.  Countries may also choose to classify new products as sensitive, which would delay the tariff liberalisation process.” 

– William Babigumira

Lack of commitment prior to the COVID-19 crisis

Although in principle the AfCFTA could help mitigate the impact of the COVID-19 crisis on the African economy, says William, there are myriad factors at play for it to be effective in immediacies like the current crisis. It will take time and strong political will for the countries to put aside national interests to work together and build a stronger continental economy. According to an assessment and ranking of African governments with regards to their level of commitment to the AfCFTA and their readiness for implementing the trade in goods agreement in July 2020; completed by the think tank Afrochampionships Initiative at the end of March and as yet unpublished, while some of the least committed countries were among those most prepared logistically to take advantage of trading, it was the reverse among some of the most committed countries.

The start of trade in goods delayed until next year

Despite the high hopes pinned by many on the AfCFTA as the answer to Africa’s mitigation of the economic impact of COVID-19, the way to a fully-functional continent-wide free trade area will be an arduous and lengthy journey. Last week, the Secretary General of the AfCFTA Secretariat, Wamkele Mene, indicated in a declaration to the Institute for Security Studies that the July start has been postponed, pending ratification by Heads of State, until at least January 1 2021, or until the COVID-19 pandemic has abated.[3] The initial attempts at pursuing negotiations online to complete Phase II negotiations on time were in vain due to several factors, among which, connectivity problems and trouble interpretation and translation into four languages.[4] This delay would also allow governments to concentrate their efforts in fighting the pandemic at home, instead of at the negotiations table.

 

Experts interviewed:

Veepin Bhowon. International Trade and Investment Climate Expert based in South Africa and Senior Associate with International Economics Consulting Ltd.

William Babigumira. Trade Adviser based in East Africa and Consultant with International Economics Consulting Ltd.

 

Author: Nashreen EdooBaccus

 

References

FAO (2020). Intra-African Trade, the African Continental Free Trade Area (AfCFTA) and the COVID-19 pandemic. 12 April 2020

Institute for Security Studies (2020). The AfCFTA gets locked down for the year. 24 April 2020

Project Syndicate (2020). How Africa’s economies can hedge against COVID-19. 27 March 2020.

The Afrochampions Initiative. Will COVID-19 Derail AfCFTA Start of Trading? Preliminary Assessment and Recommendations. 17 April 2020

Time (2020). South African President Cyril Ramaphosa: How Countries in Africa Are Working Together To Fight Coronavirus. 15 April 2020.

UA-UNECA-UNCTAD. Assessing Regional Integration in Africa|Aria IX. September 2019.

UN Africa Renewal (2020). Ways Africa’s Free Trade Area could help mitigate effects of COVID-19. 25 March 2020.

UNCTAD (2019). Economic Development in Africa: Rules of origin for enhanced intra-African trade. June 2019

 

[1] Institute for Security Studies (2020). The AfCFTA gets locked down for the year. 24 April 2020

[2] The multilateral negotiations need to be translated in the four working languages of the African Union: Arabic, English, French and Portuguese. Source: African Union Handbook 2019.

[3] Project Syndicate (2020). How Africa’s economies can hedge against COVID-19. 27 March 2020.

[4] Burundi and Tanzania have not put in place any form of lockdown and have kept economic activities running.

 

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