The AfCFTA — Can Africa Save Itself? — Economic Confidential

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The AfCFTA — Can Africa Save Itself? — Economic Confidential
The AfCFTA -- Can Africa Save Itself? — Economic Confidential

The AfCFTA — Can Africa Save Itself?
By Edward Ejike Okpa

Africa is an incredibly rich continent. That richness, however, has not translated into wealth for Africans. Africa’s oil and gas and gold and diamonds and copper and cobalt have made Africa a target for stronger external powers for centuries. As a result, one in three Africans (some 422 million people) lives below the global poverty line (and that is a pre-COVID-19 statistic). Generations after the greatly exaggerated death of colonialism, over half of African nations’ exports are raw materials (the top five are oil, gold, diamonds, natural gas, and coal). While African farmers grow and export cash crops like coffee, cocoa beans, and tobacco to make ends meet, African net food imports are expected to triple by 2025, and undernourishment is projected to increase 33 percent over the same time period. The more things change, the more they stay the same.

Africa’s most precious resource, however, is not its arable land, its mineral commodities, or its precious metals. Africa’s most valuable resource is its people. Like most other African resources, external powers have exploited African human beings like any other commodity for centuries. The lucrative global slave trade underpinned the development of entire economies based on sugar, cotton, and other labor-intensive raw materials in the 1700 and 1800s.

In the English-speaking world, we like to pat ourselves on the collective back for having rid the world of such pernicious practices, but slavery isn’t a thing of the past. It is alive and well. In the Democratic Republic of Congo, which possesses 50 percent of global cobalt reserves and provides almost 60 percent of global supply – children mine cobalt so that non-Africans can have cheap smartphones and drive electric cars.

The value of Africa’s people to external powers, however, is no longer just about transparent exploitation. They want to sell their wares to Africans too. The reason is simple: of the world’s eight geographic regions (as defined by the UN), sub-Saharan Africa (SSA) is the only one projected to sustain rapid population growth for the rest of the century. According to the UN’s medium variant projection, SSA will become the most populous region in the world around 2060 – more populous than East Asia and South Asia. (And that’s not even accounting for the Arab states of North Africa, an additional ~200 million people.) In 2019, twice as many children were born in Africa as in Latin America, North America, Europe, and Oceania combined.

In the coming decades, as the rest of the world ages and searches for new, growing export markets, Africa looks poised to be the only real game in town. The challenge facing African nations will be turning its human capital and resource wealth into a blessing rather than a curse – into leveraging its strengths to increase prosperity and dignity rather than being taken advantage of for yet another generation. Enter the African Continental Free Trade Agreement (AfCFTA), which came into effect on Jan. 1, 2021. The AfCFTA, signed by 54 out of 55 African nations (get with the program, Eritrea!) and currently ratified by 35, is arguably the most ambitious free trade agreement ever agreed to in world history. According to the World Bank, the AfCFTA will increase real income gains by 7 percent, will lift 100 million people out of extreme and moderate poverty, and increase continental production by over $200 billion.

The goal of the AfCFTA is to break the vicious cycle of mercantilism, whereby foreign powers obtain raw materials on the cheap from African nations and then sell manufactured goods back to those same nations. In the 17 years before the AfCFTA was first signed in Kigali in 2018, Africa’s dependence on exports sent to the rest of the world ranged from 80 to 90 percent. In 2017, intra-African exports accounted for roughly 17 percent of total African exports, compared to 68 percent in Europe, 59 percent in Asia, and 55 percent in North and South America. Add in imports, and intra-African trade accounted for a pitiful 2 percent of total African trade. In other words, functionally, many African nations still behave like colonies.

Their infrastructure was built to take resources out of Africa rather than to build economies of scale in Africa. Trade barriers were designed so that African countries could trade more easily with European or Asian nations than with their neighbors.
Undoing these structural disadvantages will be easier said than done.

The AfCFTA is ambitious – indeed, it requires members to progressively remove tariffs on 97 percent of tariff lines. But as with all trade agreements, the devil is in the details. As the World Bank notes, 1 percent of tariff lines account for 74 percent of imports in the average African country.

AfCFTA member states have still not finalized the all-important rules of origin, which what kind of products are still subject to duties and tariffs, and when you consider how highly concentrated intra-African trade is, the announcement that 90 percent has been agreed to loses some of its luster. Even if the AfCFTA could wave a magic wand and optimize the continent’s tariff regime overnight, there is also so much more to trade than tariffs. Efficient services, reliable application of the rule of law, and investment in infrastructure all must be realized for the AfCFTA to realize its potential, and African nations lag behind in all of these key areas.

All of which points to an even bigger stumbling block: the need for regional integration. For the AfCFTA to work, African nations have to cooperate and integrate with each other in ways they have never done before. It is one thing for the African Development Bank to tell African states “do not worry overly about ceding national sovereignty” – it is quite another thing for African states to do so. What the ADB sees as a strength – that 80 percent of African borders are artificial – is in reality a recipe for disaster. The African Union has dreams of a common African currency, explicitly modeling Africa in the image of the European Union. How is that supposed to happen when two AfCFTA signatories, Egypt and Ethiopia, cannot even agree on sharing the waters of the Nile River? When Mozambique is being overrun by ISIS-inspired jihadists? When Nigeria is coming apart at the seams? (The list of unresolved territorial conflicts in Africa makes Europe look utopian by comparison – which, when you consider Europe’s recent history, is saying something.)
Regional integration requires trust, or at minimum, some semblance of shared interest.

The European Union grew out of the post-World War II reconstruction, the Cold War, and the need to bind Germany to the fate of the continent in such a way that it would attempt domination by force again. Even then, it took half a century to even consider controversial issues like a formal monetary union and shared currency – issues that remain controversial and unresolved in Europe to this day. Europe is also a much smaller continent (roughly three times as small to be exact), and its backbone is connected by the invasion superhighway of the 20th century, the Northern European Plain.

Africa is, by comparison, a huge continent with far more geographically disparate regions. In the EU, it is sometimes impossible to get Germany and the Netherlands on the same page. Imagine crafting a common monetary policy that benefits Egypt, Eswatini, Angola, and Ghana equally and you begin to have a sense of the magnitude of the challenge ahead.

The AfCFTA is not a panacea, a silver bullet, or a game-changer in and of itself. Whether and how successful the AfCFTA can be depends entirely on how African nations treat each other – i.e., on their geopolitical relations. If, as is already happening, countries like Ethiopia and Morocco look to ascend global value chains rather than “wasting time” in discussion over tariffs, or hoard and protect their resources to the detriment of their neighbors, then Africa’s future will look an awful lot like its past: regional economic hubs sponsored by external powers getting what they want: raw materials, captive markets, cheap labor, or all three. The AfCFTA is a tremendous accomplishment, but it was also the relatively easy part. Now comes the hard part: implementing the necessary measures to allow African countries to utilize their natural advantages for their own benefit for once — rather than for the benefit of others.

Edward Ejike Okpa is Nigerian-American Entrepreneur

The AfCFTA -- Can Africa Save Itself? — Economic Confidential

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