Africa’s marginalization in world affairs is a familiar observation, one of the most obvious when looking at world trade statistics. Since 2005, the continent’s share in world trade has stagnated at 3% according to the African Union. It was the same period during which Africa liberalized its economies the most. In the early 1980s, Africa’s share in world trade was still around 6 percent on average.
The decline in Africa’s share of world trade is not the only negative consequence of a trade policy regime that has gone awry. The continent’s role as “wood cutters and water drawers” has been consolidated over the past three decades of a non-strategic movement from closed to open economies. Raw materials and raw materials dominate exports more than ever. Basic manufactured goods – including those the continent once produced at home – are now imported. The collapse of national production created pernicious unemployment and maintained high levels of poverty.
In 2018, 40 percent of Africa’s population was mired in extreme poverty subsisting with incomes below $ 1.90 per day. In absolute terms, 433 million Africans were classified as extremely poor in 2018. The Covid-19 pandemic has since brought the number of extremely poor people on the continent to 490 million in 2021.
The structure of African economies
In the past, high poverty figures in Africa were blamed on policies that protected African economies from the gains of international trade. Today, however, African economies have opened up to international trade.
In reality, the problem is twofold.
First, economic growth of 5% on average over the past quarter century has not been enough to reverse not only the effects of negative growth in the past, but also the current strong population growth on the continent. Higher rates of economic growth will be needed in the future.
Africa has a huge domestic market, which is growing faster than anywhere else in the world.
The second challenge concerns the structure of growth and results. Economic growth has been mainly driven by the export of raw materials and commodities. According to the United Nations Conference on Trade and Development, 56% of Africa’s exports are natural resources. The continent imports virtually all manufactured goods. And African countries are net importers of food. This explains the deterioration of the trade balance and the inability to fight against unemployment and poverty.
To the rescue: the African Continental Free Trade Area
At the same time, Africa has immense potential. It is home to some of the largest mineral deposits in the world. It has room to absorb a vast array of 21st century technologies, including digital technologies that increase productivity and well-being. Above all, Africa has a huge domestic market, which is growing faster than anywhere else in the world. It represents over 16% of the world’s population with a combined GDP of $ 2.1 trillion. The population is young and aspires to a higher standard of living.
The African Continental Free Trade Area (AfCFTA) builds on this potential to transform both product structure and trade. The AfCFTA seeks to create a single continental market for goods and services and to open up the continent to the free movement of businesses, people and investments. It was signed in 2018 and entered into force in 2019. Fifty-four member countries signed the agreement and 30 countries deposited their instruments of ratification with the African Union Commission. The exchanges started in January of this year.
Historically, all the countries that have developed and are today the giants of international trade have done so behind high tariff barriers, not free trade agreements.
Through the harmonization and coordination of trade liberalization and trade facilitation among existing Regional Economic Communities (RECs), such as the Economic Community of West African States (ECOWAS), the AfCFTA is expected to boost Africa’s competitiveness at the industry and business level through large-scale production, access to the continental market and better allocation of resources. The overall objective is to reverse the trend of Africa’s marginalization in world trade and to stimulate the growth and development of the continent by expanding intra-African trade.
The AfCFTA is ambitious, but can it work?
The AfCFTA certainly represents by far the most ambitious attempt at the continental level to establish a customs union, harmonize trade policies and strengthen trade ties between African countries. It offers Africa the opportunity to bypass the constraints it faces in the unbalanced WTO rules and emerging mega regional agreements such as the Trans-Pacific Partnership (TPP).
However, challenges remain and appear to be overlooked as the continent is embroiled in the euphoria of a continental deal. Even though it is the most ambitious initiative to date, the AfCFTA is by no means the first attempt to promote trade among African countries. The mission of Regional Economic Communities (RECs) has been to promote intra-African trade for more than four decades. But they failed. Intra-African trade represents only 15 percent of total trade in 2016. This compares to 61.7 percent in the European Union, 40.3 percent in NAFTA and 23 percent in the region of L ‘ASEAN.
The failure of the RECs highlights the risks involved in the AfCFTA. One of the reasons is that it ignores the lessons of history – including that of Africa. Historically, all the countries that have developed and are today the giants of international trade have done so behind high tariff barriers, not free trade agreements. Several studies have shown that economic growth, capital accumulation and strong production systems have always preceded trade liberalization.
The challenge is that the political euphoria seems to overtake the practical economic difficulties facing the AfCFTA.
For example, France and Germany briefly embraced laissez-faire, found they were losers, and turned the tide in the 1880s. Britain liberalized after industrialization, at one time where it was the world’s economic powerhouse. The United States industrialized during the 19th and most of the 20th centuries behind high tariff barriers and protectionism.
It is therefore only Africa that is seeking to industrialize, to diversify its economies and to capture a larger share of world trade through trade liberalization. This is tantamount to swimming against the economic common sense of centuries past.
A deal for the workers?
The challenge is that the political euphoria seems to overtake the practical economic difficulties facing the AfCFTA. Political leaders and their business experts have long recognized the challenge of low production capacity; the similarities of the export basket of African countries (lack of complementarity); and the infrastructure constraints that hamper the movement of goods and people in Africa. Despite this awareness, efforts to address the challenges have been limited and uncoordinated.
The AfCFTA can lead to net gains overall, but there will be winners and losers. Some countries are likely to resist full implementation as liberalization often results in an unequal distribution of gains. Relatively advanced economies such as Egypt, Nigeria and South Africa are likely to benefit more from the AfCFTA. The weak can be the losers. Unfortunately, there are no clear mechanisms to distribute the gains or compensate the losers.
Finally, ACFTA will have far-reaching consequences for African workers and their organizations – unions. AfCFTA is expected to transform Africa’s growth from dependence on raw materials to manufacturing. Labor-intensive manufacturing and even intensive agriculture could produce more and better jobs for young people.
Nonetheless, the AfCFTA could reduce employment and wages, especially for low-skilled labor as countries turn to highly skilled manufacturing industry. And without a strong social clause, the increase in employment could lead to greater precariousness for workers. Unfortunately, discussions around the AfCFTA have remained at the highest political level – with virtually no involvement of citizens, workers and their organizations.