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Africa isn’t ready for AfCFTA take-off

Monday January 20 2020

By BITANGE NDEMO
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July 1, 2020 is an important date for Africa. It marks the commencement date of trading under the African Continental Free Trade Area (AfCFTA).

Unfortunately, there are no indications that the continent is ready to embrace changes in trading.

AfCFTA’s operational phase was launched at the African Union's Extraordinary Summit in Niamey, Niger, on July 7, 2019. Ghana was chosen to host its secretariat.

The country made a commitment to donate $10 million (Sh1 billion) towards the operationalisation of the secretariat before the trading phase kicks in in July.

Six months to the July start date, Ghana is still working on AfCFTA’s home. This delay was anticipated, with the AU Commission being tasked to serve as the interim secretariat in the event Ghana offices delayed.

Some of the most important activities the secretariat must do before July include development of the programme and a budget to effect decisions agreed upon by Heads of State and Government.

This is a monumental task that even the best of minds will find difficult to implement within the time remaining.

Many member countries have not studied the impact of the changes and there is no sensitisation of countries going on.

TAKE ADVANTAGE

In Kenya, for example, we may see the exodus of manufacturing enterprises into neighbouring countries to avoid stringent tax regime in the country as they seek to take advantage of the free trade area. Crafty manufacturers have already started moving, sending manufacturing into a downward spiral.

Policy wonks in Kenya can’t place a finger on why manufacturing is declining. There are three different ministries with disparate trade policies in Kenya, that is, the Ministry of Trade and Industry, the Ministry of East African Community and Regional Development and the Ministry of Foreign Affairs and International Trade.

Although there are strong academic arguments for foreign affairs ministries dealing with international trade due to globalisation, this view is held largely by foreign academics who fail to accommodate the needs of micro, small and medium enterprises that characterise developing countries.

Although we pride ourselves on the continent’s market of over 1.2 billion people with a combined gross domestic product (GDP) of $2.5 trillion (Sh250 trillion) across the 54 member states of the African Union that have signed the agreement, we have cultural and infrastructural problems.

Africa’s combined GDP could be 10 times more if the countries helped each other to develop trade negotiation skills for better deals from external partners who have taken advantage of the continent for years.

Paul Kenyon reveals in his book, Dictatorland: The Men Who Stole Africa at independence, that we had no capacity to negotiate how to take control of our economic resources with European colonists.

It can be argued that even to date we are still years away from negotiating beneficial deals with our trading partners. The secretariat therefore must ensure that intra Africa trade is fair to everyone by linking access to information and helping them acquire negotiation skills.

During the launch of the operational phase in Niamey, the African Union adopted five key instruments in order to mitigate against current trade practices that have left many in poverty while resources abound. These included: rules of origin stipulating conditions a product or service can be traded free; removing duties on 90 percent of the goods they produce by the start of trading in July 2020; online mechanism on monitoring, reporting and elimination of non-tariff barriers; development of a Pan-African payment and settlement system to facilitate cross-border payments; and creation of African trade observatory to provide essential trade data and address trade hindrances.

CREATE VALUE

The secretariat must think bigger in this digital age to build a model trading block. They can do this by taking advantage of the emerging concept, such as using ecosystem to create value.
This new concept involves bringing together complementary players to build an interdependent ecosystem just like biological ecosystems. For example, there is need for a macro-level ecosystem that brings together private sector, academia, governments, external trading partners and international financial institutions. Some could be competing with one another but they each aim for a higher goal.

At operational level, for example, a country that wants to exploit a resource like cocoa should have an ecosystem strategy that brings together the producers, local governments, buyers, researchers, infrastructure developers to comprehensively deal with the exploitation of the resource without anybody being exploited.

With technology, this is possible. In the past, however, only a few individuals had the monopoly of information and as such they took advantage of producers who had no means of knowing the market.

With virtually everybody connected to some devise, there is no justification for not sharing the information across. Similarly, it is an opportunity for Africa to develop beneficial supply chains.

When a farmer grows potatoes in Nyandarua, for example, they should know the demand pattern (linking areas of surplus to areas of deficit) of the product and it’s pricing to ensure product distribution leads to greater benefits.

With technology, we can minimise the number of middlemen and make the products affordable to those who need them most.

Individual countries should start a sensitisation program explaining to businessmen what to expect on July 1, 2020, how to respond to new competitors in a liberalised environment and what products are protected.

The secretariat must explain the conflicts that may arise from other regional trade blocks with high-levels of integration such as the Common Market for Eastern and Southern Africa (COMESA). Failure to generate a debate on AfCFTA’s imminent implementation may lead to a backlash.

In AfCFTA, we have an opportunity to leverage technology to build a trading block like no other.

Build negotiating capacity to effectively take control of the continent’s resources and improve Africa’s GDP for greater prosperity.

To do this, we must prepare the people for the impeding trade relations.

The writer is a professor of entrepreneurship at University of Nairobi’s School of Business.