Industrialization and the African Continental Free Trade Area

Africa has lagged in many areas in its development efforts. Despite being one of the most endowed continent with natural and human resources, majority of the continent’s growing populations are still wallowing in poverty – conditions that often could be changed by technological strides.

Africa holds more than 60 per cent of the world’s precious minerals and some countries on the continent have oil and gas, resources that if properly managed could have served as the catalyst for economic, social and industrial growth.

While African countries at different levels of economic or social development have made individual efforts at industrialization and trade, there is still a lot more required to be achieved to fully benefit from the economics of scale.

It is therefore important that the African Union and some of its partners are working to spur not just interests, but the will to propel the continent progressively towards industrialization, and the commitment has been accentuated at the African Union (AU) Extraordinary Summit on Industrialization and Economic Diversification and AU Extraordinary Session on the African Continental Free Trade Area (AfCFTA).

The Summits are being held in Niamey, Niger, from November 20 to 25, 2022, under the theme: “Industrializing Africa: Renewed Commitment towards Inclusive and Sustainable Industrialization and Economic Diversification”.

Ahead of the Summit, a number of statutory meetings related to the AU Assembly took place in early November, including meetings of senior officials and Ministers in charge of industrialization, economic diversification and the AfCFTA.

According to the organisers, the Summit aims to highlight Africa’s renewed determination and commitment to industrialization as one of the central pillars in attaining the continent’s economic growth and development goals as articulated in Agenda 2063 and Agenda 2030.

The organisers further note that in light of the key and strategic interdependencies between industrialization and the AfCFTA, the Summit would rally desired political momentum, resources, partnerships and alliances towards an Africa-Industrialization drive.

This, the organisers say is along the continent’s resolve to drive structural transformation, built around leveraging Africa’s rich and diverse natural resources, while at the same time embracing current advances in technologies, continental and global geo-socio-political trends and emergence of tradable services.

They also anticipate that the Summit would unlock the evolution of a vibrant Pan-African enterprise and capital base that will unleash an inclusive and sustainable industrialization pathway that carries along the participation of all economic agents, including SMEs, youth, and women in the generation of national wealth and creation of jobs as well as expansion of entrepreneurship opportunities for Africa’s populations.

Antonio Pedro, acting Executive Secretary of the Economic Commission for Africa (ECA) speaking at a side event on the theme “Harnessing the AfCFTA for Africa’s industrialization: Fostering competitiveness and sustainability in the digital era” stressed on it as an invitation to reflect on three key dimensions if Africa was to realise the full benefits of AfCFTA: Leveraging Green Financing and digitalisation for industrialisation and structural transformation of Afrivan economies.

Citing the UN Conference of Parties on Climate Change (COP27) which ended with a decision to compensate for the losses and damages for vulnerable nations who have been severely affected by climate disasters, he said in spite of a challenging geopolitical environment, the parties delivered a package of resolutions that reaffirmed their commitment to keeping global temperature increases to 1.5°C above pre-industrial levels.

“The package also boosted the financial, technological, and capacity-building assistance that developing nations need to reduce their emissions of greenhouse gases and adapt to the inevitable effects of climate change. Additional contributions totalling more than $230 million were made to the Adaptation Fund,” he said.

He said the decisions arrived at open a window of opportunity for countries like Niger and many others in the continent that are severely impacted by the devastating effects of climate change without taking any part in generating them.

Pedro urged African countries to critically think on how they can leverage on the momentum generated at COP27 to access stable and predictable financing for structural transformation of the economies on the continent.

He argued that a promising vehicle to sustainable industrialisation is digitalisation.

“This is epitomised by The Africa Trade Exchange Platform whereby ECA and the African Export-Import Bank (Afreximbank) together with the AfCFTA Secretariat has developed a Business-to-Business (B2B) and Business-to-Government (B2G) digital trade platform known as the Africa Trade Exchange (ATEX) to facilitate intra-African trade within the context of the AfCFTA.

ATEX was repurposed to assist African countries to deal with shortages of food, fuel, and fertilizer many Africans are experiencing due to the Ukraine crisis. By pooling Africa’s Demand, ATEX ensures stronger market power, facilitate pool procurement, and hence provide one point of competitive access to critical supplies. The ATEX is a clear demonstration of how regional trade can help channelling critical commodities where it is needed most in Africa,” he said.

He further indicated that the ECA is gathering and analysing data related to the regulatory regime governing digital trade on the Continent. 

“ECA, through the African Trade Policy Centre, is conducting a training and research initiative to gauge the readiness of African countries to effectively engage in digital trade and e-commerce. Research seeks to gain insight on both measures of Digital Trade Services Restrictiveness in line with the OECD Digital Services Trade Restrictiveness index and measures digital trade integration to help form a regional digital trade integration index for Africa,” he said.

According to him, the significance of the AfCFTA in the pursuit of Africa’s Industrialisation Agenda made African countries tag industrialisation as the core of the CFTA project. Industrialisation has been seen by The African Union’s Regional Economic Communities (RECs) to play a critical role in regional integration and development Agendas.

“Intra-regional trade has particular potential to facilitate increased economies of scale, diversification and value addition. A major objective of AfCFTA is to foster competitiveness at the industry and enterprise levels via exploitation of opportunities for scale production, improved market access and efficiency in resource allocation. 

For the realization of the AfCFTA objectives, African countries would need to articulate effective policies, strategies and programmes as well as concrete action plans for trade promotion and export by identifying new opportunities for diversification, industrialization and value chains development,” he said.

At the meeting of the Executive Council at the Summit, Pedro stated that The AfCFTA is a critical tool to support this transition.

“It provides the continent with a blueprint for a faster and effective industrialization, by putting in place necessary conditions for transformational investment, diversification and sustainable development in Africa. Industrialization is not an option for our continent; it is indeed an imperative. Simply put, by adding value to Africa’s natural and mineral resources here on the continent, we can turn the persistent bane of our resources into a persistent boon,” he said.

Making his remarks, Mr. Stephen Karingi, Director of Regional Integration and Trade Division at the ECA, said financing and mobilizing green finance in particular, was a challenge in Africa.

He said, most countries still need to significantly expand access to basic power services and invest in the wider transformation and development of their economies. Besides, green financing in Africa was comparatively expensive compared to other regions, given the associated currency and inflation risk attached to investing on the continent.

“However Africa has an unprecedented opportunity for a green transition through the AfCFTA. The AfCFTA facilitates green value chains by using standardization as a tool to build bankable projects,” he said.

Mr. Hubert Danso, investment leader and chairman of the African investor (Ai) Group, called on Africa to mobilize capital from an array of sources to finance its green development.

He noted with concern that Africa has to mobilize $3 trillion for its National Determined Contributions (NDCs) projects by 2030  against the backdrop of the world mobilizing $2.8 trillion in the last 20 years of which only two percent of it came to Africa.

“There is so much endowment that we have from a natural capital perspective which has been quantified by the African Development Bank in terms of carbon headroom, to be in the order of $4.6 trillion between now and 2030 in the continent,” Mr. Danso said, arguing that “the AfCFTA’s key goals will not be achieved without an exponential increase in institutional investment in logistics and trade-related infrastructure assets.”

Pinpointed that for the realization of the AfCFTA objectives, African countries would need to articulate effective policies, strategies and programmes as well as concrete action plans for trade promotion, Prof Adeolu Adewuyi, from the University of Ibadan, said they also need to  identify new opportunities for diversification, industrialization and value chains development.

Ms. Hanan Morsy, ECA Deputy Executive Secretary and Chief Economist in her remarks, said developed countries should embrace Africa’s industrialisation potential and support its low carbon transition to ensure the continent is able to develop while acting on climate change.

She noted that African countries were in a dilemma in advancing economic development and industrializing while responding to required climate change action. A win-win approach was needed.

“It is essential for African countries to find a realistic and pragmatic balance between following their industrialisation and development paths and their climate goals, with support from high-income countries,” she said, adding that: “Green industrialisation aims to decouple economic growth from negative environmental externalities by maximizing the application of clean energy, sustainable inputs and green-production technologies.”

Speaking at a side event on financing SMEs, Ahmadou Abdoulaye Diallo, the Director-General of African Solidarity Foundation cited the impacts of COVID-19 on Africa, and urged African countries to work together in unison to respond to the effects of the pandemic, as well as the economic and food crises facing the continent.

“We can respond appropriately if we work together in unison,” he said.

He also called for increased financing for SMEs in Africa to enable them fulfil their role in actualizing the AfCFTA, noting that the growth of SMEs is conditioned by their access to finance.

“SMEs are contributors to employment and GDP growth. They contribute to gender balance and they are vectors of wealth distribution, but their effectiveness is limited by the challenges they face, which is access to finance,” he said.

The African Union Commissioner for Trade and Industry, Albert Muchanga said the AU as a partner of governments and Regional Coordination Communities is working with a strategy for Africa’s industrialization process.

Acknowledging that finance is always in short supply, he called on African countries to ensure that people have access to finance, and urged SMEs to they make good use of finance and pay back in time and in full.

Muchanga called on financial institutions on the continent to develop tailor-made programmes to make finance accessible to SMEs.

“SMEs should graduate into big businesses and the conditions must be created for that,” he said.

Industrialization and the AfCFTA hold potential for transforming African societies and economies, and African countries must put their shoulders to the wheel and work towards the full realization of these targets.

By Emmanuel K Dogbevi, in Niamey, Niger

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