Co-operation between African states key in Covid-19 jump-start
The pandemic has disrupted the free trade deal but fragmentation is something the continent can ill afford
As the economic fallout from the Covid-19 pandemic makes its presence felt across sub-Saharan Africa, all eyes are on the next policy moves governments will make to resuscitate growth.
There are various tools and mechanisms policymakers could employ as they strive to pick up the pieces, but there is one in particular that has relevance for the continent’s economic fortunes: co-operation.
Co-operation is the essence of the African Continental Free Trade Area (AfCFTA) agreement, intended to create a single, liberalised market for the free flow of goods within Africa. If successfully implemented, the agreement has the potential to mitigate the adverse effects of the pandemic on the region’s economies and speed up recovery.
Before the pandemic, momentum was building behind the AfCFTA agreement, which 28 out of 54 signatories had already ratified. That momentum has since stalled amid the many border closures precipitated by the pandemic and the deferral of the AfCFTA implementation date of July 2020 to at least 2021.
These developments have brought about an inward-looking focus in some African countries — a focus that was in certain instances already evident before the pandemic struck. For some time now, cross-border investment has been shrinking or stagnating relative to world GDP, amid rising nationalism and trade protectionism.
Linked to this was a tendency for governments to adopt more interventionist economic approaches and introduce or tighten new foreign investment rules to prevent national or strategically important assets being acquired by foreign interests.
Now, with the IMF forecasting that the volume of goods and services trade will shrink by 12% in 2020, it is clear that fragmentation is something Africa can ill afford. Encouraging intra-African trade and getting AfCFTA back on track have become a matter of urgency.
Several hurdles still lie in the way of the effective implementation of AfCFTA, over and above that 24 AU member states and signatories have yet to ratify the agreement. These issues should be priorities for policymakers in clearing the road ahead.
Clarity is urgently needed as to whether all the state parties have submitted their final schedules of tariff concessions and the outstanding rules of origin. Trading under AfCFTA cannot start without these, and they should have been submitted to the AfCFTA council of ministers in May. While the council did meet virtually, it is not clear what decisions were taken or whether all tariff concessions had been received.
Similarly, it is not clear what progress has been made with the dismantling of tariffs on goods, the goal being to eliminate tariffs on 90% of goods within five years for non-less developed countries (LDC), 10 years for LDC countries and 15 years for Group of Six countries.
Then there is the question of concluding the three AfCFTA protocols that have yet to be completed, namely investment, intellectual property rights and competition policy. While these steps are being taken, intra-African trade could be given a decisive boost through the use of short-, medium- and long-term interventions.
A pandemic trade impact mitigation facility could be effective in the short term by helping revive flagging intercountry trade. In the longer term, focus on the deliberate development of Africa’s infrastructure is required, including multi-modal transport networks.
In addition, African governments should be doing a frank assessment of how investor- and business-friendly their economies are. At this juncture, only Mauritius and Rwanda appear in the top 50 of the World Bank’s 2020 Ease of Doing Business study, which measures business regulation.
There is a pressing need and plenty of room for regulatory reform to improve the ease of doing business in African economies and reduce the significant levels of regulatory uncertainty still so prevalent. Regulatory uncertainty is an old bugbear that necessitates decisive, systematic action at the best of times, and even more so at the worst of times when economies are under such strain.
Yes, policymakers carry a heavy load on their shoulders in seeking to restore economies to “normalcy” in a time of crisis, but the load could be lightened considerably by practising the cardinal principle of the AfCFTA agreement: co-operation. Without it, recovery and resilience against future systemic shocks could be that much more elusive.
• Douglas is co-head of M&A, and Claassen senior associate, at Bowmans.
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