African Continental Free Trade Area will help boost the Continent’s Self-Reliance
Trading under the African Continental Free Trade Area (AfCFTA) started on January 1 this year. Out of the 55 Members of the African Union (AU), 54 have signed the treaty, Eritrea being the sole exception. So far, 34 Countries have ratified the agreement, including the largest economies in Africa such as Nigeria, South Africa and Egypt.
Although challenges in boosting manufacturing industries and facilitating trade remain, more African countries are expected to join the agreement once the AfCFTA is seen to produce tangible benefits, which will also bring new opportunities for China-Africa cooperation.
The key driving force for building the AfCFTA and expanding intra-regional trade lies in improving the ability of African countries to manufacture technology-intensive products. Research findings show that African countries with diverse exports account for a higher proportion of the total African trade than those with fewer export goods.
Those African countries that can produce and export technology-intensive products are expected to achieve sound trade growth.
In 2015 to 2017, exports of manufactured goods accounted for 45 percent of the total intra-regional trade in Africa while only accounting for 20 percent of Africa’s total exports to the rest of the world.
Although there is a long way to go, the manufacturing industry in Africa has seen rapid growth. A PricewaterhouseCoopers report released in April 2019 showed that African countries only contributed 1.6 per cent to the value-added of global manufacturing industries.
However, the output of African manufacturing has improved steadily. Calculated at constant US dollar prices in 2010, the manufacturing output of sub-Saharan African countries grew from $85 billion in 2000 to $160 billion in 2015.
The actual annual growth rate of Africa’s manufacturing industry reached 3.5 per cent, two times that of the global manufacturing industry. Countries such as Nigeria and South Africa have kept increasing their exports of technology-oriented products. Other African countries, including Ethiopia, Rwanda and Tanzania, have seen their manufacturing growth rates reach nearly 10 per cent or higher in recent years.
The implementation of the AfCFTA will help boost manufacturing in many African countries, which will further drive up trade in the area.
However, countries involved in the AfCFTA are likely to abandon the preferential policies and seek to trade with countries and regions outside the area if high-quality trade exchanges cannot be produced.
Since only free trade policies may not improve the intra-regional trade of African countries and enhance the benefits for all members, improving production and upgrading supplies are key for the countries to make profits.
African countries are still unable to meet the strong local demand in a short time due to the long-term mismatch of supply and demand. Africa mainly produces primary commodities such as petroleum and mineral products for the international market, while its weak industrial foundation has made local consumption of commodities sluggish.
The rise of the middle-income group in Africa has driven up the consumption of automobiles and auto parts, computers, smartphones and electronic devices, as well as clothing and accessories, but the demand has been met through large-scale imports due to the low-level of manufacturing in Africa.
With an integrated market, a large number of enterprises targeting the local market will boom. However, trade facilitation calls for steady efforts and time is needed to attract international investment for large-scale industrial production. The agreement may not generate instant profits but will produce benefits someday.
To give full play to the role of the AfCFTA, African countries need to further facilitate local trade. According to research findings, non-tariff barriers have increased the costs of intra-African trade by 283 per cent although the average tariff rate in Africa is only 8.7 per cent. Non-tariff barriers have been major hurdles for trade and economic growth in most African countries and may affect the implementation of the AfCFTA.
According to the International Monetary Fund, the improvement of the quality of trade logistics in Africa to the global average level of about 19 per cent will greatly lower costs of cross-border freight and increase intra-African trade by 12 per cent.
African countries also need to modernize their national governance capabilities and systems, for which efforts are needed to improve taxation systems.
According to the US-based Brookings Institution, the taxation of sub-Saharan African countries accounts for only 20 percent of their total GDP, with the average level being the world’s lowest and nearly 10 percentage points lower than the average for the members of the Organization for Economic Cooperation and Development.
With low revenue, the countries will fail to make adequate investment in facilitating trade.
Nonetheless, the AfCFTA is significant as it will enhance the abilities of African countries to cope with global economic risks, improve their status in international trade negotiations, promote the integration of the African market and boost intra-regional trade.
Therefore, its launch can improve the say of developing countries in international affairs, help address the weak points in the global governance system, boost South-South cooperation and promote the global governance to focus on the interests of more countries, especially developing ones.
China stands together with African countries to improve economic resilience through the AfCFTA, which will also bring new opportunities for China-Africa cooperation. The Chinese government and the AU recently signed a cooperation plan on the Belt & Road Initiative, the first such agreement signed by China with a regional international organization.
It shows the willingness of both sides to cooperate in more fields. According to Chinese State Councilor & Foreign Minister Wang Yi, China and Africa will advance cooperation on building infrastructure for inter-connectivity in Africa, integrate the Chinese and African markets, improve investment in high-level manufacturing for industrialization and strengthen cooperation in scientific and technological innovation.
The author is an assistant researcher with the Institute of Developing Countries at the China Institute of International Studies. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.