Working towards continental free trade

Africa’s full potential will remain unfulfilled unless we address the challenges of poor infrastructure, says Rob Davies.

#Focac: Intra-Africa trade accounts for 16 percent of Africa’s global trade compared with about 40 percent in North America and about 60 percent in Western Europe. Africa remains economically fragmented with 54 small markets.

While intra-Africa trade may be low by global standards, for most African countries intra-African trade is already considerably more important than the aggregate figures suggest. The shares of intra-African trade in African countries’ total exports show that Africa is by far the second most important export market for most African countries behind Europe. The key feature is that intra-Africa trade is more diversified and growing.

Continental integration has long been recognised as critical in advancing Africa’s growth and development. Regional integration constitutes an important aspiration of the AU’s Agenda 2063 and remains a critical component of the continent’s efforts to ensure sustainable economic and inclusive growth, through the creation of a larger regional market and improving Africa’s integration in the global economy. It is for this reason that in June 2015, the AU Assembly launched the CFTA negotiations.

The envisaged CFTA indeed offers an opportunity to create larger economies of scale and a bigger market. South Africa is, therefore, committed to a co-ordinated strategy to boost intra-Africa trade and to build an integrated market in Africa that will see a market of over 1 billion people and approximately US$2.6 trillion.

A study by the UN Economic Commission for Africa, African Development Bank and AU Commission shows that African economies face higher tariff rates on their exports within Africa compared to the rest of the world.

The establishment of the CFTA, therefore, offers an opportunity for African countries to create a larger market through the reduction of tariffs. In advancing economic integration, we have consciously decided to adopt a development integration approach premised on three separate pillars: market integration through the establishment of the CFTA, industrial and infrastructure development.

This includes the liberalisation of trade in services, as well as co-operation on investment with the aim of improving the investment climate.

The work programme will also involve sharing best practices and enhancing co-operation on intellectual property rights and competition. The ultimate benefits of the CFTA, however, will be reaped through parallel advancements in the complementary pillars of industrialisation and infrastructure development to ensure that we address Africa’s productive capacity and supply-side constraints.

Industrial development is key to export and economic diversification as it builds resilience of poorer countries to external economic shocks. Diversification is more relevant today to Africa with its high dependence on primary commodities and fluctuating world prices on most primary goods.

There is, therefore, a need for the African continent to pursue developmental strategies which promote value-addition.

Africa loses over 40 percent of competitiveness because of the absence of or poor and inefficient infrastructure.

Adequate, effective, affordable and well-maintained infrastructure is, therefore, needed to support economic growth, attract investment and enhance service delivery.

In this regard, there is currently an intensive work programme for infrastructure development across the continent.

This includes the AU Programme for Infrastructure Development in Africa, the Southern African Development Community’s Regional Infrastructure Development Master Plan and the Presidential Infrastructure Championing Initiative, with the flagship programme being the North-South Corridor.

Africa is the second-fastest growing region in the world after Asia with a growing middle class, coupled with vast improvements in political and economic governance.

However, the continent’s full potential will remain unfulfilled unless we address the challenges of poor infrastructure, small and fragmented markets, underdeveloped production structures and inadequate economic diversification.

African integration is, therefore, instrumental to, among others, providing African producers access to regional markets and integrating them into regional and global value chains.

Economic integration in Africa is bearing fruit. Many multinational corporations and investors already recognise the enormous economic opportunities on offer in Africa. Indeed, investors are increasingly aware that the rate of return on foreign investment in Africa is higher than in any other region in the world.

The Ernst & Young Africa Attractiveness Survey of 2015 states that the continent has attracted substantial capital flows in the past decade, bolstered by strong growth prospects and better economic management.

In 2014, total external flows to Africa were estimated at US$181 billion. In 2015, they are forecast to equal 7.2 percent of the continent’s gross domestic product.

Most importantly, intra-African investment was again the second-largest source of foreign direct investment in 2015.

In the context of markedly improved growth prospects for Africa, alongside intensifying global competition for Africa’s resources and markets, the need to enhance access and integrate African markets is increasingly important.

Therefore the main benefit of the CFTA is a larger, integrated, and growing market that can enhance the interest of foreign investment and provide a basis for significant intra-African trade.

It thus increases Africa’s prospects of stimulating industrialisation, employment, income generation and poverty reduction.

Importantly, it also offers the opportunity to improve economies of scale and efficiency, thereby improving Africa’s competitiveness both in its own markets and globally.

* Rob Davies is South Africa’s minister of trade and industry.

** The views expressed here do not necessarily reflect those of Independent Media.

THE STAR