Drafted By: Mandlenkosi Nyamupingidza (MA Development Studies, University of Witwatersrand)

Edited By: Thando Mathenjwa (MA Development Studies, University of Witwatersrand)

Introduction

The creation of the African Continental Free Trade Area (AfCFTA) presents a unique opportunity for the African Union (AU) to achieve many of their Sustainable Development Goals (SDGs). According to the United Nations (UN) 2030 Agenda, Sustainable Development Goal (SDG) 1 aims to end poverty in all forms everywhere. It can be argued that the AfCFTA is a key policy intervention which can play a leading role in alleviating poverty on the continent. It is projected that the AfCFTA has the potential to raise intra-African trade by 25% or between $50 and $70 billion by 2040 (Mabera, 2019). Despite the promises that the AfCFTA presents, it is evident that it will not be the only panacea that will solve poverty on the continent. It should however act as a springboard to awaken the sleeping giant.

Importance of Trade

The African continent continues to grapple with high levels of unemployment particularly among women and the youth. Promoting intra-African can be a tool to create much needed job opportunities on the continent. It is important to note that the continent is exporting jobs by its failure to utilise its comparative advantage in natural resources, value adding products, and promoting trade between African countries. Despite the fact that Botswana and the Democratic Republic of Congo are amongst the top producers of diamonds, neither one is amongst the leading polishers of the resource (Gaitonde, 2013). India is actually the leading polisher of diamonds because it uses its comparative advantage of low labour cost (Gaitonde, 2013). There is need for value addition for these countries to benefit from its resource. Moreso, implementing structural reforms will increase the GDP impact of expanded trade by one-third, yielding substantial gains for agriculture-based and less-diversified economies (IMF, 2019 cited in Mabera, 2019). This has the potential to create more jobs for Africa’s large labour force.  

Trade has long been acknowledged as one of the key drivers of economic growth. However, it is imperative to note that trade will not yield immediate results when seeking to eradicating poverty (Fauzel, 2020). Looking at African countries, the majority require exposure not only to bilateral nor regional trade but also international trade. It is important to note that trading partners’ multiple-membership to regional trade agreements has been constraining trade hence the need for the establishment of a continental Free Trade Agreement (Sunge & Alexander, 2014).  As such the creation of the African Continental Free Trade Area (AfCFTA) in March 2018 can be seen as a vital cog towards creating more trade in Africa.

AfCFTA and poverty reduction

One of the key objectives of the AfCFTA Agreement is to raise the standard of living for African people. Increased intra-African trade will promote job creation and social advancement amongst other objectives closely aligned to current Sustainable Development Goals (International Trade Centre, 2018). The AfCFTA will lead to a massive push towards industrialisation. It will place emphasis on value chains, facilitate integration and take advantage of economies of scale and improved business and trade practices (Oloruntoba & Tsowou, 2019). This will enable African products and businesses to be more competitive in the global market.

Jaldi (2021) states that the AfCFTA will lead to Africa’s economic self-reliance and reduce its dependence on trade and aid from developed economies. On the same token it is important to note that developing economies within Africa need to reduce their dependence on stronger economies such as South Africa, Nigeria and Angola. This is noted by Ngcwangu (2021) who argues that fair trade should focus on removing exploitative and unequal trade practices within the countries that fall under the trade umbrella. This will ensure collective development across the free trade area.

As stated earlier, it will be necessary for African countries to make structural changes to their economies and governance to ensure that they are able to fully implement the Agreement in a manner that benefits all stakeholders equitably. A simple example would be the South African agricultural sector and the wine industry. There is a clear need for structural changes to occur for workers to benefit from Free Trade which has historically benefited large commercial farmers (Ngcwangu, 2021).  These industries are not new to similar fair trade agreements but we continue to see poverty persist. It is estimated that intra-African trade in agricultural and food products would increase by more than 9.4% by 2022, creating an overall annual welfare gain of $16.1 billion to the continent translating to a GDP increase of 1–3% for African countries (Ndonga, et al., 2020). This will go a long way in alleviating poverty on the continent though channelling those funds towards agricultural development and other development initiatives. These funds can be used to build new schools and hospitals thus improving the welfare of people in Africa.

According to the Economic Commission for Africa (ECA), it is estimated that the AfCFTA has the potential both to boost intra-African trade by 52.3% by eliminating import duties as well as doubling trade through the reduction of non-tariff barriers. Asiedu (2018) states that to achieve economic growth, signatories have agreed to remove tariffs on 90 percent of goods. Benefits accrued from eliminating trade tariffs should enable businesses to take advantage of their comparative advantage and access new markets. This will allow them to enhance their economies through increased employment and higher levels of disposal income which will result in an increased tax base.

AfCFTA: A long term solution

It should be noted that the AfCFTA will not solve Africa’s problems overnight, particularly if the enabling environment is not prioritised and promoted. As discussed by Fauzel (2020) trade is pro-poor in the long run hence it is important to give the AfCFTA enough time to operate before it is harshly judged. Significant ways of alleviating poverty in developing economies include financial inclusion (Niaz, 2021), economic growth as well as education (Fauzel, 2020). Africa needs to invest more funding into technological resources to ensure it exploits the benefits of the fourth industrial revolution.  The growth of e-Commerce, Fintech, Blockchain and the Internet of Things create a digital environment which allows Africa to access international markets.  

There is a clear need for African countries to work on structural issues such as limited structural transformation, weak or non-functional institutions, poor governance and inconsistent development policies (Mabera, 2019). For example, the Beitbridge border post, which is a critical link between South Africa and the rest of SADC, is notorious for traffic delays and high trade costs. Ndonga, et al., (2020) state that a major challenge that the AfCFTA faces is infrastructural deficiencies which are more detrimental than tariff barriers. Lack of infrastructure such as roads, bridges, ports, warehousing, poor customs processes and electricity have a more devastating effect on economies and subsequently trade as these are critical for the movement of people and goods.  Improving infrastructure will enable the continent to achieve SDG number 9, which seeks “to develop quality, reliable, sustainable and resilient infrastructure, including regional and trans-border infrastructure, to support economic development and human well-being” (UN,2015:22).

Focusing on Nigeria, Shuaibu (2017) concludes that trade liberalisation cannot be solely relied upon by the government to address the rising incidence of poverty and should therefore be used as a complimentary policy to alleviate poverty. Countries can implement policies that can focus on agriculture or value addition to compliment trade.  Basic value addition includes selling processed gold, diamonds and oil. This will ensure that African countries export finished products which attract higher prices thus contributing more to the fiscus. This highlights the need to have concurrent policies to eradicate poverty. To reduce heavy dependence on international trade, the governments in ASEAN countries are putting agriculture as the main core of their planning for poverty eradication (Anggo & Louis, 2018). The AfCFTA should also be used to boost local production capacity as well as boost domestic markets. It is important for strategic and robust policies to be put in place to ensure that the AfCFTA creates a culture of financial inclusivity.

Conclusion

This article has shown that the creation of the AfCFTA is indeed a welcome move. Despite the AfCFTA seeking to drive intra-African trade, there needs to be sector-specific guidance to build infrastructure such as roads, bridges, ports, warehousing, poor customs processes and electricity to facilitate trade. The AfCFTA has shown that Africa has the potential to harness its large population by creating a single market and advance intra-African trade. This makes Africa attractive to global investors and provides a unique opportunity to develop Africa and eradicate poverty.

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