Market Integration on the African Continent
Updated: Jun 1, 2021
The first congress of independent African states held in 1958 convened by Dr. Kwame Nkrumah, called for the establishment of an African Freedom Day which is a day to mark the “onward progress of the liberation movement, and to symbolise the determination of the people of Africa to free themselves from foreign domination and exploitation.” Today we celebrate Africa Day which marks the formation of the Organisation of African Unity (OAU) on the 25th of May 1963, the precursor to the African Union. The day is meant to commemorate the liberation, unity and diversity of the continent while reflecting on the challenges we face.
Dr Kwame Nkrumah in 1960 put forward an ideology; Nkrumahism which is the ideology of the New Africa, independent and absolutely free from imperialism, organised on a continental scale, founded on the conception of One and United Africa, drawing its strength from modern science and technology and from the traditional African belief that the free development of each is conditioned by the free development of all. That idea of Pan-Africanism was also shared by many of our forefathers including Thomas Sankara, Mwalimu Julius Nyerere, Haile Selassie I, to name but a few. Several initiatives have been taken to deepen integration on the African continent and these include the establishment of the African Continental Free Trade Area (AfCFTA); a flagship project of Agenda 2063 which will be the focus of this article and also the signing of the Free Movement of People which needs to be ratified by all African countries because surely the free movement of goods and services should be accompanied by free movement of persons.
The AfCFTA which commenced on the 1st of January 2021 is per the African Union meant to accelerate intra-African trade by addressing tariff and non-tariff barriers as well as liberalizing trade in services. As of 2017, intra-Africa exports accounted for 16.6% of Africa’s total exports compared with 68.1% in Europe, approximately 60% in Asia, 55% in America and 7% in Oceania. This can be largely attributed to the high export tariffs in Africa which are approximately6.1%, making it costly for businesses to export within Africa than when they export to other continents.
With Africa’s contribution to global trade and investment currently at 3%, the AfCFTA aims to boost Africa’s trading position in the global market by strengthening Africa’s common voice and policy space in global trade negotiations.Although certain bilateral agreements are allowed under the AfCFTA, countries are required to jointly negotiate trade agreements and desist from entering into bilateral agreements. Failure to cooperate will undermine the objectives of the AfCFTA reducing Africa’s soft power.
Africa has a lucrative commodity market and while extractive commodities which account for most of Africa’s exports can be a stepping stone for economic growth, becoming a global player will require the structural transformation of all economies so as to support the move to higher productivity sectors making industrialisation pivotal for a sustainable export base. While some countries have an initial absolute or comparative advantage depending on the size of their current industrial base, all countries stand to benefit through regional value chains whereby those with larger industries can source supplies from those who at the moment do not have adequate infrastructure. Small and medium-sized enterprises (SMMEs) which tend to drive most innovation on the continent and account for 80% of business, will be key in driving global trade thus investment into such enterprises in key. The reduced tariffs will provide a broader market for SMMEs and also enable informal traders to operate through formal channels due to decreased costs and simplified trading procedures.
While market integration on the African continent is not a new phenomenon with SACU being the oldest surviving customs union in the world, the African Continental Free Trade Area is set to be the largest free trade area since the formation of the World Trade Organization covering a market of over 1.2 billion people and a gross domestic product of approximately $2.5 trillion. This presents a unique set of challenges that will require cooperation from all 55 countries. The AfCFTA is meant to foster development leading to employment growth, a reduction in trade deficit and a general improved quality of life for all. For this to happen, African countries will also have to deliver on their own country by country developmental mandates.
Some of the challenges faced by the AfCFTA include the COVID-19 pandemic which caused a great shock, leading to economic destabilization in many countries, disrupting local market and supply chains as well as other fundamentals of integration. Another challenge is that of conflict on the continent to which it will be difficult to have sustainable growth and development. The guns need to be silenced indeed putting an end to insurgencies, civil wars and tribal conflicts.
The issue of governance remains a big challenge. Transparency and accountability are strongly related to good governance and sustainable economic opportunity and we desperately need that in our governments and also in business leadership. Per the Mo Ibrahim Index of African Governance, the decline in Participation, Rights & Inclusion, Security & Rule of Law and Human Development led to a 0.2 points decline of overall governance in Africa. We need proper structures for performance and consequence management and civil society needs to once again actively involve themselves in issues of governance. The people should govern through the set channels and not be dormant in the greater scheme things.
The African Continental Free Trade area has the potential to deliver as anticipated the United Nations Sustainable Development Goals; decent work and economic growth, the promotion of industry, food security and affordable access to health services, which are goals 8, 9, 2 and 3 respectively. While progress is being made in the right direction more still needs to be done. In the words of Dr. Kwame Nkrumah, “...the task ahead is great indeed, and heavy is the responsibility; and yet it is a noble and glorious challenge - a challenge which calls for the courage to dream, the courage to believe, the courage to dare, the courage to do, the courage to envision, the courage to fight, the courage to work, the courage to achieve - to achieve the highest excellencies and the fullest greatness of (people). Dare we ask for more in life? "