At a time when global trade is under pressure and countries increasingly turn to regional integration to support their development, this Spotlight is a timely read for policy makers and business leaders in Africa and beyond. It shows how harnessing the African Continental Free Trade Area (AfCFTA) can support industrialisation in Egypt, and more widely in Africa, by tapping the full potential of regional supply chains, including renewable energies, pharmaceuticals, logistics and creative industries. This report builds on and enriches the Production Transformation Policy Review of Egypt: Embracing Change, Achieving Prosperity.
Production Transformation Policy Review of Egypt
Spotlight on the AfCFTA and Industrialisation
OECD Development Pathways
Abstract
Executive Summary
The African Union’s (AU) Agenda 2063: The Africa We Want, has set out a vision for transforming the continent into a united, prosperous, and globally relevant powerhouse. The creation of the African Continental Free Trade Area (AfCFTA) is an important step and is considered a catalyst for accelerating industrialisation. When fully implemented, the AfCFTA will create the biggest single market for goods and services by number of countries, and one of the largest by number of people.
Currently, African countries trade little with each other. Intra-regional trade in Africa stands at 15%, similar to Latin America and the Caribbean, but lower than in EU-27 (61%) and Asia (59%). Boosting intra-African trade could expand options for industrialisation. Primary products make up 63% of exports with outside partners, but only 34% of intra-African ones. A more integrated continent is also one that is better integrated with the world, strengthening Africa’s position in global trade and investment.
The AfCFTA builds on previous integration efforts and aims to streamline the continental trade architecture. It is designed to go beyond trade in goods, with dedicated protocols on trade in services, dispute resolution, investment, competition policy, intellectual property rights (IPRs), women and youth, and e-commerce.
A large and unified market with harmonised rules could open new opportunities in emerging industries. For example:
Renewables. Better access to electricity through the AfCFTA coupled with harmonised investment rules could help the continent tap into renewable energies and their industrialisation potential. Africa’s renewables are already attracting investor interest. During 2018-22, Africa was the destination for about 9% of FDI global projects in renewables, but 19% of the capital invested, higher than the share of EU-27 and Asia, buoyed by large-scale investments in green hydrogen projects.
Pharmaceuticals. Africa is still a small player, accounting for 1.6% of world manufacturing value added in the sector. However, it has industrial hubs that could be scaled-up, as seen during the COVID-19 pandemic, and is home to an expanding healthcare market. Easier trade rules and regulatory harmonisation within the AfCFTA, coupled with more capacity to pool procurement holds potential for boosting local pharmaceutical production.
Cultural and creative industries (CCIs). Africa’s cultural heritage is rich and diverse. However, CCIs play a small role in trade, accounting for less than 1% of goods exports, compared to nearly 4% in Asia and 3% in the EU-27, and for only 2% of total trade in services for the continent, compared to 20% for Europe and 15% for Asia. The AfCFTA could be a lever for CCIs, particularly through rules governing access and protection of creative content, though for example the e-commerce and IPR protocols.
Logistics. The African logistic value chain is undergoing important changes, with new players innovating and connecting firms and consumers more cheaply and faster through advanced technologies. The AfCFTA can accelerate this trend by opening new trade routes and addressing long-standing challenges such as the continent’s large infrastructure gap, high transport costs and the prevalence of non-tariff trade barriers. Advancing the digitalisation agenda will also be crucial for future-proof logistics. The average African broadband speed was 17 Mbps in 2023, 6 times lower than in the OECD.
AfCFTA benefits will not spread naturally: targeted actions, investments and partnerships are needed to make it work for industrialisation. The continent’s development financial institutions are playing an important role in this respect, mobilising financing for trade and industrial development. Moreover, new tools have the potential to significantly reduce time and costs to finance, such as the Pan-African Payment and Settlement System (PAPSS) and the Afreximbank-African Collaborative Transit Guarantee Scheme.
National strategies are also identifying ways of adapting national frameworks to ensure the AfCFTA encourages local development. Egypt, for one, has taken important steps to promote trade and investments in the continent. The Egyptian government has set up a national committee for the implementation of the AfCFTA, headed by the Ministry of Trade and Industry, with the participation of relevant agencies and private sector. Moreover, the country has been promoting trade facilitation and infrastructure development for trade, including the Advanced Cargo Information (ACI) system as part of the pilot of the Egyptian Single Window System (the NAFEZA platform). Such actions can boost Egypt’s ties with Africa.
Three policy issues stand out as priorities in the context of the implementation of the AfCFTA:
Advancing on the continental industrialisation agenda. This will require reforms at national level to turn the agreement into an effective competitiveness driver, as well as an effort to match resources with ambitions. Achieving an integrated and industrialised Africa requires adequate policy space and financial resources. Development banks will be crucial in delivering the needed financing and services, but need adequate capacities. International partnerships will be key, as well.
Fast-tracking AfCFTA implementation. Completing the negotiations and investing in capacity building for implementation are crucial. Engaging in monitoring and evaluation and data generation will also be important to ensure the agreement remains relevant and any obstacles are addressed swiftly and smoothly. Continental initiatives aimed at strengthening the fundamentals upon which trade relies also need to be advanced. For example, the work of Pan-African Quality Infrastructure (PAQI) bodies – including the African Organisation for Standardisation (ARSO), to harmonise existing standards and develop new ones for emerging areas – is particularly important.
Learning from others and connecting globally. Creating a continental market is a long-term process, which requires trust building and managing divergences. The experience of other regional integration processes has shown the importance of having mechanisms to manage divergences between countries, as well as between actors within countries, to ensure no one is left behind and all are given the possibility to benefit from the newly created market. Finally, it will be important to strengthen the continent’s voice in multilateral fora, particularly on food security, access to drugs, climate change and the green transition.
