AfCFTA is a game changer for Africa, and could be one for the world. This chapter discusses key policy issues for the future that are of priority importance for AfCFTA to deliver on its ambition. It focuses on how to advance on the continental industrialisation agenda, how to fast-track AfCFTA implementation and how to learn from others and connect globally.
Production Transformation Policy Review of Egypt
Spotlight on the AfCFTA and Industrialisation
Report
OECD Development Pathways
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4. Policy issues for the future
Abstract
Advancing on the continental industrialisation agenda
Making reforms happen at the national level. At the AU Extraordinary Summit on Industrialization and Economic Diversification that took place in Niamey, Niger in November 2022, the AU and its member states restated the goal of advancing towards industrialising Africa and to do it in a job-rich, innovation-driven and green way. An Action Plan for the implementation of the outcome of the summit echoes this goal, bringing in key regional, continental and global partners. National strategies will be key in turning the agreement into an effective competitiveness driver. The United Nations Economic Comission for Africa (ECA) supports signatory states to develop and implement national and regional AfCFTA strategies, in order to identify potential opportunities in continental trade and priority areas for policy reforms related to the implementation of the agreement.
Matching resources to the ambition of the challenge ahead. Achieving an integrated and industrialised Africa requires adequate policy space and financial resources. Development banks will be crucial in sustaining the effort and will need to be endowed with the capacities to do so and deliver financing and services in line with the investments needed. International partnerships will be key, as well.
Fast-tracking AfCFTA implementation
Fast-tracking negotiations to build on the political momentum to make an integrated Africa a reality. To support the agreement, it is also a priority to invest in setting up the institutions needed to ensure implementation and capacity building. Scaling up and committing to continental and bilateral actions in this regard will be crucial. RCEP, for example, contains a distinct chapter on Economic and Technical Cooperation, making special reference to the LDC members, outlining the need to engage in capacity building exercises to implement the technical chapters. Moreover, 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. The foreseen AfCFTA Implementation Review Mechanism (AfIRM), for instance, is an important step in this direction (AU-AfCFTA, 2023[1]). Finally, increasing awareness among the public, through for example information campaigns, increasing engagement with the private sector (including MSMEs, start-ups and informal firms) and publishing successful case studies will be important for expanding take-up.
Advancing on announced continental initiatives that aim at strengthening the fundamentals upon which trade relies. For example, continuing progress on the harmonisation of existing standards, and also on the development and adoption of new standards for emerging areas such as Industry 4.0 and renewables is necessary to underpin a successful free trade area. Supporting the work of Pan-African Quality Infrastructure (PAQI) bodies, including ARSO, and accelerating the implementation of the AU’s Africa Quality Policy is important in this respect. In addition to freer movement of goods and capital, freer movement of people is also essential for pooling the talent of the continent and creating the rich partnerships envisioned, which can foster its scientific, technological and entrepreneurial potential. However, barriers to movement still vary across the continent. According to the AfDB’s Visa Openness Rankings (2021[2]), for example, 51% of countries across the continent require African visitors to obtain a visa before they arrive. Balancing national security and sovereignty concerns with easing movement of talent across borders, will be essential in turning AfCFTA into a tight-knit community.
Learning from others and connecting globally
Creating a continental market is a long-term process, which requires trust building and managing divergences. The protocols that make up the AfCFTA and their implementation are only a first step towards meeting the ambitious objectives of the agreement for the creation of a single market that promotes industrial development and value chain integration. The process of integration is one that takes time and repeated interactions among actors to take advantage of the new regulatory environment, among countries and regions that lack historical ties, geographical proximity or previous common experience in a free trade area. Continental integration also requires setting up mechanisms to manage divergences between countries and between actors within countries to ensure “no one is left behind” and all are given the possibility to benefit from the newly created market. In this respect, the experiences of other regional integration processes can offer valuable lessons (Box 4.1).
Strengthening the continent’s voice in the multilateral landscape. A more integrated Africa is one that is more and better integrated with the world, too. It will be important to have the voices from the continent more active in multilateral discussions that involve global challenges, from food security, access to drugs, climate change and the green transition.
Box 4.1. Lessons learned from experiences in ASEAN, Latin America and the Caribbean and the EU
The following are some lessons learned from experiences in ASEAN, Latin America and the Caribbean and the EU, drawing on the Peer Learning Group Meeting of the PTPR of Egypt on the unlocking the potential of AfCFTA for regional value chains:
Tariff reduction and elimination is necessary, but identifying existing non-tariff barriers (NTBs) and adopting a strategy to eliminate them is difficult. For example, the Southern Common Market (MERCOSUR), established in 1991, prioritised tariff elimination, but has not advanced as much on addressing NTBs, hampering effective integration. The AfCFTA also targets eliminating NTBs, and to this end includes a built-in NTB mechanism and annexes on trade facilitation, customs co-operation and transit trade.
Achieving regional/continental integration is a long-term process. While the elimination of trade barriers can create a space for increased continental production and trade networks to develop, these take time to emerge. Ambition needs to be matched by patience and taking a step-by-step approach in realising the potential of an integrated continental market. ASEAN, for example, experimented with local integration processes in border regions, the so-called “growth triangles”. Africa could build on similar cross-border initiatives within RECs to build a more macro-level integration.
Informal ties, trust and networking matter to advance towards integration. While legal instruments can offer some guarantees of operating within integrated regions, cultivating informal ties, networking and trust are essential for working together effectively. In ASEAN, business co-operation through the establishment of business councils, participation in ministerial meetings, and public-private partnerships have been key in exchanging ideas and proposals and fostering connections among stakeholders. AfCFTA also enjoys the support of the private sector. The AfroChampions Initiative, a set of public-private partnerships and programmes to promote the African private sector, has played a particularly important role in supporting the AfCFTA process, and the private sector is now central to the development of AfCFTA national implementation strategies, supported by the UN Economic Commission for Africa (ECA) and the African Union Commission (AUC).
Mutual recognition can work better than harmonisation. Harmonisation is a lengthy process and may not necessarily be the best approach when dealing with long-established national regulatory practices. The EU adopts a mutual recognition approach to facilitate market access for goods that are only partly subject to EU harmonisation legislation. Standards harmonisation and mutual recognition agreements in Africa are being promoted by the African Organisation for Standardisation (ARSO).
The private sector needs incentives to go regional. In certain cases, value chains feature existing networks of suppliers, and shifting to new vendors can be risky. Also, a fully supportive ecosystem is lacking but would make it easier to find new and reliable partners (e.g. financing and insurance providers for cross-border activities). Incentives are needed to compensate the private sector for the increased risk in exploring the new regional market and fostering ecosystems to be built around the newly formed supply chains. Given the tight fiscal constraints faced by countries, these incentives need to be carefully designed and prioritised for maximum impact.
A financial and digital ecosystem needs to be in place to realise the potential of trade integration. Trading across regions requires a variety of financial services (e.g. export and credit guarantees, insurance provision for cross-border activities) and non-traditional financial tools, such as fintech. Connectivity, both transport and digital, is also important. Africa is advancing on these issues. For example, the African Development Bank (AfDB) helps mobilise financial resources for the continental market. Since 2013, the AfDB’s trade finance facilities have supported around 1 800 trade transactions, with over 60% (USD 322 million) targeting SMEs. Digital transformation and integration are also important, now more than ever, as highlighted by the COVID-19 pandemic. To this end, in 2020 the African Union launched the Digital Transformation Strategy for Africa (2020-2030) to harness digital technologies for Africa’s transformation and fast-track national-level adaptation and implementation. An African Union Working Group on Artificial Intelligence has also been created since then, in order to provide a unified stance towards AI. Several African countries have adopted a strategy for AI, including Egypt, Morocco, South Africa and Tunisia.
Africa has the opportunity to take a place-based approach from the get-go. Integration efforts elsewhere, such as those in ASEAN, did not take a local perspective as a starting point. Africa has the opportunity, instead, to follow a linear process and use a space-blind approach to kick-start a more balanced process that takes regions into account. Emphasising territorial and economic de-centralisation from megacities could be an important component in this respect. Urban growth in ASEAN is already moving towards smaller cities beyond capital regions.
Measures must be put in place to ensure no one is left behind. The benefits of the AfCFTA, like in other trade agreements, will likely be uneven within countries, with different sectors and firms facing unique opportunities and challenges. Across countries, too, gains will differ depending on a variety of factors, from country size and geography to history and production specialisation, among others. Countries will need to monitor closely the impact of AfCFTA on their economies to ensure that complementary policies and strategies meet emerging challenges. It will also be important to develop social safety nets to ensure that the rising tide lifts all boats and to ensure the adjustment to the agreement is as smooth as possible.
Source: (OECD et al., 2021[3]), Production Transformation Policy Review of Egypt: Embracing Change, Achieving Prosperity, OECD Development Pathways, OECD Publishing, Paris, https://doi.org/10.1787/302fec4b-en.
References
[2] AfDB (2021), Africa Visa Openness Index, African Development Bank Group, https://www.visaopenness.org/.
[1] AU-AfCFTA (2023), Consultative meeting on the AfCFTA trade policy review mechanism.
[3] OECD et al. (2021), Production Transformation Policy Review of Egypt: Embracing Change, Achieving Prosperity, OECD Development Pathways, OECD Publishing, Paris, https://doi.org/10.1787/302fec4b-en.