W4 Summary Report by Building Bridges

THE AfCFTA AND TRANSFORMATIVE INDUSTRIALISATION WEBINAR SERIES

WAY FORWARD: POLICY IMPLICATIONS AND RECOMMENDATIONS FOR THE AfCFTA SUMMARY REPORT 2021, Cape Town

Linkoping House 27 Burg Road Rondebosch 7700 Cape Town T +27 (0) 21 650 1420 F +27 (0) 21 650 5709 E mandelaschool@uct.ac.za www.mandelaschool.uct.ac.za

Design: Mandy Darling, Magenta Media

Contents Introductory Note........................................................................................................................................... 2 Speaker Bios .................................................................................................................................................... 3 Context overview............................................................................................................................................ 9 Section 1: Shifting the focus away from GVCs and developing RVCs in Africa ............................... 11 The type of RVCs that can be developed in Africa ...................................................................... 11 Section 2: Constraints to the development of RVCs in Africa .............................................................12 Trade data-related issues ..................................................................................................................12 Macroeconomic considerations .......................................................................................................12 Lack of a harmonised investment protocol ...................................................................................12 Lack of intellectual property rights, patents, and copyrights expertise .................................13 Section 3: Building Regional Value Chains in Africa ............................................................................ 14 Rules of origin framework or criteria ..............................................................................................15 Section 4: Interventions by the AfCFTA Secretariat in promoting regional trade and integration .................................................................................................................................. 16 The call to action: Action plan and the development of the Industrial Development Forum ....................................................................................................... 16 Regulatory framework to support cross border payments, financing needs and complementary measures for finance ................................................................................... 16 Establishment of a payments and settlement platform ............................................................ 16 Variable geometry provision ........................................................................................................... 16 Rules of origin ..................................................................................................................................... 16 Establishment and implementation of an adjustment facility ...................................................17 The role of Regional Economic Communities (RECs) .................................................................17 Section 5: Summary of insights and recommendations from the AfCFTA and Transformative Industrialisation series .............................................................................................18 Webinar 1: Pharmaceuticals and Healthcare RVCs in Africa ......................................................18 Webinar 2: Cotton, Textiles and Clothing RVCs in Africa ......................................................... 20 Webinar 3: Agriculture and food processing RVCs in Africa .................................................... 22

Introductory Note AfCFTA and Transformative Industrialisation Dear Reader, 2020 proved to be a challenging year for people across the world. Of note the impact of the Covid-19 pandemic on families, communities and nations reminded us of the need to strengthen democratic governance and pursue development sustainably. The African Continental Free Trade Agreement presented a unique opportunity to explore the challenges and opportunities for better integration of regional value chains in the pharmaceutical, agricultural and textile industries. Successful delivery of our four-part webinar series was made possible through partnership with the Centre for Competition, Regulation and Economic Development (CCRED) at the University of Johannesburg, the Centre for Comparative Law in Africa (CCLA) and the Policy Research in International Services and Marketing (PRISM) at the University of Cape Town, Trade and Industrial Policy Strategies at the University of Pretoria, the Toyota Wessels Institute of Manufacturing Studies (TWIMS) in Durban, the Nigerian Institute of Advanced Legal Studies and the Africa International Trade & Commerce Research in Nigeria. We are especially grateful to our distinguished speakers who shared their experience and recommendations, thereby contributing to vibrant discussions during our webinar series.

We had the opportunity to relay these recommendations to the Secretary General of the AfCFTA Secretariat, H.E. Wamkele Mene, in December 2020. This Summary Report on Policy Implications and Recommendations for the AfCFTA, reveals strategic considerations to include in the development of policy frameworks that enhance efficiency, promote regional value chains and make African industries more attractive to investors at home and beyond. We would like to thank Ms Vuyiswa Mkhabela, a member of our research team on the AfCFTA and Transformative Industrialisation Project, who compiled this summary report. This work forms the foundation in our efforts to build a network of experts working on issues related to transformative and sustainable industrialisation through the Industrialisation and Development Forum. In 2021, we will continue this series to explore digitisation and opportunities for green industrialisation. We hope you enjoy reading this report and look forward to your comments. If you would like to receive more information about this ongoing project, please contact Ms Mabel Nederlof-Sithole, who is leading our Building Bridges Programme (mabel.sithole@uct.ac.za). Click here to view webinar videos. Warm regards, Faizel Ismail

Way Forward: Policy Implications and Recommendations for the AfCFTA • SUMMARY REPORT

Speaker Bios (In order of appearance) BIOS (In order of appearance) Prof Faizel Ismail Director, The Nelson Mandela School of Public Governance Professor Faizel Ismail is Director of the Nelson Mandela School of Public Governance. He currently teaches at the University of Cape Town, in the School of Economics, the Faculty of Law and in the Graduate School of Business. He has a PhD in Politics from the University of Manchester; an MPhil in Development Studies from the Institute of Development Studies (IDS), Sussex, and; BA and LLB Degrees from the University of Kwa-Zulu Natal (Pietermaritzburg) in South Africa. He was re-appointed to serve as the Chair of the International Trade Administration Commission (ITAC) for five years (20192023). He has served as the Ambassador and Permanent Representative of South Africa to the WTO (2010-2014). Prior to this he was the Deputy Director General for International Trade and Economic Development (ITED) in the Department of Trade and Industry (dti). As South Africa’s Chief Trade Negotiator, since 1994, he led the new democratic South Africa’s trade negotiations with the European Union (EU), Southern African Development Community (SADC), Southern African Customs Union (SACU), and several other bilateral trading partners including the US, India, and Brazil. He was also South Africa’s Special Envoy on the South Africa-USA AGOA negotiations between January 2015 and June 2016.

H. E. Wamkele Mene Secretary-General, AfCFTA Secretariat Wamkele Mene was elected by the 33rd Ordinary Session of the Assembly of Heads of States & Government of the African Union, to the position of Secretary-General of the African Continental Free Trade Area (AfCFTA) Secretariat. Prior to being elected Secretary-General of the AfCFTA Secretariat, he served as Chief Director: Africa Economic Relations at the Department of Trade & Industry of South Africa. In this role, he was South Africa’s chief trade negotiator in the AfCFTA and Tripartite FTA negotiations. During his tenure as chief negotiator, South Africa ratified both the AfCFTA and Tripartite FTAs agreements, providing new export markets in fast-growing and dynamic markets in East and West Africa. Prior to assuming this position, Wamkele was Director: International Trade Law & Investment Law at the Department of Trade & Industry, a role in which he was principal legal counsel on international trade law and international investment law. From 2010 until 2015, Wamkele represented South Africa at the World Trade Organisation (WTO) in Geneva, Switzerland. During his posting to the WTO, Wamkele was elected by over 130 governments to the position of Chairman of the Committee on International Trade in Financial Services, a committee comprising trade negotiators, financial regulators and financial policy makers from over 160 countries. Prior to joining the government, Wamkele worked for the law firms Simpson Thacher & Bartlett LLP in London and Milbank, Tweed, Hadley & McCloy LLP in Hong Kong.

Wamkele has written and lectured internationally on international trade law, international investment law and international business law. He holds a Bachelor of Arts (Law) degree from Rhodes University in South Africa, a Master of Arts in International Studies & Diplomacy (with specialisation in international economics) from the School of Oriental & African Studies (SOAS), University of London and a LL.M. (Master of Laws) in Banking Law & Financial Regulation from the Law Department of the London School of Economics & Political Science (LSE). Ms Kirti Narsai Director: HealthValue Consulting (Pty) Ltd Kirti Narsai has 23 years of experience of working in various roles in the healthcare industry and has won several awards during her career for leadership, innovation, and performance. She has held many technical and managerial roles which have given her broad exposure across commercial and noncommercial areas across broad geographical areas. She currently runs her own consultancy focusing on health and trade policy issues in Africa while completing her PhD in Pharmaceutical Policy at the Utrecht University, Netherlands focusing on health products regulation in the Southern African region. Prior to this, she served as Senior Director, Government Affairs & Policy at Johnson & Johnson with responsibility for sub-Saharan Africa where she was responsible for proactively assessing, influencing and shaping the rapidly evolving Health Policy environment in the region across the company’s core focus areas: medical devices, pharmaceuticals and consumer products. She also completed the Ascend Accelerated Leadership Development Program at Johnson & Johnson during 2018, reserved for women identified for accelerated development. She has facilitated the African Regional Business Network meeting of the World Economic Forum for Africa and appeared in a panel interview on CNBC Africa on the African Continental Free Trade Agreement.

She has held several board positions at Johnson & Johnson Medical Devices, South Africa, Johnson & Johnson Consumer, Sub-Saharan Africa, Nepad Business Foundation, Janssen, Pharmaceutical Companies of Johnson & Johnson, South Africa, American Chamber of Commerce, South Africa, National Business Initiative. She has also been a member of several special interest groups: World Economic Forum, African Regional Business Network, Johnson & Johnson, Africa Innovation Challenge Leadership team, Transformation Advisory Committee – National Business Initiative, Gauteng government task team for investment in pharmaceutical and medical devices sector. Previously she was Head: Scientific and Regulatory Affairs at the Pharmaceutical Industry Association of South Africa (PIASA), a trade association representing pharmaceutical companies in South Africa. Kirti focused on strategic scientific, health and pharmaceutical policy issues affecting pharmaceutical companies operating in South Africa and other African countries across 4 regional economic communities. Kirti has published several reports, submissions and research papers in international peer reviewed journals on policy issues affecting the pharmaceutical industry. She facilitated and chaired various industry working groups focusing on key policy issues and also convened the first Cold Chain forum in SA. She was responsible for trade industry submissions on various draft policy issues, including National Health Insurance, Pharmaco-economics, draft regulations, and reimbursement of medicines, product quality, pharmacovigilance and clinical trials. Kirti began her career in the pharmaceutical industry with Janssen, pharmaceutical companies of Johnson & Johnson in 1997 in Medical Affairs and Pharmacovigilance. She held several positions of increasing responsibility in Medical Affairs at AstraZeneca Pharmaceuticals. She was also Programme Manager at a leading health insurance company, PruHealth (a division of Discovery Health). Kirti is a qualified pharmacist, with a M.Sc. (Pharmaceutics) (cum laude) and an MBA (GIBS) (dissertation with distinction). Kirti is passionate about health and related policies and their impact on patients and public health in African countries.

Way Forward: Policy Implications and Recommendations for the AfCFTA • SUMMARY REPORT

Dr Taffere Tesfachew Advisor, Ethiopian Investment Agency Taffere Tesfachew, PhD, is an international consultant on trade- and developmentrelated issues. Until May 2016, he was director of the Division on Africa and Least Developed Countries, UNCTAD, where he led a team of economists who conducted research and analysis for two major annual reports, the ‘Economic Development in Africa Report’ and the ‘Least Developed Countries Report’. He has also authored and co-authored articles on a range of topics. Dr. Tesfachew holds a PhD in development economics from the Institute of Development Studies, University of Sussex. Ms Jane Ezirigwe Research Fellow, the Nigerian Institute of Advanced Legal Studies Jane Ezirigwe is a research fellow at the Nigerian Institute of Advanced Legal Studies with research interests focused on food & agricultural law, human rights and law & development. She is also an adjunct lecturer at Bingham University, Karu, Nigeria where she teaches international trade law at the undergraduate level. Ms Ezirigwe has 28 publications in these areas, in reputable peer reviewed journals and has presented her research works in several local and international conferences. She had her legal and professional development training from University of Abuja, Nigerian Law School, Harvard Law School, University of London, ESUT Business School and is concluding her doctoral studies at the Faculty of Law of University of Cape Town. She has worked in private legal practice, corporate practice and presently in academia and research. Ms Ezirigwe is the co-coordinator of the NIALS training course on Trade & Regional Integration Law & Practice. She was a national committee

member of the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), Federal Ministry of Trade & Investment for the National Trade Summit for Skilled and Vocational Artisans in 2018. She was also a member, House of Representatives’ Technical Committee on Environmental Law and Policy in 2017. She is an International Bar Association Scholar; a Moseneke Grant Scholar; an Alexandre Burman Memorial Grant scholar; an Olu Akinkugbe Fellow on Business Law in Africa; a Fellow of Young African Leaders Initiative; and has received several academic and research awards for her contributions to the development of law. Prof Carlos Lopes Professor, The Nelson Mandela School of Public Governance Carlos Lopes is a professor in the Mandela School of Public Governance at the University of Cape Town, visiting professor at Sciences Po, Paris and associate fellow in the Africa Program of Chatham House. He has occupied several leadership positions across the UN system, including policy director for Secretary-General Kofi Annan and executive secretary of the UN Economic Commission for Africa. He has authored or edited more than 20 books and feature articles in Project Syndicate, CNN, Le Monde, Financial Times, China Daily, The Guardian, New African and Jeune Afrique, amongst others. His latest books are “Africa in transformation. Economic development in the age of doubt” (Palgrave McMillan, 2019) and “Structural Change in Africa. New narratives, misperceptions and development in the 21st century” co-authored with George Kararach (Routledge, 2020). He is a member of the African Union reform team led by President of Rwanda Paul Kagame and doubles as the organisation High Representative for Partnerships with Europe as well as a member of the Global Commission for Economy and Climate, African Academy of Sciences, Lisbon Academy of Sciences and seats in many Boards including the African Leadership Institute, Waterloo University and Geneva Graduate Institute.

Dr Arkebe Oqubay Hon. Minister and Special Advisor to the Prime Minister of Ethiopia Arkebe Oqubay, PhD, is a Senior Minister and Special Adviser to the Prime Minister of Ethiopia, and has been at the centre of policymaking for over 30 years. He has served as a chair and vice-chair on the boards of several leading public organizations and international advisory boards. He is the former mayor of Addis Ababa, won the ABN’s Best African Mayor of 2006 award for transforming the city, and was a finalist in the World Mayor Award 2006. Dr Arkebe was recognized by the New African as one of the 100 Most Influential Africans of 2016 and a “leading thinker on Africa’s strategic development” for his work on industrialization and industrial policies, both theoretical and practical. The Order of the Rising Sun, Gold and Silver Star, was presented to him by the Emperor of Japan in recognition of his distinguished achievements. He is a Professor of Practice at the University of Johannesburg (South Africa), a visiting professor at Sciences Po (Paris) and Nanyang Technological University (Singapore), and a distinguished visiting professor at Fudan University (Shanghai). Dr Arkebe is a UNU-WIDER Honorary Research Fellow, a Distinguished Fellow at the London-based think-tank the Overseas Development Institute (ODI), and a research associate at the Centre of African Studies in the University of London. He holds a PhD in development studies from SOAS, University of London. His research focuses on core development economics issues, including structural transformation, industrial policy, economic catch-up, and global transformation, with a particular interest in developing countries. His published works include the path-breaking Made in Africa (Oxford University Press, 2015); The Oxford Handbook of the Ethiopian Economy (Oxford University Press, 2019); How Nations Learn: Technological Learning, Industrial Policy, and Catch-Up (Oxford University Press, 2019);

China-Africa and an Economic Transformation (Oxford University Press, 2019); African Economic Development: Evidence, Theory, and Policy (Oxford University Press, 2020); The Oxford Handbook of Industrial Hubs and Economic Development (Oxford University, 2020); and The Oxford Handbook of Industrial Policy (Oxford University Press, 2020). Dr Célestin Monga Professor of Practice, Harvard University Dr Célestin Monga is a visiting professor of public policy at Harvard’s Kennedy School of Government, faculty associate at the Center for International Development (CID) at Harvard University and fellow at the Harvard University Center for African Studies. He is also a part-time professor of economics at the University of Paris 1 Panthéon-Sorbonne and research professor at Peking University’s Institute of New Structural Economics. Monga has held various board and senior executive positions in academia, financial services, and international development institutions, serving most recently as managing director at the United Nations Industrial Development Organization (UNIDO), vice president and chief economist of the African Development Bank Group, and senior economic adviser/director at the World Bank Group. Monga has published extensively on various dimensions of economic and political development. His books have been translated into several languages and are widely used as teaching tools in academic institutions around the world. His most recent works include The Oxford Handbook of Structural Transformation (2019), with J.Y. Lin; Beating the Odds: Jump-Starting Developing Countries (Princeton University Press, 2017), with J.Y. Lin; the two-volume Oxford Handbook of Africa and Economics (2015), with J.Y. Lin; and Nihilism and Negritude: Ways of Living in Africa (Harvard University Press, 2016). Monga holds graduate degrees from MIT, Harvard University, and the Universities of Paris and Pau.

Way Forward: Policy Implications and Recommendations for the AfCFTA • SUMMARY REPORT

Ambassador Adeyemi Dipeolu Special Adviser to the President on Economic Matters in Nigeria Dr Adeyemi Dipeolu was successively coordinator of the African Trade Policy Centre, chief of staff, and director of the Capacity Development Division of the Economic Commission for Africa. In these roles he supported African regional integration from where he conceptualised and supervised the articulation of a transformative industrial policy for Africa. He was in the Nigerian Foreign Service and served in Caracas, Addis Ababa, Pretoria and Geneva and as Special Assistant for Economic Policy in the Presidency. He studied economics at Ife University and diplomacy at Oxford University. He obtained his M.Phil. with distinction from Cambridge University and his Ph.D. from the University of South Africa. He was awarded a D.Sc. in Economics (Honoris Causa) by Lead City University and conferred with a Fellowship of the Nigerian Economic Society in 2019. Ambassador Dipeolu serves on the Board of Trustees of non-profit organisations dedicated to education and public policy issues. Dr Rob Davies Former South African Minister of Trade and Industry Dr Rob Davies retired in May 2019 after completing ten years of service as South African Minister of Trade and Industry and 25 years as a member of Parliament representing the African National Congress (ANC). He holds an Honours degree in economics from Rhodes University, a masters in international relations from the University of Southampton and a doctorate from the University of Sussex. He was attached to Eduardo Mondlane University in Maputo, Mozambique, from 1979 to 1990 and was

professor and co-director of the Centre for Southern African Studies at the University of the Western Cape from 1990 until 1994. He has been a member of organisations of South Africa’s national liberation movement for more than 40 years. For at least a decade before that he was an anti-apartheid activist. Mr Liman Acting chief trade negotiator/director general, Nigerian Office for Trade Negotiations Mr Liman, the acting chief trade negotiator/ director general, Nigerian Office for Trade Negotiations (NOTN), has held different positions in NOTN. Prior to his current appointment, he was the director of Administration and Finance, Department of Administration and Finance (NOTN), he was also the assistant chief trade negotiator/ director, Department of the African Continental Free Trade Area/ECOWAS (NOTN), and the assistant chief trade negotiator/director, Department of Asia (NOTN). He is an expert advisor in international investment and trade law, international finance and project finance law, regulation, governance, and technology law, he also advises on bilateral and multilateral investment/trade treaties and agreements. Mr Liman has a very rich educational background, spanning different fields of academic achievements. He obtained his first degree, Bachelor of Laws (LLB Hon.) from the University of Uyo; was a graduate visitor at Stanford University (Palo Alto, USA); earned a Post Gradute Diploma in war studies, at King’s College London (UK); earned a Master of Law (LLM) in regulation and technology law, at King’s College London; and has a certificate in International and Comparative Intellectual Property Law and International Human Rights Law from the London Law Consortium/University of Iowa London Law Programme. Mr Liman is also an associate of King’s College London and a senior executive fellow, John F. Kennedy School of Government, Harvard. Mr Liman has a proven track record in successfully influencing, negotiating and liaising with institutions, private and public stakeholders at all levels.

Mr Kolawole Sofola Director of Trade, ECOWAS Mr Kolawole Sofola is a development economist and a chartered management accountant with over 20 years of public and private sector experience in international trade, private sector development, finance and management. His public service record includes working for the government of Ghana in the Ministry for Private Sector Development, as well as the ECOWAS Commission as an international trade and development expert. He also acquired years of private sector managerial experience with the multinational blue chip giant Siemens within the UK and Germany. Mr Sofola is an ex-Overseas Development Institute (ODI) fellow and is currently working for the Commission of the Economic Community of West African States (ECOWAS) as the acting director for trade. Mr Sofola is also the chief negotiator for ECOWAS in the framework of the African Continental Free Trade Area (AfCFTA) negotiations, as well as regional focal points on a number of trade and development related issues including: WTO Trade facilitation Agreement (TFA), West African Competitiveness programme (WACOMP) and the African Growth and Opportunities Act (AGOA).

Way Forward: Policy Implications and Recommendations for the AfCFTA • SUMMARY REPORT

Context overview The African Continental Free Trade Area (AfCFTA) presents an opportunity to boost regional trade and meet the continent’s transformative industrialisation imperative. Currently, with an intra-regional trade of about 17%, the continent lags behind Europe (69%), Asia (59%) and North America (31%). While the low intra-regional trade reasons are many and complex, a primary factor underpinning the abysmal performance – despite a long history of efforts to foster regional integration – is the lack of productive capacity on the continent. In light of this shortcoming, the AfCFTA affords an opportunity to re-think the approach to regional integration by moving away from a linear-based approach that focuses on the removal of trade barriers, to a development-based approach that pays attention to the building of productive capacity through the promotion of economic diversification, structural transformation and technological development. Specific policy tools often identified to foster ‘developmental regionalism’ in Africa include, among others, development of regional value chains (RVCs) that exploit existing complementary features within the region including differentiated labour cost, productive capabilities, natural resource endowment and geopolitical advantages1.

The Mandela School and its partners delivered the four-part AfCFTA and Transformative Industrialisation webinar series to focus on the potential each of these RVCs provides.

The Nelson Mandela School of Public Governance at the University of Cape Town identified the following priority sectors: i) pharmaceuticals and healthcare, ii) cotton, textiles and clothing, and iii) agriculture and food processing.

4. To explore how trade and industrial policy are interconnected and how the AfCFTA provides an opportunity to strengthen RVCs.

The fourth webinar titled, “The Way Forward: Policy Implications and Recommendations for the AfCFTA”, took place on 1 December 2020. The objectives were: 1. To provide the AfCFTA with an opportunity to discuss efforts towards promoting intra-African trade; 2. To provide an overview of policy recommendations identified during the webinar series; 3. To identify the type of RVCs that can be developed on the continent; and

1 Other policy tools often identified are regional industrial development policy, development corridors and the establishment of special economic zones.

This report presents the thematic insights from the fourth webinar in the following sections: • Section 1: Shifting the focus away from global value chains (GBVs) and developing regional value chains (RVCs) in Africa • Section 2: Constraints to the development of RVCs in Africa • Section 3: Building regional value chains in Africa • Section 4: Interventions by the AfCFTA Secretariat in promoting regional trade and integration

The Nelson Mandela School of Public Governance has identified three priority sectors that were perceived to have high potential for regional value chains (RVCs) in the context of the AfCFTA. They include: 1. Pharmaceuticals and healthcare

• Section 5: Summary of insights from previous webinars and policy recommendations for the three RVCs

2. Cotton, textiles and clothing

3. Agriculture and food processing

Way Forward: Policy Implications and Recommendations for the AfCFTA • SUMMARY REPORT

Section 1: Shifting the focus away from GVCs and developing RVCs in Africa Panelists agreed that there is a compelling case for a shift from global value chains (GVCs) to development of Africa’s regional value chains (RVCs). Dr Dipeolu noted that integration into GVCs by African manufacturers mostly depends on multinational corporations’ decision-making. In addition to high non-tariff barriers to entry, participation in GVCs limits and constrains African economies in low-value-addition activities. Secondly, RVCs are more suited to industrialisation and local economic needs including labour-intensive manufacturing and industrialisation. Prof Lopes outlined trends favouring industrialisation and building RVCs in Africa. He listed the following: i) challenges facing China and SouthEast Asia to acquire labour at a minimal cost and maintenance of low-value-added production; ii) Africa’s proximity to the European market; iii) Africa’s growing consumer market; and iv) the opportunity to automate production activities. Despite these opportunities, Prof Lopes noted that Africa remains at a competitive disadvantage and is not well equipped for sophisticated value chain functions. Amongst these are intellectual property management, design and branding, and logistics. Dr Davies added that pursuing regional integration with a continental free trade area mirrors the path that emerging economies adopted in the last ten years. For example, China and India have shifted focus from exporting goods to developed countries, to targeting large domestic markets. The AfCFTA is a tool that can be used to promote economic diversification and industrialisation with increased high-value-added products.

The type of RVCs that can be developed in Africa The type of RVCs developed in Africa has been an essential topic of discussion as the AfCFTA provides an opportunity for market access to regional economies. In contrast, various sectors and value chains on the continent have focused on developing products for global markets in recent years. RVCs in Africa can either be

developed to focus on creating products for regional consumption (inward-oriented RVCs) or creating a product regionally that can be competitively sold in international markets (outward-oriented RVCs). Dr Dipeolu highlighted the difficulties in determining whether inward-oriented or out-ward oriented RVCs will emerge in Africa because: • Firstly, the nature of RVCs that emerge in Africa will depend on how the private sector reacts to governments’ policies and the AfCFTA context. • Secondly, the kind of RVCs developed in Africa depend on the sectors targeted. In some sectors, the entire value chain is based on domestic demand and does not create competitiveness pressures required for building RVCs. The three target sectors covered by this webinar series are a good starting point to discuss RVCs in the context of the AfCFTA. These sectors meet local domestic needs, absorb labour, do not have high barriers to entry, promote sustainable production practices and provide manufacturers with the opportunity to gain competitiveness and enter GVCs. • Thirdly, certain capital goods and intermediate inputs used in RVCs will still need to be imported; therefore, RVCs must be built to generate foreign exchange. The development of RVCs should not put greater weight and focus on the type of RVCs to be developed, but instead on the adoption of policies which promote industrialisation and make it easier for companies to produce and trade products competitively. An approach that could be undertaken to develop RVCs would be to design regional industrial policies, establish regional payment systems, coordinate incentives, harmonise regulations, create procurement tools, develop financing for regional projects and not underestimate the importance of services.

Section 2: Constraints to the development of RVCs in Africa Full market integration is particularly challenging as there are stark differentials in levels of economic development, the balance of payment and foreign exchange constraints, institutional capacity to promote and advance industrialisation and trade, weak industrial base, manufacturing capacity, levels of infrastructure development, specific and broader supply, and demand constraints on the African continent. Additionally, historical industrialisation policy measures have focused on import substitution, which has resulted in a lack of competitiveness and attempt to protect and develop uncompetitive sectors. Additionally, a lack of competitiveness also means an inordinate amount of time and resources are spent on protection and seeking trade remedies, while at the same time reducing consumer welfare. All these challenges combined make the task of market, economic and regional integration appear daunting. In addition to these points, Prof Lopes, Dr Monga and Mr Liman highlighted a number of constraints that also require attention.

Trade data-related issues Prof Lopes unpacked how understanding and capturing the actual size of cross-border trade occurring on the continent is vital for structural and transformative industrialisation, and the development of RVCs. However, trade data utilised to inform policy decisions on the continent does not reflect a holistic overview of Africa’s trade performance for several reasons. Trade data collection methods are problematic. Data collection methods do not capture trade informalities at borders and they underestimate integration levels in cross-border trading. Additionally, data available is of poor quality, with up-to-date data not readily available and inconsistencies across countries. These issues are important because they create a perception about the size of African trade and industrialisation that does not correspond to reality. Therefore, there is need for improved data collection methods, data quality and the need for informal cross-border trade data to be captured.

Macroeconomic considerations Dr Monga praised Africa’s economic performance in recent years with several countries growing at 3% and above. Diversity in performance across and within regions is acknowledged with East and North Africa generally performing well in recent years, while the Southern, Central and West African regions’ performance is lagging. Additionally, most African countries’ general macroeconomic management has improved with governments not making the big mistakes observed in the 70s and even the 80s. Improved performance and macroeconomic management have been dampened by the fundamental macroeconomic growth problem many African economies face – the dependence on commodity trade. Relying on commodity trade is challenging as commodity prices are volatile and job creation is limited; countries are in danger of experiencing low export revenue growth and fiscal revenue. Reliance on exporting primary commodities is, in essence, a trade diversification issue. The AfCFTA and the development of RVCs provide African economies with an opportunity to diversify traded products and promote transformative industrialisation.

Lack of a harmonised investment protocols Mr Liman emphasised the role of the AfCFTA’s two phases: i) what rules must be in place and ii) the operationalisation of AfCFTA objectives, which include production of tradeable goods, boosting industrialisation, encouraging FDI and creating a dependable platform for investor participation. Furthermore, the harmonisation of investment protocols across regional, bilateral and international investment treaties is critical. This makes it difficult for FDIs to decide where on the continent to invest as they cannot predict investment protocols and fair and equitable treatment to be undertaken across countries and regions in the event of issues arising.

Way Forward: Policy Implications and Recommendations for the AfCFTA • SUMMARY REPORT

Lack of intellectual property rights, patents and copyrights expertise Many countries across the continent do not have expertise on intellectual property rights, patents and copyrights. This is of concern as without expertise, IP and other rights cannot be issued. Furthermore, African producers cannot be protected against IP right infringements and theft. Competition policies must be developed to level the playing field with transparency, predictability, reliability and space for upskilling of intellectual property right expertise.

Section 3: Building regional value chains in Africa The AfCFTA represents a significant step towards an integrated market on the continent characterised by regionalism and transformative industrialisation. Mr Mene acknowledged that full market integration and industrialisation is a long-term goal, which requires resilience and clearly articulated industrial development action plans. The panelists echoed Mr Mene’s observations and elaborated on the strategies to develop RVCs. Dr Dipeolu highlighted that RVC development requires: i) deepening industrialisation, specialisation and fragmentation of production processes, and ii) the AfCFTA to create access to markets, coordinate policy coherence, and coordinate regional production, more efficient logistics chains and an improved business environment. To address constraints, build competitiveness and realise border industrialisation objectives, Prof Lopes stressed the need for African governments and policymakers to develop precise, targeted and consistent industrial policy, focusing on developing strategic sectors and value chains. Additionally, technological advances provide unique opportunities to develop RVCs. Governments and policymakers should therefore leverage technological developments. Especially as late-comers to industrialisation, Africa can more easily shift to: • Sustainable infrastructure, which considers environmental concerns. Unlike developed economies with well-established infrastructure, Africa does not have to face high retrofitting costs. • Renewable energy at competitive prices without completely overhauling the tax system and incentive mechanisms. • Absorbing methods of work that are much easier for younger people than older people. • Export-oriented trade. Even if Africa exports low-value products, technological developments provide an opportunity for more efficient automated production processes.

Dr Monga described interventions which enable diversification of African economies and promote intra-African trade and RVC development. In the same vein as Prof Lopes, Dr Monga reiterated that policies must target sectors with an already established competitive advantage. In most instances across Africa, this entails focusing on labour-intensive rather than capital-intensive sectors. • Focusing on labour-intensive sectors requires governments to assess the skill level present in their labour force. Generally, in Africa, the labour force is low- to semiskilled. These skills levels are problematic for industrial development; however, economies need to identify ways to use existing labour as a resource that can contribute towards industrialisation. At the same time, it is important to invest in interventions focused on upskilling labour. Therefore, public investment should support viable industries, and they are viable only because they can absorb the existing labour force while training the labour force for tomorrow’s industries. Secondly, policy measures should focus on: • The terms of trade and the real and effective exchange rate. These macroeconomic variables are important as they determine productivity and external competitiveness levels. Additionally, governments must also look carefully at monetary policy and exchange rate policies as they determine competitiveness. • Trade policy measures should not only focus on reducing tariffs but also on reducing non-tariff barriers, building up production capabilities, and economies of scale. This will allow African manufacturers to trade regionally within the continent and focus on building capabilities for exporting to large global markets such as China, Europe and America, which have larger purchasing power.

Way Forward: Policy Implications and Recommendations for the AfCFTA • SUMMARY REPORT

Rules of origin framework or criteria Rules of origin frameworks or criteria are being developed, allowing African economies to trade amongst themselves while protecting African economies against abuses that might come from third-party countries. Threats may also come from players who seek to take advantage of gaps that may exist in the AfCFTA. Well outlined and implemented rules of origin allow for rule-based engagement which can boost capacity, create greater participation by local

manufacturers in value chains and encourage FDI. Additionally, there is a need to ensure that customs are not only about revenue generation but ensuring that tariff and non-tariff barriers are removed to allow for an efficient and free flow of trade across borders and domestically. To ensure that this is the case, readiness capacity and knowledge-building interventions are required to ensure that rules are adhered to in order to drive economic growth, build trade relationships across borders and reduce trust amongst countries.

Section 4: Interventions by the AfCFTA Secretariat in promoting regional trade and integration Mr Mene outlined interventions that have been designed to unlock intra-African trade. His contribution is included below.

The call to action: Action plan and the development of the Industrial Development Forum Mr Mene stated that what is required is a set of harmonised action plans focused on industrial development, to be implemented on a continental basis and in each region. This is critical if the African continent is to move from policy to realising the benefits of regional economic and market integration. Therefore, the development of implementable industrial action plans is the next step that Africa should take, and in this regard, Mr Mene announced his intention to establish an Industrial Development Forum. It is envisioned that the Forum would comprise thinkers, intellectuals, development economists, policymakers, the private sector and governments. Providing a platform for these stakeholders to collaborate and collectively work towards finding solutions to Africa’s industrial development challenges. For Mr Mene, this Forum is crucial as not a single person or entity has the answers to some of Africa’s challenges.

Regulatory framework to support cross border payments, financing needs and complementary measures for finance Steps toward establishing a regulatory framework for cross-border payments and financing will require cross-cutting policies and multi-stakeholder cooperation towards better trade facilitation and investment. The AfCFTA Secretariat is working with the African Development Bank to develop a regulatory framework which supports cross border payments, financing needs and complementary measures for finance. It is envisioned that this framework will contribute to the services chapter and protocol of the AfCFTA.

Establishment of a payments and settlement platform Payments and settlement on the African continent are costly, which is a constraint to trade. Over US$500 million has been secured to establish a pan-African platform for payments and settlements to address constraints and ensure that trade on the continent is cheaper, affordable and more efficient. This platform was adopted by the heads of states and launched in 2019 and will be rolled out in early 2021. This platform will require interoperability of the payment systems across regions, which could be challenging. However, this technical component and teething problems can be resolved.

Variable geometry provision It is acknowledged that there are vast differentials in the levels of economic development and institutional readiness across countries. For instance, some countries do not have trade regimes and competition policy frameworks; therefore, not all countries are able to implement all aspects of the AfCFTA. These differentials mean that countries need to be given the space to develop the required regulatory capacities, either from a regional point of view or from a national point of view. There is a provision called the “variable geometry” in the AfCFTA to accommodate differentials.

Rules of origin Implementing rules of origin is essential not only for trans-shipment prevention but also to foster industrial development objectives. To this end, regional or pan-African trade authorities will be developed. Their focus will be enforcement of rules of origin to the extent that trans-shipment from third parties is prevented to ensure that customs authorities have functional trade remedies.

Way Forward: Policy Implications and Recommendations for the AfCFTA • SUMMARY REPORT

Establishment and implementation of an adjustment facility Many countries will experience some form of revenue shortfall resulting from reduced tariffs. Therefore, African countries in the medium to long term must look at tariffs, not as a revenuegenerating tool, but as a tool for industrial development. However, to assist countries in adjusting to revenue loss, an adjustment facility and a cushioning mechanism are being established in collaboration with the African Development Bank. Thus far: • The African Development Bank has mobilised close to US$1 billion for this adjustment facility and work is currently underway on outlining modalities for the facility. • This facility will be made available to countries who have ratified the agreement and countries that experience revenue shortfalls. It is critical to note that the adjustment facility’s purpose is not to provide budget support and transfers to central banks. Instead, its purpose is to support investments which build productive capacity in a particular country, region and even at a sectoral level.

• Mobilisation of global capital markets and private investment is underway focused on securing funds for the adjustment facility.

The role of Regional Economic Communities (RECs) RECs vary in degrees of success and within the REC itself, there are variations in capacity available to advance the trade and economic development agenda. It is envisioned that an instrument focused on a single set of rules for trade and investment on the African continent be established. However, it is advised that countries should be proactive in creating enabling environments to attract trade and investment and increase investor confidence and ease of doing business. Therefore, countries must not sit back and wait for the establishment of a single regional trade and investment instrument. Additionally, no REC has created a dispute settlement mechanism. Such a mechanism is critical in attracting investment into Africa as investors need to have confidence in the ease of doing business on the African continent, investment climate and intellectual property protection, which requires a functioning dispute settlement mechanism.

Section 5: Summary of insights and recommendations from the AfCFTA and Transformative Industrialisation series Speakers2 highlighted key issues and recommendations which emerged in the webinar series. They listed opportunities to increase productivity and competitiveness in the various regional chains, whilst putting forward policy recommendations to continue building the regional value chains. Webinar 1: Pharmaceuticals and Healthcare RVCs in Africa Public health is a human rights issue, which has been further compromised by the current Covid-19 pandemic and other historic challenges. Development of RVCs and a coherent policy framework will boost Africa’s position as a key player in the global healthcare sector. Ms Narsai described the constraints and opportunities that will help to inform the development of an appropriate policy intervention. Weaknesses in Africa’s healthcare infrastructure and systems The pandemic has highlighted some of the weaknesses in African economies and their healthcare infrastructure and systems. In comparison to developed regions, minimal resources have been mobilised from the African continent to fight the pandemic. Furthermore, about 70% of the vaccines being manufactured in the developing world are being manufactured in Dubai. Additionally, the lack of industrial development in some African markets has also been exposed in terms of economic resilience and the external dependencies that African countries have on imports. This underscores the need for not only rapid industrialisation but the creation of economic diversification, resilience and competitiveness.

IP and innovation opportunities The AfCFTA allows African states to develop a shared IP vision for the continent. Allowing African states to address some of the gaps in IP policies such as how to deal with traditional knowledge and traditional medicines, which form part of many African countries’ core health systems. Additionally, Africa has a robust and thriving innovation ecosystem that needs to be promoted and nurtured through collaboration between academia, the private sector and governments. However, IP and innovation opportunities can only be realised if there are financing and market opportunities for these innovators, or else they will continue to leave Africa as they are currently. The pandemic has highlighted that IP and innovation opportunities can be realised through private-public partnerships; however, the formation of such partnerships requires attention. Recommendations to build Pharmaceuticals and Healthcare RVCs in Africa To address weaknesses and take advantage of opportunities, it is crucial for African member states and policymakers to leverage the various interventions that private and public interventions can undertake to focus on competitive advantages. This can be achieved through: • The development of regional strategies, over and above national strategies, and the harmonisation of regulations. Additionally, individual countries will also have to exploit domestic linkages within and across sectors.

2 Included Ms Kirti Narsai (Director Health Value Consulting Pty, Ltd) who covered the insights from the Pharmaceuticals and Healthcare webinar, Dr Taffere Tesfachew (Adviser, Ethiopian Investment Agency who covered the insights from the Cotton, Textile and Clothing webinar and Ms Jane Ezirigwe (Research Fellow, Nigerian Institute of Advanced Legal Studies) who covered the insights from the Agriculture and Food Processing webinar.

Way Forward: Policy Implications and Recommendations for the AfCFTA • SUMMARY REPORT

• Development of value chains linked with economies of scale inclusive of both the supply- and demand-side constraints. Supply-side constraints include energy infrastructure and financing production inputs, and demand-side constraints include government procurement as well as the purchasing power of consumers or patients. • Government policy support and implementation through collaborative efforts focused on developing competitive export-orientated value chains. • Governments should consider policy frameworks which give preference to locally produced medicines in terms of public procurement. • Re-thinking policy approaches to market competitiveness, attracting FDI and providing companies with incentives to sell into smaller markets. • Developing local manufacturing capacities which go beyond raw materials and the production of active ingredients. The development, for instance, of API manufacturing could be a pivotal capability to reduce external dependencies. Building productive capabilities should be a matter of national security and preference should be given to fast track locally produced medicines to reduce the cost and help catalyse the development of the local industry. Government incentive packages – such as setting up manufacturing facilities and re-examining tariffs on imports of APIs are vital in developing capabilities.

Webinar 2: Cotton, Textiles and Clothing RVCs in Africa The second webinar was represented by various constituencies from the business community, trade experts, trade unionists and manufacturing association representatives. The following three points have been highlighted from their discussion. Regional cotton, textile and clothing value chains and transformative industrialisation There was consensus that the AfCFTA provides an opportunity for enhancing efficiency and international competitiveness of African cotton, textile and clothing sectors. It also provides an opportunity for RVC creation and transformative industrialisation. This can create jobs (especially for youth and women), promote export-orientated production, and result in technology transfer and structural transformations for upgrading to higher valueadded production. Sustainability as a driver for competitiveness was highlighted, especially in relation to the types of cotton, textiles and clothing value chains. Supply- and demand-side constraints Africa accounts for less than 1% of global textile and apparel trade. There is, therefore, room for African countries to increase trade of textile and apparel product. However, to do so, several supply- and demand-side constraints must be addressed: • Supply-side constraints include dependency on expensive imported inputs, infrastructure deficit (particularly transportation, water, electricity), inadequate skills, expensive working capital and financing options. Additionally, the use of outdated machinery and production processes, trade liberation, deindustrialisation, second-hand clothing and cheap textile imports have weakened cotton, textile and apparel production across the continent. Many countries have lost productive capabilities, resulting in the closure of many textile firms across the continent.

• Demand-side constraints include the shift in the consumption of locally produced clothing to cheaper second-hand clothing or smuggled fabrics. Additionally, many governments do not buy local and procurement campaigns have not successfully stimulated the textile and apparel production. The need for job creation (decent work and pay) to be one of the main drivers in the development of cotton, textile and clothing RVCs The importance of creating decent jobs with decent pay is one of the main drivers for RVCs that are cognisant of worker rights and livelihoods. • Trade union representatives stressed the importance of incorporating labour provisions in the AfCFTA protocols to ensure harmonised labour standards across the African continent. Such a commitment would combat the danger of the race to the bottom. The race to the bottom is seen as a threat to creating and maintaining decent work and will not promote equitable forms of intra-African trade and RVCs as countries will compete on the basis of reducing wages to attract domestic and foreign direct investment and sourcing. Suggested way forward in building cotton, textile and clothing RVCs A good starting point for developing RVCs would be to map out the imports and exports of cotton, textile and apparel related products by African countries. This mapping will help identify import substitution opportunities and indicate which products can be sourced from within the region.

Way Forward: Policy Implications and Recommendations for the AfCFTA • SUMMARY REPORT

Webinar 3: Agriculture and food processing RVCs in Africa The agricultural sector is an essential contributor to African economies. There are several opportunities that were identified to build agricultural production, whilst integrating products in RVCs. Opportunities for building agriculture and food processing RVCs in Africa • Firstly, the rising net food imports into Africa may reach US$110 billion by 2025. This reveals increased food demand and changing consumption patterns driven by population growth and urbanisation. Therefore, there is room to increase local production and processing for intra-African trade to meet this demand. • Secondly, Africa can attract regional and international investment into agricultural value chains as more than half of the world’s useable agrarian land is in Africa. Additionally, the continent has a relatively young workforce, low labour cost, and abundant natural resources and raw materials. • Thirdly, there is a significant gap in horticultural production in Africa. However, the industrialisation of freshness initiative3 provides an opportunity to produce highvalue export horticultural products. • The Feed the Future initiative by the Obama administration benefited young Africans in building their capacity to be self-reliant. 4

Constraints to the development of agriculture and food processing RVCs in Africa The following challenges have been identified as hindering the development of agricultural RVCs. • African economies require about US$940 billion for cumulative global investments in sub-Saharan Africa’s agriculture and downstream support services.

in the 2018 Global Competitiveness Index. • Climate change poses a huge challenge for farmers. • Food security remains a significant challenge in the sector, affecting both the productive and trading stages. • Corruption and expressions at borders raise the cost of doing business in Africa. Recommendations to build Africa’s agriculture and food processing RVCs To enable the sector to move towards transformative industrialisation that will ensure growth for many people under the AfCFTA, the following recommendations were outlined: • First, robust linkages need to be built between the food manufacturing industry and the rural world. • There is a need to adopt digital and biological technologies as evidence exists to showcase the gains of GMOs for South Africa. • There is a need for more support and investment in irrigation infrastructure, transport and storage facilities. • African policymakers must focus on engaging smallholder farmers more effectively, byy partnering with them to transition into mechanised farming for better yields. • African governments should remove restrictions on maximum equity ownership investments by foreign investors; they should ensure free capital transfer and no restrictions on currency exchange. • It is recommended that there be zero GT for agricultural machinery and equipment. • There is a need for a dispute resolution mechanism under the AfCFTA which will help regulate regional interactions in a fair and efficient manner.

• Only 10 African countries are ranked in the world’s top 100 most competitive countries 3 Cramer, C and Sender, J. 2019. “Oranges are not the only fruit: The industrialisation of freshness and the quality of growth,” The Quality of Growth in Africa. Columbia University Press. 4 Lawson, M, Schnepf, R, Cook, N. 2016. “The Obama Administration’s Feed the Future Initiative” Congressional Research Service.

Way Forward: Policy Implications and Recommendations for the AfCFTA • SUMMARY REPORT