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COVER STORY
Statement by the Secretary General of the African Continental Free Trade Area (AfCFTA) Secretariat, H.E. Wamkele Mene, at the AfCFTA Start of Trading Ceremony Webinar held on 1 January 2021
Truly today is a historic day, a day in which we start offi cially trading under the preferences of the African Continental Free Trade Area. Today is a day we take Africa a step closer to a vision of an integrated continent, a vision of an integrated market on the African continent. This African Continental Free Trade Area should not just be a trade Agreement, it should actually be an instrument for Africa’s development. In this regard, we have seen the World Bank produce a report that projects that by the year 2035, if we implement this Agreement effectively, we have the opportunity to lift out of poverty one hundred million Africans. And the majority of this hundred million Africans that will be lifted out of poverty, are women in trade. It will be the opportunity to close the gender income gap, and the opportunity for SMEs to access new markets. We are working very closely with our technical partners to develop digital technology platforms that will enable connectivity of small to medium enterprises, and enable connectivity of young Africans in trade. This Agreement does not benefi t only the big corporations on the African continent, but it should always be inclusive of young Africans, women and African SMEs. We have partnered and worked very hard the past years with UNECA, with AfreximBank, with Afrochampions, with UNCTAD, and recently with UNDP. Today, as Africans, we are witnessing the beginning of a new chapter in terms of trade and investment relations of the African continent. I have to say, personally, as an African, I’m truly proud today because 54 countries have signed this Agreement, 33 have ratifi ed it, over 40 have submitted their tariff offers. This is a strong signal that Africa is ready to start trading today on the basis of new rules and preferences that will ensure that the African Market is integrated. We have to take, as Africans, active steps to overcome the smallness of our respective national economies. We have to take active steps to overcome the lack of economies of scale. We have to take active steps to make sure that we place Africa on the path of industrial development so that by the year 2035, we’re able to double intra-African trade with value added goods. As I observed before in the past, we have to take active steps to dismantle the colonial economic model that we inherited and that has been sustained over the last 60 years. We have to stop being exporters of primary products to countries of the North. We have to create jobs on the
Address by the Deputy Minister of the dti, Fikile Majola, to the Progressive Business Forum webinar on the African Continental Free Trade Area (AfCFTA) – opportunities for SA business, held on 8 April 2021
APPROACH TO INTEGRATION
In conventional trade integration theory, regional integration is understood as a process through which participating partners climb a ‘ladder’ of institutionalised trade arrangements: From Preferential Trade Area (PTA) to Free Trade Area (FTA) to Customs Union to Common Market to Economic Union. The “ladder approach” to integration approach has been criticised as not being appropriate in developing country regions. In developing regions, the major barriers to increasing intra-regional trade are not just tariffs but rather real economy, productive constraints: under-developed production structures and inadequate infrastructure. If one under-developed country’s trade profi le is dominated by the export of primary product (and it does little processing in its domestic economy), it has little to trade with its neighbour whose specialisation is also export of primary raw materials. If the road and rail connection between the two is inadequate that further impedes trade between them. An alternate approach is needed – the “Development Integration” approach.
African continent by developing our regional value chains and be self-suffi cient in our own continental production. In 2020, Covid-19 has demonstrated, that Africa is overly reliant on global supply chains, and when these global chains are disrupted, Africa suffers. When these global chains are subdued, we know that Africa suffers. So, we have to take active steps to make sure this industrial development is accelerated, and this African Continental Free Trade Area and the Launch of Trading today are the fi rst steps we take in that direction. Finally, I want you, Africans, to join me as we take this historic step towards the vision of an integrated Africa, the Africa we want.
H.E. WAMKELE MENE
Secretary General of the African Continental Free Trade Area
In this perspective, we argue that trade integration needs to be seen as only part of a broader integration strategy. It must be accompanied by cooperation to overcome infrastructure backlogs and policy cooperation to promote economic diversification, including industrial development.
SOME HISTORY
African integration is a longstanding continental objective. From the dawn of the independence, virtually all African countries have embraced regionalism. The commitment to regionalism was part and parcel of the broader aspiration of continental integration, a vision that led to the creation of the Organisation of African Unity (OAU) in 1963.
Integration is seen as essential to overcome the limitations of small fragmented economies established under colonialism.
Integration in Africa since then has proceeded at the sub-continental level, notably the Economic Community of West African States (ECOWAS); the Economic Community of Central African States (CEMAC); East African Community (EAC); Southern African Development Community (SADC); and Southern African Customs Union (SACU).
The AfCFTA builds on these arrangements and does not replace them. Very importantly, the strategy document – “Agenda 2063: The Africa We Want” – adopted by the AU in 2015, speaks of structural transformation that is in line with recent developments on regional integration.
This document fully reflects the development integration approach for the continent.
There is ongoing work under the Programme for Infrastructure Development in Africa and the Specialised Technical Committee on Trade, Industry and Mineral Resources deals with industrialisation on the continent.
The AfCFTA should therefore be seen as the market integration pillar of the broader development integration agenda. Operationalising the preferences requires finalising agreement on tariff offers, schedules of all members. It also requires agreement on the accompanying rules of origin.
At the beginning of last year (2020), the Summit agreed to the recommendation that a three-month intensive work programme should aim to finalise the outstanding work. The deadline was 1 July 2020.
But, this was disrupted by the pandemic in March 2020. A Virtual Summit at the end of May decided to postpone the deadline and instead proposed a new deadline by the time of an extraordinary Summit that was scheduled for 5 December and that preferential trade should commence by 1 January 2021. Negotiations restarted in September 2020, with SA chairing the meetings.
WHAT IS THE BROADER CONTEXT OF INTRA-AFRICAN TRADE?
We use some figures to illustrate Africa’s place in the broader scheme of things, for example, Africa has: • 17% of the world’s population • 3% of the world’s GDP • 3% of the world’s trade • 2% of the world’s manufacturing output • Only 1% of the world’s steel production. Policy initiatives like trade must change this. There is general concern that Africa’s share of world trade is small – estimated at 3%. Intra-regional trade is also relatively small: between 16%-18% and this compares to intra-Asian trade at 52%, intra-North American trade at 50%, and intra-EU trade at 70%.
While this is the case, it is important to consider that despite the fact that commodities to the rest of the world dominate Africa’s exports – such as oil and minerals – Africa is by far the second most important export market for most African countries behind Europe.
Seven African countries count Africa as their main export market and 25 count it as their second most important market.
More importantly, intra-African trade is largely in value-added manufactured products and over three quarters of intra-African trade takes place within regional trading blocs.
PROGRESS REGISTERED
The AU launched the AfCFTA negotiations at the 25th Summit on 15 June 2015 in Johannesburg. Fifty-four out of the 55 AU members have signed the AfCFTA (not Eritrea).
The AU Heads of State adopted the legal instruments establishing the AfCFTA on 21 March 2018 in Kigali.The AfCFTA formally entered into force on 30 May 2019 (22 ratifications). To date, 36 members have ratified the agreement.
OUTSTANDING ISSUES
The July 2019 Summit in Niger launched the operational phase.
Pull quote
There was an intensive process leading to the 5 December Summit.
WHAT WAS ACHIEVED AT THE 5 DECEMBER SUMMIT?
The Summit Decision took into account that AU Members are at different stages of readiness to operationalise preferential trade. Not all had ratified; or submitted tariff offers; and not all rules of origin were agreed.
However, ratifications were continuing, and rules of origin negotiations were proceeding. We managed to get agreement on the rules of origin for 81% of all tariff lines. This is critical: RoO determine how much of the value of the goods traded under preferences must be Made in Africa – critical for encouraging a move up the value chain and ensuring that the benefits of the integration process accrue to African producers. The number of offers was still low but started to come in larger numbers around the time of the Summit.
In summary, the 5 December 2020 Summit provided the legal framework to allow AU Members/Customs Unions (CUs) to agree to operationalise preferential trade amongst them in a somewhat flexible manner.
The decision specified that members could commence trade as soon as they meet the following minimum conditions: • Ratification of the AfCFTA by individual members and by all members of customs unions that want to participate in the exchange of preferences • The submission of technically sound tariff offers based on the 81% of tariff
lines with agreed rules of origin • Domestic legislation to administer imports • Agreement by both parties that reciprocity had been achieved. The process of assessing and verifying tariff offers is currently underway. There are a number of technical clarifications that are required on the offers received.
In SACU, Botswana is yet to ratify the Agreement, but it has indicated that other SACU Members can move ahead while it completes its internal processes. In parallel, ongoing negotiations on rules of origin and working towards increasing the tariff offers to 90%. All this work is ongoing.
OPPORTUNITIES FOR BUSINESS
It is often said that “Africa consumes what it does not produce; and produces what it does not consume”.
African countries imported R8-trillion of goods in 2019 but only R1-trillion came from other African countries. Lowering trade barriers presents a massive opportunity for South African industries, and for development across the continent. The 10 million jobless South Africans need to have the AfCFTA as a jobs-driven strategy, focusing on an expansion of labour-intensive sectors and those with strong rural and women-employment linkages. Currently, 250 000 direct jobs are sustained by African exports. The rest of Africa imports R2.9-trillion worth of manufactured goods annually from outside Africa. If South Africa were to supply just 2% of these manufactured goods, it would add 1,2 percentage points to SA’s annual GDP and add R60-billion to our economic output a year. African countries (excluding SA) imported goods worth R6-trillion from outside of Africa in 2019. Key imports of other African countries from outside the continent represent growth areas for South Africa, including refi ned oil, automotive, agroprocessing, CTFL, iron and steel, plastics and pharmaceuticals and in investment in services sectors (telecoms, retail, banking and E-Commerce). South Africa exported R347-billion to other African countries in 2019 – mainly to SADC countries. The AfCFTA provides opportunities to export to North, West and East Africa. Foreign direct investment into Africa has plateaued in recent years, with investment across the continent falling from US$50.6-billion in 2018 to US$45.3-billion in 2019 (Source: UNCTAD). The World Bank estimated that successful implementation of the AfCFTA can raise GDP across the continent by US$450-billion per annum by 2035. An estimated US$100-billion annually is needed in infrastructure investment on the continent – SA will need to drive the effort to attract this investment, backed by commitment to policy certainty. Increased industrial opportunity across the continent will spur investment in key “gateway” economies like South Africa. A focused capital-raising strategy will need to accompany implementation of the trade provisions of the AfCFTA. A number of large and medium-sized South African companies have established businesses across the continent. South Africa’s manufactured product exports to other African countries is strong, representing 80% of all exports to the rest of Africa. Bilateral engagements (for example, Nigeria) will be undertaken to address practical obstacles to deepening trade. Key imports of other African countries from outside the continent represent growth areas for South Africa. There are already companies with these demographics active in the export market. Over the next fi ve years, the dtic will nurture and seek to expand such enterprises through the AfCFTA. Efforts to improve competitiveness of the sectors through industry Master Plans and fi nancial support to upgrade local sector are underway. To underpin the AfCFTA, a whole-ofgovernment implementation plan will be put into effect during 2021. Each Master Plan will include an AfCFTA chapter. Key sectors include autos, steel, poultry, sugar, agro-processing, clothing and machinery. Provinces and districts will be assisted to identify both the opportunities for fi rms in their area; and the local/provincial government contributions to realise the potential. We also aim to identify export-champions that will support SMEs and black industrialists to gear up for new markets.
CONCLUDING REMARKS
The AfCFTA brings us a step closer to realising the historic vision of an integrated market in Africa – and creating a basis for increasing intra-African trade. We must complement and consolidate parallel AU work on infrastructure and industrial development pillars – build supply capacity to take advantage of more open African markets. We must also take to heart that for sustainability and legitimacy, the benefi ts of the AfCFTA must be shared across all members. Countries across the African continent are engaged in a battle to restore the economy in the midst of an ongoing onslaught from the Covid-19 pandemic that has destroyed lives and livelihoods. One of the instructive lessons learned from this crisis is that economic resilience is critical. It is critical to build up industrial capabilities, trade and supply chains across African countries. Greater supply-chain resilience needs to include efforts to spread risk by enabling the greater geographic spread of manufacturing. This resonates with bringing to fruition the goal of the ‘Made in Africa’ initiative. We have to seize the opportunity presented by the African Continental Free Trade Area (AfCFTA), which is aimed at boosting intra-Africa trade.
FIKILE MAJOLA
Deputy Minister of the DTI
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PETRUS MOHLOMI, a seasoned procurement executive and co-founder of Sambo Town, describes how to use the PESTLE analysis when starting a new business or entering a foreign market to analyse and monitor the macro-environmental factors that might have a profound impact on business performance
After the informative PBF webinar on the Covid-19 rollout plan, held virtually on 19 January, I was encouraged by our honourable President Cyril Ramaphosa saying that we have to open our eyes and look for business opportunities in the African Continental Free Trade Area (AfCFTA) project.
The AfCFTA emphasises the reduction of tariffs and non-tariff barriers, including the facilitation of free movement of people, labour, right of residence, right of establishment, and investment, within a block, creating a single currency and customs union. It has the potential to create a continental free trade zone with a combined Gross Domestic Product (GDP) of US$3.4-trillion, according to the African Union (AU). This trade agreement, if implemented fully, would lead to the African economy becoming the largest in the world.
Learning from the European community and other trade blocks which started to emphasise globalisation, the AfCFTA is following their example: think globally, act nationally.
Based on my wealth of working experience across multiple African countries, I have written this article to advise how business can approach the opportunity of the AfCFTA project. It is crucial that before you can think of doing business across the African continent, it is important to understand a country’s macroenvironment dynamics, also the industry and competitive environment in which you want to operate or do business on the African continent.
PESTLE analysis
Ultimately, the business will need to develop a strategy or contingency plan to ensure that the business can sustain the macro-economic challenges that exist in the new environment and prosper. The PESTLE analysis can be of great use in this regard, to analyse and monitor the macro-environmental factors that might have a profound impact on business performance.
PESTLE stands for Political, Economic, Social, Technological and Environmental factors. This tool is especially useful when starting a new business or entering a foreign market as in the case of entering new African markets. The PESTLE analysis is often used with other business tools such as SWOT analysis and Porter’s Five Forces, to give a clear understanding of internal and external factors that can affect the performance of the industry within a specific country. Each factor will be elaborated on below. These are the factors that need to be taken into consideration when assessing the attractiveness of the potential market.
Political factors
These factors are all about how and to what degree a government intervenes in the economy or a certain industry. Some of the government intervention can include government policy and regulation, political stability or instability, corruption, foreign trade policy, tax policy, labour law, importexport regulation or restrictions, bilateral relationships, special tariffs, trade control, political lobbying activities.
Economic factors
Economic factors may be used to determine a certain economy’s performance. Factors include economic growth, exchange rates, inflation rates, interest rates, disposable income of consumers and unemployment rates. These factors may have a direct or indirect long-term impact on a business, since it affects the purchasing power of the consumer and could possibly change demand and supply models in the economy. Consequently, it also affects the way companies price their products and services.
Social factors
This dimension of the general environment represents the demographics, characteristics, norms, customs and values of the population within which the business or organisation operated.
