March 29, 2020

How Africa’s Economies Can Hedge Against COVID-19

Ibrahim Assane Mayaki March 29, 2020

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The African Continental Free Trade Area will help dismantle tariff and non-tariff barriers amid a pandemic and global recession. Accelerating Africa’s economic integration will cushion its fragile economies and help turn the continent into the world’s largest common market.

The African Heads of States and Governments pose during African Union (AU) Summit for the agreement to establish the African Continental Free Trade Area in Kigali, Rwanda, on March 21, 2018. / AFP PHOTO / STR (Photo credit should read STR/AFP via Getty Images)

JOHANNESBURG – In 2018, 44 countries signed the African Continental Free Trade Area at an extraordinary summit in Kigali. There are now 54 signatories. The agreement will create a tariff-free economic environment to spur business growth, boost intra-continental trade, spark industrialization, and create jobs. To mitigate the economic fallout from COVID-19, African Union (AU) member countries and the continent’s institutions should implement the AfCFTA swiftly.

The AfCFTA paves the way for Africa – with 1.2 billion people and a cumulative GDP of $2.5 trillion – to become the world’s largest common market. But with the coronavirus hitting the global economy, a worldwide recession is looming. The crisis is bound to have destabilizing effects on our fragile economies as the health crisis worsens.

Africa must be prepared. Although the COVID-19 pandemic is affecting Africa the least, the majority of African countries have chosen to pre-empt the crisis by restricting non-essential travel and gatherings and closing schools and universities. It is impossible to know whether these measures will stem the health contagion, but Africa will no doubt experience economic contagion.

Africa’s main partners in Europe, and possibly China, are already suffering, and the continent’s economy is still largely extroverted – and thus highly dependent on global demand, especially for raw materials. The United Nations Economic Commission for Africa estimates that losses in export earnings are expected to reach $101 billion, including $65 billion for oil-producing countries. Health spending could burden state budgets on the continent by at least $10 billion. There are also fears of food shortages and breakdowns in the pharmaceutical supply chain. Two-thirds of African countries are net food importers, and the situation for medicines is similar.

As for the health crisis, the recurring threat of Ebola has given some African states experience in slowing a pandemic. In the Democratic Republic of the Congo and in West Africa, where the 2014-16 Ebola pandemic hit Guinea, Liberia, and Sierra Leone, the response to COVID-19 is being organized rapidly. National health institutions have reinforced their institutional capacities. The number of African centers capable of performing diagnostic tests has increased from two to 40 in a month, thanks to the World Health Organization, and the AU Africa Centers for Disease Control and Prevention has received a large donation of COVID-19 testing kits from China. Now, the year-old African Medicines Agency must become operational to ensure the coordination of a pharmaceutical manufacturing plan for the continent.

Aside from the health effects, the looming global recession is bound to destabilize Africa’s economies and transform their structure, trade, and commercial channels, as well as how people work and study. Under these circumstances, Africa has no choice but to rely on its own resilience, strengths, and agility, rather than hoping for external salvation, to mitigate the impact of the coming crisis and prepare for the next cycle of globalization.

More than ever, new technology will be called upon to play a critical role. African companies must speed up their digital transition to remain attractive, which means that governments must accelerate their rollout of essential telecommunication infrastructure, including fiber optics and high-speed Internet, and invest in human capital and capacity building. The effort will be complex and demanding, but the time has come for large-scale mobilization.

In this context, there is a pressing need to reduce the continent’s high trade dependence on non-African partners. The AfCFTA can help facilitate this, but that means dismantling tariff and non-tariff barriers as much as possible, and intensifying the economic regionalization processes that have now begun. The liberalization of tariff barriers on 90% of products, for example, was originally scheduled to take place over five years. This timeframe must be reduced.

As it stands, Africa is the least integrated continent. Intra-African trade accounts for less than 16% of the continent’s total trade. Once fully operational, the AfCFTA could boost intra-African trade by 60% in just three years. The agreement will be a catalyst for endogenous development, through trade, with the extension of value chains across the continent helping to lay the groundwork for industrialization.

The acceleration of the AfCFTA is above all a matter of political will. The cost of dismantling the customs taxes that weigh on intra-African trade amounts to $3.5 billion, or a little more than 0.1% of the continent’s GDP. Rescinding these taxes will result in virtually no shortfall, and will unlock the continent’s endogenous growth potential.

Maximizing the possibilities of the AfCFTA will be an effective shock absorber as long as the pandemic, and uncertainty about its course, keeps the global economy depressed. It will also make Africa an attractive proposition when the global economy turns around. The continent has no time to lose.

Ibrahim Assane Mayaki, former Prime Minister of Niger, is CEO of the African Union Development Agency’s New Partnership for Africa’s Development (AUDA-NEPAD).

The text has been adapted from Project Syndicate website

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