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How to get African economies back on track

12 October 2020 Charles Douglas, Co-Head of M&A, and Theunis Claassen, Senior Associate at Bowmans

As the economic fallout from the COVID-19 pandemic makes its presence felt across Sub-Saharan Africa, all eyes are on the next policy moves that governments will make to resuscitate growth.

There are various tools and mechanisms that policymakers could employ as they strive to pick up the pieces, but there is one in particular that has universal relevance at this point in the continent’s economic fortunes: cooperation.

Cooperation is the essence of the African Continental Free Trade Area (AfCFTA) agreement, intended to create a single, liberalised market for the free flow of goods within Africa. If successfully implemented, the AfCFTA has the potential to mitigate the adverse effects of the pandemic on the region’s economies and speed up recovery.

Prior to the pandemic, there was increasing momentum around the AfCFTA agreement, which 28 out of 54 signatories had already ratified. That momentum has since stalled amidst the many border closures precipitated by the pandemic and the deferral of the AfCFTA implementation date of July 2020 to at least 2021.

These developments have brought about an increasingly inward-looking focus in some African countries – a focus that was in certain instances already evident before the pandemic struck.

For some time now, cross-border investment has been shrinking or stagnating relative to world GDP amid rising nationalism and trade protectionism.

Linked to this was a tendency for governments to adopt more interventionist economic approaches and introduce or tighten new foreign investment rules to prevent national or strategically important assets being acquired by foreign interests.

Now, with the International Monetary Fund forecasting that the volume of goods and services trade will shrink by 12% this year, it is clear that fragmentation is something Africa can ill afford. Encouraging intra-African trade and getting AfCFTA back on track have become a matter of urgency.

AfCFTA in the fast lane
Several hurdles still lie in the way of the effective implementation of AfCFTA, over and above the fact that 24 African Union member states and signatories have yet to ratify the agreement. These issues should be priorities for policymakers in clearing the road ahead.

Clarity is urgently needed as to whether all the State Parties have submitted their final schedules of Tariff Concessions and the outstanding Rules of Origin. Trading under AfCTA cannot commence without these and they should have been submitted to the AfCTA Council of Ministers in May 2020. While the Council did meet virtually, it is not clear what decisions were taken or whether all Tariff Concessions had been received.

Similarly, it is not clear what progress has been made with the dismantling of tariffs on goods, the goal being to eliminate tariffs on 90% of goods within five years for non-Less Developed countries (LDC), 10 years for LDC countries and 15 years for G6 countries.

Then there is the question of concluding the three AfCFTA protocols that have yet to be completed, namely the Protocol on Investment, Protocol on Intellectual Property Rights and Protocol on Competition Policy.

While these steps are being taken, intra-African trade could be given a decisive boost through the use of short-, medium- and long-term interventions.

Interventions to boost intra-African trade
A pandemic trade impact mitigation facility could be effective in the short term in helping to revive flagging inter-country trade. In the longer term, focus on the deliberate development of Africa’s infrastructure, including multi-modal transport networks, is required.

In addition, African governments should be doing a frank assessment of how investor and business-friendly their economies are. At this juncture, only Mauritius and Rwanda appear in the top 50 of the World Bank’s 2020 Ease of Doing Business study, which measures business regulation.

There is clearly a pressing need and plenty of room for regulatory reform to improve the ease of doing business in African economies and reduce the significant levels of regulatory uncertainty still so prevalent. Regulatory uncertainty is an old bugbear that necessitates decisive, systematic action at the best of times and even more so at the worst of times when economies are under such strain.

Yes, policymakers carry a heavy load on their shoulders in seeking to restore economies to ‘normalcy’ in a time of crisis, but the load could be lightened considerably by practicing the cardinal principle of the AfCFTA agreement: cooperation. Without it, recovery and resilience against future systemic shocks could be that much more elusive.

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