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Africa planned world’s largest trading bloc, then COVID-19 happened

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In Ghana, where the secretariat of the world’s biggest trading bloc would be housed, a partial reopening of schools led to the infection of 55 persons. Nigeria, the continent’s biggest economy, is confused about which fires to put out – striking doctors keen to prove that their Hippocratic Code does not admit privation or pilfering politicians plying their trade with COVID-19 funds. Africa’s more advanced economy, South Africa, has the most cases of COVID-19 but its people are angry that President Cyril Ramophosa was interfering with their drinking.

It was always going to have challenges, this Continental Free Trade Area (CFTA) which aims to integrate, diversify and industrialise the economy of about 1.3 billion people with a combined gross domestic product of $3.4 trillion. It would have been easier if these countries had a history of trading with one another, but Africa seems to be rigged so that self-immolation appears like a fundamental state policy. But no one predicted the coronavirus, a pandemic with origins in Wuhan, China, which has killed over 13,000 people and sickened more than 600,000 persons on the continent.

 The AfCFTA was supposed to begin July 1, but following the outbreak of COVID-19, it has been moved to January 1, 2021. The Agreement is expected to create a Continental Free Trade Area (CFTA) for goods and services in Africa, liberalise and facilitate the free movement of people, investments and businesses across the continent.

“However, the novel coronavirus disease seems to undermine these possibilities through the crippling effects that is causing a global economic crisis,” says PwC Nigeria in a new report titled ‘COVID-19 and the African Continental Free Trade Area Agreement published this week.

Since the outbreak of the virus on the continent, in Egypt, on February 14, it has driven the global economy into recession leading to a dip in demand for African commodities including oil, cocoa, and services.

The effect on African economies is expected to worsen as supply chains remain disrupted and the value of exports from the region reduces due to drop in demand from international trade partners such as Asia and America who are worst hit by the virus, the report warns.

Worse still, there is a dearth of testing facilities, Personal Protective Equipment (PPEs) are few and even fewer frontline health workers amidst congested communal settings. These factors account for the doomsday scenarios predicted for Africa following the outbreak of the pandemic.

Prior to COVID-19, it seemed the biggest threat to the pact was getting some African governments like Nigeria and South Africa to sign on. They hemmed and hawed and dithered and fretted, but eventually they all signed on and it became operational at an Extraordinary African Union Summit in Niamey on July 7, 2019, enabling the pact to progress in two phases.

The report explains that Phase I has been completed except for two issues  Schedules of Tariff Concession and Rules of Origin (RoO). These outstanding issues require negotiation for trade under the CFTA to begin. Phase II, which is still ongoing, includes protocols on competition policy, investment, and intellectual properties.

COVID-19 impact on AfCFTA

The AfCFTA is expected to facilitate trade in goods and services through the free movement of persons in order to promote and expand economic integration in line with the African Union Agenda 2063, but international travel was the first casualty of the deadly pandemic.

Government actions to curtail the spread of the virus also restricted trade. Key and emerging countries like Nigeria, South Africa, Ghana, Algeria, Kenya, and Morocco shut their borders and enforced travel bans. The demand for essential commodities such as pharmaceutical and agricultural products increased, setting off price hikes and unhealthy competition.

Trade liberalisation is expected to improve economic activities with the CFTA in terms of trade and investment, but now all negotiations on tariff concessions have stalled as countries are more focused on saving lives and preserving livelihoods. This creates uncertainties for low developing economies as tariffs form a huge percentage of their revenue, the report says.

The trade agreement is meant to promote inclusive socio-economic development, but COVID-19 undermines it. Many African countries depend on Europe and America for food import, leaving them vulnerable to disruptions in international logistics and distribution.

“COVID-19 has created a crucial demand risk, especially within Africa’s poor population because there is no efficient manufacturing and agricultural sector to improve self-sustenance within the continent. This has increased the risk of food insecurity and exposed the continent to heavy reliance on external aids,” says the report.

Wigwe, Sadiku, Omisakin analyse AfCFTA at The Elevation Church’s Vantage Forum

The pandemic has led to a fall in the demand for Africa’s raw materials and commodities in Asia, Europe and North America and Africa’s access to industrial components and manufactured goods from these regions has also been hampered. In April, producers were paying people to take oil, and some Nigerian oil cargoes were strandedsearching for elusive buyers.

The pandemic could widen the competitive gap between African economies and further undermine the competitiveness of smaller economies that are largely monocultural and unable to attract foreign direct investment, PwC analysts say.

COVID-19 has disrupted the regional value chain, which the CFTA seeks to improve. One of the goals of the pact is to help participating states upscale their industrial and manufacturing sectors and in turn increase the GDP from processing imported raw materials within the CFTA to semi-finished or finished goods for export either within the CFTA or outside.

“However, COVID-19 has weakened the possibilities for a regional value chain as industrial development during the pandemic seems to be a secondary alternative for most low-income African economies based on revenue,” the report says.

Way out

Analysts say one of the biggest lessons from COVID-19 is that self-sustainability matters and is important mostly for food security, education, healthcare, and logistical services. This is the core objective of the pact.

Therefore, signatories to the Agreement need to develop a framework and set realistic implementation plans to improve these key sectors irrespective of regional integration, the report counsels.

“Rather than close borders that can send a negative signal to the progress of the Agreement, governments can reduce human flows while keeping borders open to key goods and services required for national development and economic sustainability,” PwC analysts say.

However, it will call for strategic management, quick and timely decision making supported by accurate and credible data available to policymakers. Such management information systems (MIS) should include economic, social, environmental, health, cultural, governance, and technology data that are key requirements for effective competition within the CFTA, the report says.

“Countries like Nigeria need to consider fiscal sustainability in terms of focusing efforts in key areas where the country has the biggest impact such as rails, ports in order to optimise the country’s resources. This could be achieved through public and private sector collaborative efforts,” according to the report.

Nigeria would also need to revamp its digital economic strategy. The National Digital Economy Policy and Strategy (2020-2030) proposed by the Ministry of Communication and Digital Economy and The Smart Nigeria Digital Economy Project proposed by the Nigerian government can sustain economic interactions and development in the face of a pandemic.

Already, some African countries have a head start. The CFTA will be competitive and countries like Egypt with three active digital strategies (National E-Commerce Strategy, Strategy for Social Responsibility in ICT, and Digital Arabic Content Strategy) would have an edge over countries in the market with weak or no digital framework to support trade in good and service within the market, the report says.



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