The International Trade Centre (ITC), a joint agency of the World Trade Organization and the United Nations, recently organized a forum to explore opportunities for East African small and medium-sized enterprises (MSMEs) in the implementation of Africa Continental Free Trade Area (AfCFTA). The East African Business Times interviewed Aissatou Diallo, ITC’s AfCFTA Coordinator and Senior Regional Portfolio Manager for West Africa and Indian Ocean States, to gain insight into AfCFTA.
What has been the impact of Covid-19 on the African region and the implementation of AfCFTA?
The implementation of the Africa Continental Free Trade Area (AfCFTA) was delayed because of the Covid-19 pandemic. It will come into force at a time when MSMEs are in a vulnerable position. Yet, they are the engines of growth and inclusion Africa needs to help meet the Sustainable Development Goals by 2030.
The side-effects of the COVID-19 pandemic will be felt in the short and medium-term. In the second quarter of 2020, exports from Africa fell by 35 percent alone. ITC calculations show that African exporters may lose over $2.4 billion in global manufacturing value-chain exports due to the shock caused by factory shutdowns in Europe, China and the US.
According to a recent UNCTAD study, COVID-19 will cause African economies to contract by around two percent in GDP, with smaller economies facing a contraction of up to eight percent. The contraction was mainly a result of export adjustments affecting primary commodity exporters. The attendant losses of tax revenue reduce the capacity of governments to extend the public services necessary to respond to the crisis.
Is the AfCFTA implementation important to Africa’s recovery?
It is essential that the African region puts MSMEs at the centre of policymaking to realize Agenda 2063, Africa’s blueprint and masterplan for transforming Africa into a global powerhouse of the future.
The economic downturn prompted by COVID-19 has had a knock-on effect that has sent shock waves through various economic sectors in Africa. For instance, the AfCFTA Secretariat estimates that the pandemic has caused a contraction of GDP between 2 to 5 percent in sub-Saharan Africa for the first time in decades.
This decline will be felt in reduced exports and a loss of employment, among other challenges. However, it is projected that the implementation of the new trade treaty will boost intra-Africa trade by $35 billion, increase value-chain development across all sectors, enhance the competitiveness of the industry and reduce the trade deficit by 50%.
Upon successful implementation, the treaty will create a single African market of over a billion consumers with an aggregate GDP of over $3 trillion, making Africa the largest free trade area in the world.
How will the East African private sector benefit from the implementation of AfCFTA?
Growing market access to other African countries has positive spillovers such as improved competitiveness of industries and enterprises, increasing opportunities for economies of scale. There are also other opportunities to broaden economic inclusion and reduce poverty.
Of note is that during the AfCFTA Forum that ITC held in Nairobi, the Kenya Private Sector Alliance (KEPSA) offered its commitment to strengthen and promote cross‐national exchange and disseminate successful marketing policies and strategies by building on existing trade promotion bodies and increasing the reliability of support for small businesses.
The World Bank projects the implementation of AfCFTA will lift 30 million Africans out of extreme poverty, boost the incomes of nearly 68 million others who live on less than $5.50 a day and grow Africa’s income by $450 billion by 2035. This is a gain of 7 percent.
What strategic support and tools are you offering to the African private sector, particularly SMEs in manufacturing and agribusiness, to capitalize on AfCFTA opportunities?
In collaboration with the African Union, ITC has recently launched the beta version of a portal designed to provide real-time trade data statistics to African businesses and policymakers. The African Trade Observatory is a tool developed to gather, review and share trade intelligence. Through the observatory, SMEs can compare trade opportunities in the continent, explore the market access requirements of potential continental partners and stay informed on progress in AfCFTA implementation.
To ensure MSMEs are ready to trade under the AfCFTA, we have also launched a training programme in partnership with Afreximbank. The “How to Export within the AfCFTA” training programmes will provide small business owners with all the information they need to effectively engage in cross-border trade under the terms of the emerging free trade agreement. For starters, we are piloting the online training programme in Nigeria, Rwanda, and Côte d’Ivoire, intending to expand it to more countries in the coming year.
Another example is the SDG Trade Monitor, which comes from a collective effort between UNCTAD, ITC and the WTO. One of the tool’s goals is to correct and prevent trade restrictions and distortions in world agricultural markets. The tool also promotes a universal, rules-based, open, non-discriminatory and equitable multilateral trading system.
Africa can now evaluate its progress through tools like the African Trade Observatory and the SDG Trade Monitor. With relevant statistics, data and intelligence now a click away, everything from productive capacity to market access to the cross-border movement of goods is covered.
What specific programmes do you have to support the successful implementation of AfCFTA in East Africa?
As a multilateral agency, we are focusing on equipping the African private sector to grab business opportunities that come with the AfCFTA. The sole removal of tariffs on goods may increase the value of intra-African trade by more than 20% by 2040.
ITC is fully engaged in helping the African private sector to convert opportunities offered by the AfCFTA into concrete business transactions. For instance, we recently launched ONE TRADE AFRICA, a new ITC programme to unlock the full business potential of the AfCFTA targeted at micro, small and medium-sized enterprises.
I am also aware that governments are playing their role in this too. Each East African country has either developed or is in the processing of developing a draft National AfCFTA strategy. For instance, the Kenyan government’s AfCFTA strategy sets out to promote value addition and the diversification of products while creating conditions for increased participation of MSMEs, women and youth in trade and investment in the region.
What role do you think women will play in ensuring Africa can ‘build back better’? What is ITC doing around this area?
The AfCFTA must be an engine for growth as much as an engine for inclusion; that is why multilateral trade institutions, including ITC, are focused on targeted programmes such as ITC’s SheTrades initiative. We want to ensure the primary beneficiaries of the AfCFTA will be the African private sector, which primarily includes MSMEs, women and youth-led enterprises.
Most women businesses remain stuck at the micro-level, unable to grow due to a range of factors. According to a report by the World Economic Forum; Profiting from Parity: Unlocking the Potential of Women’s Businesses in Africa 2019, barriers to growth include social norms, networks and strategic business decisions.
At ITC, we believe women are pivotal in the implementation of AfCFTA. We are working closely with women-owned businesses to help them surmount the barriers they face. We also work closely with business support organizations to ensure the services and support they receive meet the key areas we have identified, such as access to finance and improving product competitiveness for increased market access opportunities.
What is your view on individual states entering into bilateral trade agreements with third countries? Will this help or undermine the AfCFTA?
While African countries are at liberty to enter into bilateral trade agreements, it is critical that countries under AfCFTA harmonize their trade engagement to ensure fair play. But any real or perceived challenges of bilateral trade posed to AfCFTA, and continental trade integration can best be tackled under the ambit of the African Union.
While Africa has made significant strides toward AfCFTA implementation, there more areas to cover. I witnessed KEPSA appealing to Kenyan and East African policymakers to align both national and regional trade strategies while identifying and taking into consideration common trends and opportunities in the ongoing AfCFTA negotiations.
For instance, e-commerce has the potential to be a significant driver of intra-African trade. But as with any regional trade integration process in the world, it takes time to design the conducive ecosystem, adjust and strengthen institutions.
Members can gradually bring down obstacles in the digital space via synchronized regulatory approaches on data security, cybercrime, digital inclusion and e-transaction laws to prevent the fracturing of African states by technology giants.