5 minute read 23 Feb 2021
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How free trade can accelerate Africa’s COVID-19 recovery

Authors
Douglas Bell

EY Global Trade Policy Leader

Helping internal and external clients to understand the changing cross-border ecosystem. Furniture maker, outdoor enthusiast, family guy.

Kyle Lawless

Associate Director, Global Public Policy, EY Japan Co., Ltd

Helping EY navigate the complexity of operating across the globe. Innovator. Intrapreneur. Believer in the power of business, governments and societies to solve global challenges. CrossFitter.

5 minute read 23 Feb 2021

The African Continental Free Trade Agreement has the potential to accelerate Africa’s COVID-19 recovery and reshape the continent.

In brief
  • With widespread immunization not expected until 2023 or later, Africa’s economic and public health recovery from the COVID-19 pandemic will be slow.
  • In January, trading began under the African Continental Free Trade Agreement. The agreement has the potential to stimulate recovery and reshape the continent.
  • Policymakers must remain focused on lowering tariffs, improving logistics and addressing infrastructure.

Africa’s economic and public health recovery will be challenging, given debt levels and limited access to COVID-19 vaccinations, as wealthy nations rapidly buy up supply. In Sub-Saharan Africa, GDP contracted by an estimated 2.6% in 2020, signaling the region’s first recession in almost 25 years, and research from Duke University indicates that most of the population may be waiting for vaccines until 2024.1 Yet the International Monetary Fund (IMF) is expecting regional GDP to rebound 3.2% in 2021 and 3.9% in 20222, testifying to the underlying economic vibrancy of the region.

Exhibit 1 Widespread immunization coverage

In this environment, free trade provides a much-needed stimulus, and the African Union (AU) has continued to make impressive strides in difficult times: in March 2020 the AU established the African Continental Free Trade Agreement (AfCFTA) Secretariat in Accra, with Wamkele Mene sworn in as Secretary General.

On 1 January 2021, trading amongst State Parties began under the AfCFTA — one of the world’s largest free trade areas by population, with 1.2 billion people covered across 54 countries, representing a combined GDP of $3.4 trillion. The agreement was originally signed in 2018 and entered into force in May 2019, and over the past year, Secretary Mene and his partners in the AU have secured the signatures of all 55 AU member nations except for Eritrea, and 36 countries have ratified it.3

This milestone comes at a time of another historical event – the confirmation of Dr. Ngozi Okonjo-Iweala to lead the World Trade Organization (WTO). Okonjo-Iweala, who is a supporter of the AfCFTA, is the first woman and the first African to lead the WTO.

The start of trading under the AfCFTA is no small feat and is a counterweight to stagnating global trade volumes and the growth of restrictive trade policy measures in the years since the 2008 financial crisis. Further, the political support the AU has achieved to date is a considerable achievement.

But there is still much more to do. Many African nations face a challenge to fully implement the AfCFTA’s terms.  These challenges range from fully adopting new customs procedures to agreeing on tariff reductions.  This year’s milestone, while important, is somewhat of a symbolic one, as major components of the agreement still must be negotiated, between many countries and regional economic groupings. As of December, 41 countries had submitted their schedules of tariff concessions. Outstanding work on rules of origin, trade in goods and trade in services are now expected to be concluded before the end of June 2021. Lowering or eliminating internal tariffs, improving trade logistics and addressing poor infrastructure are critical to increasing the implementation and success of the AfCFTA.

 

Exhibit 2 AfCFTA completion phases

According to a 2019 IMF paper, removing non-tariff barriers — including complex rules of origin, poor logistics and transportation infrastructure — could be up to four times more effective in boosting trade than tariff reductions. The IMF has said that trade logistics are the single most significant direct impediment to intraregional trade and that bringing the quality of logistics to the global average level would lower the cost of cross-border movement and increase intraregional trade by over 12%.4

Exhibit 3 Potential levers to increase regional African trade

At a time when the continent’s economies have been hard hit by the pandemic, the AfCFTA holds economic promise. It not only has the potential to stimulate Africa’s COVID-19 recovery, it has the potential to reshape the continent and globalization-at-large. The World Bank expects the agreement to lift 68 million people out of moderate poverty and make Africa more competitive.5 The pandemic has underpinned the need to reevaluate global value chains with multinationals considering reshoring and nearshoring operations. In this context, the AfCFTA has the potential to not only reduce the region’s exposure to global disruptions but boost local competition and productivity and promote food security.6

Government, business and civil society have roles to play in supporting the AfCFTA. First, a strong, multilateral effort is needed to support the continent’s COVID-19 recovery including its immunization effort.  The success of COVID-19 Vaccines Global Access (COVAX), the global initiative committed to global equitable access to COVID-19 vaccines, will be critical to Africa’s health and economic success. Second, the continued support of the world’s major political blocs – the US, European Union and China –for the AfCFTA and provision of technical and other assistance to the AU and Secretary Mene will help ensure the success of the agreement.    

Summary

Advancing the AfCFTA will require a multi-stakeholder effort including the continued technical support of the US, EU and China and the support of African and multinational businesses operating in the region. At the same time, strong global support for vaccination access including COVAX is critical for the region’s economic and public health recovery.

About this article

Authors
Douglas Bell

EY Global Trade Policy Leader

Helping internal and external clients to understand the changing cross-border ecosystem. Furniture maker, outdoor enthusiast, family guy.

Kyle Lawless

Associate Director, Global Public Policy, EY Japan Co., Ltd

Helping EY navigate the complexity of operating across the globe. Innovator. Intrapreneur. Believer in the power of business, governments and societies to solve global challenges. CrossFitter.