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African Continental Free Trade Area needs an action plan to advance transformative industrialisation

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The African Continental Free Trade Area (AfCFTA) aims to facilitate industrialisation and create a single market for goods and services in Africa. The movement towards broadening regional integration partially through value chains and a free trade area is in line with the path emerging economies have undertaken in the past 10 years.

On 1 January 2021, Africa officially started trading under the African Continental Free Trade Area, taking a giant step towards fostering regional integration in Africa. Strides have been taken by heads of state, policymakers, trade negotiators across the continent and the AfCFTA Secretariat to get the continent to this historic juncture. Of the 55 heads of state, 54 have signed the agreement’s consolidated text establishing the AfCFTA, and 36 have deposited their instrument of ratification. This means 36 sovereign states have given their consent to be bound by the agreement. Therefore, as state parties to the agreement, they accept and will implement the obligations agreed upon.

Implementation of the AfCFTA is under way, yet more action is needed to transform policy into action. AfCFTA Secretary-General HE Wamkele Mene shared these sentiments during the fourth instalment of the AfCFTA and Transformative Industrialisation webinar series hosted by University of Cape Town’s Nelson Mandela School of Public Governance. Mene said that “what is required are a set of harmonised action plans focused on industrial development, to be implemented on a continental basis, a Pan-African basis and in each region”. This is critical if the continent is to move from policy to realising the benefits of regional economic and market integration.

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Historically, intraregional trade flows in Africa have been limited. Currently, intraregional trade in Africa is about 17%, and the continent lags behind Europe (69%), Asia (59%) and North America (31%).

There are complex reasons for the low intraregional trade.

A primary factor underpinning this trend – despite a long history of efforts to foster regional integration – is the lack of productive capacity on the continent. Africa’s share of manufacturing in its GDP has been low compared with other developing countries in Asia and Latin America. Additionally, a number of regions and countries have faced premature deindustrialisation whereby their share of manufacturing in GDP has declined and earlier in their development path than was previously the case. Many studies, including those undertaken by the United Nations Conference on Trade and Development, have argued that building productive capacity is crucial for structural transformation and economic development in Africa. It’s therefore only fitting that the AfCFTA is aimed at facilitating industrialisation.

The AfCFTA is, however, fundamentally a trade policy agenda with the objective of boosting intra-regional trade. The successful realisation of a free trade area will rest on the development and implementation of coordinated industrial policies to ensure that African states first, have goods and services to trade, second, that constraints to industrialisation across the continent are acknowledged and addressed, and third, that implementation aligns with existing policies while identifying new, innovative ways for countries not just to industrialise for the sake of boosting trade but to pursue transformative industrialisation focused on economic diversification, structural transformation and technological development. This means the AfCFTA must become a tool of economic diversification, industrialisation and transformative development.

Many heterodox economists and economic historians, such as Dani Rodrik, Ha-Joon Chang and Joseph Stiglitz, have argued that industrialisation requires active industrial policy in which trade policy becomes a tool of industrial policy. Therefore, trade policies of African countries should be based on how they can support and facilitate industrialisation.

However, with regards to the AfCFTA, trade arrangements have been developed before industrial policy. Given the situation Africa finds itself in, former trade and industry minister Rob Davies, speaking at the same webinar, emphasised the importance of ensuring that regional integration arrangements support industrial policy.

In my view, this is particularly important since industrialisation has long been on the policy agenda in Africa, although success has mostly failed to materialise. Despite African countries and regional institutions making commendable efforts to boost manufacturing and industrialisation efforts in the past decade. For instance, the African Union holds an annual Africa Industrialisation Week to further discuss structural transformation and industrialisation on the continent. Countries such Ethiopia, South Africa, Kenya, Botswana and Ghana, to name a few, have pursued active industrial policies in recent years.

Some regional economic communities have developed and are implementing regional industrial policies, such as the Southern African Development Community and its Industrial Strategy and Roadmap 2015-2063. However, while these efforts are laudable, the reality is that successes from these efforts vary due to a lack of country-specific industrial policy, policy harmonisation and coordination within and across each of the regional economic communities.

It is concerning that the AfCFTA currently has no programme governing industrial policy or a mechanism to deal with the lack of industrial policy coordination that is likely to occur at a continental level. Many participants at the AfCFTA and Transformative Industrialisation webinar series shared this concern. In addition, some observed that trade policy has preceded industrial policy for many of African countries, which also lack the institutional capability to develop and implement industrial policy.

To worsen these concerns, industrial capacity, capabilities and competence vary across countries and regions, which can potentially open countries to uneven trade dynamics. Addressing these concerns thus requires that smaller and poorer African countries be allowed by their larger neighbours to implement the AfCFTA in such a manner that safeguards and protects their nascent industries and sensitive manufacturing sectors. The policy space this will create will enable these countries to use this time to develop new and innovative ways to build their competitiveness and pursue their unique path to transformative industrialisation by improving their value-added sectors and technological capabilities and diversifying their productive structure from a reliance on few commodities.

It is imperative that the AfCFTA not only boosts intraregional trade but also actively facilitates transformative industrialisation on the continent. The webinar series brought together some of the best African thinkers, such as Caroline Ncube, Arkebe Oqubay, Carlos Lopes, Adeyemi Dipeolu, Taffere Tesfachew and Rob Davies to discuss and debate these issues. I implore readers to gain more insights on the issues discussed by taking a look at the Mandela School’s websitefor the edited videos, summary reports and policy briefs that provide a wealth of information on these important ongoing issues.

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