Senior Special Adviser,
Central Bank of the Gambia
The projected substantial increases in FDI flows under the AfCFTA are expected to facilitate the structural economic transformation changes the Africa continent as a whole aspires to, and is in fact in acute need for. In particular, the integration of the national firms into the regional value chains will be significantly expanded. That in turn will enhance their global competitiveness and facilitate their participation in global value chains, especially of industrial products. Significant numbers of more productive and sustainable jobs will be created in the process, thus helping the continent tackle one of its perennial and persisting development problem, which is increasing youth unemployment.
Importantly also, the AfCFTA is expected to contribute to facilitating inclusive development in the continent as well. Poverty levels in the continent are expected to be impacted on favourably by all the scenarios of AfCFTA. Women, the youth and skilled workers are expected to be the beneficiaries of the biggest wage gains. For instance, according to the World Bank, wages of female workers are expected to rise by 12.2% by 2035 while those of male workers are expected to rise by 9.8%.
From the foregoing, it is evident that the AfCFTA offers the participating African countries substantial opportunities for meaningfully transforming their economies and accelerate inclusive development. But these expected benefits will not fall from the sky like “manna”. Important challenges have to be overcome in order for them to be fully realized. The World Bank probably most aptly put it as follows: “Unlocking these potential gains in trade, investment and jobs will not be straightforward. The AfCFTA negotiations should be concluded as planned, making it a deep trade agreement that goes beyond trade in goods to cover trade in services, investment, competition policy, trade – related intellectual property rights and e-commerce.” All the key stakeholders, notably the private sector have to be closely involved and sensitization of the general population about the AfCFTA has to be stepped up.
Another important challenge that has to be decisively dealt with from the outset relates to one of the most problematic issues associated with deeper economic integration processes, and this is the potential distributional and social by-products that inevitably arise in that process. For instance, mechanisms for offsetting the temporary losses of say tariff revenues by weaker countries in the short run have to be strengthened and they should also be assisted to quickly build up their productive capacities in order to overcome the origin of goods rule.
We will next look at how specifically the Gambia could benefit prima facie from, or actually tap into, the opportunities provided by the AfCFTA for its economic transformation as set out above.
How AfCFTA could facilitate the realization of Gambia’s sustainable growth, economic transformation and inclusive development aspirations
There is consensus that the AfCFTA could potentially be a game changer for Africa’s sustainable growth and transformation of its economies as laid out in the AU’s long-term Vision 2063. Two avenues through which this potential could be realized are first by facilitating meaningful industrialization in the continent by enlarging the markets available to industries and enhance increased investments; and second through acceleration of structural transformation. Both are very pertinent to the prospects for the Gambia’s development goals as set out in the First and Second National Development Plans of the Third Republic.
It is useful to briefly recall the imperative for structural economic transformation. As we noted in an earlier article published by the Standard Newspaper, “the paramount importance of structural transformation is underscored by the fact that throughout human history, progress in economies and societies has invariably been underpinned by far reaching transformations of either the whole of their economies and societies or significant parts of them. Structural economic transformation is of high priority to most African countries. This is because the lower the level of development the greater the need or scope for transformation in most segments of the society”. Structural economic transformation involves the reallocation of economic activities from low to high productive sectors, which is mostly underpinned by shifts of investments, output and labour from agriculture to industries, notably manufacturing, followed by another relative shift from industry to services during the later stages of transformation.
One of the major constraints to the desired extent of structural economic transformation in the Gambia is the relative and absolute market size of the economy, particularly for for manufacturing enterprises. The other is inadequate investments, both from outside as FDIs and from within. Investments in industries also facilitate technological progress, and the interactions between them are normally transformed into a virtuous cycle. An important potential benefit of the AfCFTA for the Gambia is to allow it to increase FDI inflows, accelerate technological progress and enhance its participation is sub-regional and regional value chains, especially for agro-industrial and manufactured products, which in turn could strengthen the foundations for tapping into the global markets.
The latter will undoubtedly enable the country to significantly reduce its external trade imbalances, with huge gaps between its imports and exports. This is currently exerting enormous pressures on the exchange rate for the Dalasi and constitutes a major triggering factor of inflationary pressures the country has been experiencing over the past few years.
In order to facilitate deeper appreciation of how the AfCFTA could help the country achieve its economic transformational and sustainable growth objectives, we will recapitulate here key findings of our earlier assessment of the country’s growth and structural economic transformation performance since Independence.
By the generally agreed international standards, the Gambia’s growth performance during this review period of about 60 years (58 years) has on the whole been laudable. The median real GDP growth rate over this period has been 7% while the average growth rate has been close to 5.5%. In fact, it is notable that the country’s real GDP growth reached 8 to 9% in some of the years during this review period. The significance of this growth performance by the country since Independence is underscored by the fact that Economists believe that for there to be any measurable improvements in the aggregate material conditions in developing countries, real economic growth has to be at least 5% and be sustained over some years.
However, with respect to structural economic transformation, despite its rather impressive economic growth performance over the years since Independence, the Gambia has not attained the desired progress towards meaningful structural changes in its economy that could guarantee its resilience and sustainable prosperity. In this connection, examination of the sources of the country’s economic growth since the late 1960s clearly show that its narrow base has not significantly changed. The country has remained heavily dependent on the agricultural sector (crops, livestock, forestry and logging) as well as fishing. Depending on which measure is used, agriculture accounts for about 35% of GDP formation and close to 40 % of foreign exchange earnings, while about 70% of the population relies on the sector for their livelihoods. On the other hand, the industrial sector accounts for only 7.5% of the GDP. The rest is accounted for by the tourism and service sectors.
It is also important to note that Gambia’s relatively positive economic growth performance during our review period has neither been poverty reducing in any meaningful way nor sufficiently inclusive. The latest available statistics on the country’s poverty situation clearly indicates increasing deprivation within the population, with the per centage of people living below the national poverty line rising close to 50% presently. In fact, the poverty situation in the rural areas is significantly higher than this national average, with the poverty rate in these areas assessed to have reached by now 70%. This is not surprising given that a high per centage of the rural population normally works in low productivity agricultural sector, which is also mostly seasonal, as well as in the informal sector.
In order for the Gambia to effectively realize the opportunities provided by AfCFTA for its economic transformation and inclusive development objectives, the Government has to take a more aggressive strategic approach, working closely with all the key stakeholders, especially the private sector, CSOs and the concerned development partners in the process. I would recommend that this process starts with the production of a white Cabinet Paper on the country’s active participation in the finalization of the of the negotiations on the AfCFTA Agreement and clear and actionable pathways for its implementation in country. This process should be spearheaded by the Ministry of Trade, Industry, Regional Integration and Employment. The high-level dialogue on assessing the private sector’s preparedness in the implementation of the AfCFTA organized by the MOTIE on December 20, 2023 could be said to constitute an important step in that direction. Such a policy paper will also be very clear on how the country could accelerate the revitalization and expansion of its productive sectors that will actually allow it to benefit from the trading and investment opportunities presented by the AfCFTA as well as accelerate infrastructure development.
Importantly, the Government of the Gambia should also take urgent steps to adequately staff the MOTIE with well trained and experienced trade policy, negotiations and export promotion analysts, tapping into the resources provided by international development organizations like ECA, World Bank, AfDB, UNIDO, UNCTAD, ITC, UNDP etc, in that process. Additionally, MOTIE could work closely with the Ministry of Foreign Affairs, International Cooperation and Gambians Abroad with the objective of utilizing the inhouse expertise and resources of the Embassies abroad for reinforcing efforts at trade diplomacy, export and investment promotion.
The views expressed in this article are not necessarily those of the Central Bank of the Gambia
