COVID-19 and the African Continental Free Trade Area Agreement, PwC, 2020

10 janvier 2022Wathinote Covid-19

Affiliated organization : PricewaterhouseCoopers (PwC)

Type of publication : report

Date of publication : 2020

The expectations of enhanced intra-Africa trade are being hampered by challenges such as border closure, travel bans, nationalism and uncertainty in tariffs and exchange rates.

The objective of the Continental Free Trade Area (CFTA) is to integrate, diversify and industrialise African economies of about 1.3 billion people with a combined gross domestic product (GDP) of USD 3.4 trillion. However, the novel Coronavirus disease (COVID-19) seems to undermine these possibilities through the crippling effects that is causing a global economic crisis.

The effect on Africa 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. In addition, poor testing facilities, inadequate Personal Protective Equipment (PPEs) for frontline health workers and congested communal settings could worsen the effect.

Implications on the Agreement as a result of COVID-19

The CFTA is expected to facilitate trade in goods and services through free movement of persons in order to promote and expand economic integration in line with the African Union Agenda 2063. However, the pandemic has restricted travels around the globe, having a direct impact on economic integration and intra Africa trade. Therefore, it is important for governments within the region to be prepared for the possible negative impact the virus will have on the implementation of the agreement and seek out ways to convert the pandemic to opportunities for stronger economic and political integration.

The border closure and travel bans placed by key and emerging African economies such as Nigeria, South African, Ghana, Algeria, Morocco, Kenya and Ethiopia etc. have impacted on trade within the continent. The demand for essential commodities such as pharmaceutical and agricultural products has weakened export in the face of measures adopted by governments to manage the spread of the virus.

Trade liberalisation is expected to improve economic activities with the CFTA in terms of trade and investment. Currently, all negotiations on tariff concessions are at a halt due to the pandemic as countries are more focused on saving lives and preserving livelihoods. This creates uncertainties for low developing economies (LDCs) as tariffs form a huge percentage of their revenue.

COVID-19 shows that self-sustainability matters and is important mostly for food security, education healthcare and logistical services. An objective of the CFTA is to make the continent self-reliant in these sectors and signatories to the Agreement need to develop a framework and set realistic implementation plans to improve these key sectors irrespective of regional integration

The continuous promotion of inclusive socio-economic development of state parties is currently undermined by the pandemic as African countries with low per capita income depend on agriculture for their export earnings. The dependence on extra-regional trade imports for food makes African countries vulnerable to disruptions in international logistics and distribution. This could result in food shortages and an increase in food prices.

The demand for Africa’s raw materials and commodities in Asia, Europe and North America has declined and Africa’s access to industrial components and manufactured goods from these regions has also been hampered.

The pandemic has disrupted the regional value chain. The CFTA seeks to improve industrial development that can benefit continental sustainability especially in the agricultural sector. This can be possible when participating states upscale their industrial and manufacturing sectors which in turn increases the GDP from processing imported raw materials within the CFTA to semi-finished or finished goods for export either within the CFTA or outside.

COVID-19 and AfCFTA – Key Considerations

COVID-19 shows that self-sustainability matters and is important mostly for food security, education healthcare and logistical services. An objective of the CFTA is to make the continent self-reliant in these sectors and signatories to the Agreement need to develop a framework and set realistic implementation plans to improve these key sectors irrespective of regional integration.

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.

Going into the AfCFTA post COVID-19 requires Nigeria as well as other African economies to build a digital economy to foster production of higher quality goods and services at reduced costs. This will open new channels for value addition and broader structural change. To sustain this process in the continent, there is a need to develop and/or upgrade the digital infrastructure, digital financial services, digital entrepreneurship and digital skills that are thematic pillars of the Digital Economy for Africa to encourage trading digitally across individuals, SMEs and Governments.

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

The Intra-African market could help to mitigate some of the negative effects of COVID-19 by limiting its dependence on external partners, particularly in food and pharmaceuticals. As a result, COVID-19 demonstrates the importance of implementing AfCFTA, and the current momentum needs to be maintained as a mechanism for building resilience and managing long-term volatility.

Through the AfCFTA, Africa has an opportunity to reconfigure its supply chain, to reduce its dependence on external partners and to speed up the establishment of regional value chains that will boost intra-African trade. By doing this, African economies can improve their GDP by domestic value added on processed import within the CFTA that can be exported within or outside the continent.

Maximising the potentials of the AfCFTA will be an effective shock absorber if the global economy remains depressed by the pandemic and its uncertainty. It will also make Africa an attractive proposition when the global economy turns around

There is an urgent need to reduce the continent’s high trade dependence on non-African partners. The AfCFTA can help to facilitate this, but that means removing tariff and non-tariff barriers as much as possible and intensifying the economic regionalisation processes that have now begun.

Maximising the potentials of the AfCFTA will be an effective shock absorber if the global economy remains depressed by the pandemic and its uncertainty. It will also make Africa an attractive proposition when the global economy turns around.

The crisis has also shown the importance and opportunities for African economies in the digital economy. The AfCFTA initiative should not be slowed down, instead it is essential to conclude negotiations on services schedules to allow vital industries to grow, develop domestic solutions and drive regional value chains. A consolidated market system will be crucial to ensure that African countries have relative collective power in terms of numbers and bargaining power in the post COVID-19 global economy.

Conclusion

In many ways, the pandemic is an opportunity for African people to see themselves differently and the world to consider the African continent as a partner in finding solutions to complex problems such as COVID-19. While this new crisis may be another challenging time for Africa, after the pandemic has ended, the continent will have the chance to become more autonomous and self-reliant.

This is a good time to start implementing the AfCFTA. It will be important for African countries to cooperate on all levels, especially in the context of the current pandemic. With the birth of AfCFTA, a strong commitment and joint action by the continent’s leaders would undoubtedly benefit the fight against the pandemic and its economic consequences for Africa post COVID-19.

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