How AfCFTA can insulate Africa against trade wars?
In the current era of unpredictable global trade, marked by escalating tariffs and trade wars – particularly between the US and China – Africa is at a crucial juncture.
These major economic powers are implementing policies that create uncertainty in international markets, forcing countries to re-evaluate their trade strategies.
Amidst this uncertainty, the African Continental Free Trade Area (AfCFTA) emerges as a potential solution, aiming to counter external pressures and bolster trade within Africa.
However, it is essential to approach this potential game-changer with cautious optimism, considering the historical and structural challenges that persist.
A significant challenge lies in the stark contrast in intra-regional trade. Africa's intra-continental trade stands at a meager 14 percent, significantly lower than the European Union's 70 percent, ASEAN's 57 percent, and NAFTA's 44 percent. This highlights a historical inefficiency that has hindered the continent's economies.
Progress has been slow even within established regional frameworks like the East African Community (EAC). Despite having a Common Customs Union for 24 years, intra-EAC trade remains at a mere 18 percent.
Additionally, external players such as China, India, and the UAE dominate markets in Africa, collectively controlling over 60 percent of trade in the EAC, often without preferential trade agreements.
This situation not only reveals systemic inefficiencies but also reflects a concerning reality: Africa's exports lack diversification, consisting mainly of primary agricultural commodities and minerals like gold, copper, and uranium, among many others.
The absence of technological infrastructure and expertise prevents value addition, hindering countries from fully benefiting from their natural resources.
The challenges extend beyond macroeconomic concerns. Logistics and trade facilitation pose significant hurdles.
Read: AfCFTA gains momentum as 48 African countries ratify agreementCurrently, a container shipped from Mombasa, Kenya, to Apapa Port in Nigeria or Tema Port in Ghana or Port Matadi in DRC often takes a detour to European ports, resulting in a journey of up to five months. In contrast, transporting a container of basic commodities from Europe to the same markets in West and central Africa takes only 14 days.
These inefficiencies severely impact trade fluidity across the continent.
The AfCFTA's Guided Trade Initiative in 2022, where goods took 72 days to traverse this route, further exemplifies the logistical bottlenecks that need to be addressed.
Therefore, it's not surprising that the Eastern Africa grade A black tea has to be blended with Grade C/D tea in Europe and sold in West and Central Africa as European tea. The basic consumer goods in some of these markets are from Europe and Asia.
To overcome these challenges, innovative solutions that go beyond traditional trade agreements are necessary. Inadequate connectivity, a historical challenge, can be addressed through strategic initiatives.
One crucial step would be establishing intra-African shipping lines to promote direct maritime connectivity. In the past, air travel within Africa was often routed through international hubs in Europe or Asia.
However, the emergence of airlines like Kenya Airways and Ethiopian Airlines has streamlined air travel across the continent, demonstrating the potential of homegrown solutions.
Similar efforts are now required in the shipping sector, by constructing ships and developing fleets dedicated to intra-African routes. Indeed, the Kenya Navy has built MV Uhuru and MV Uhuru II that are plying Lake Victoria waters. It is not inconceivable to have an MV Africa operating between East African Coast and West Africa Coast via the Cape.
This shift towards intra-Africa shipping represents a fundamental change in the approach to continental trade. By enhancing routes and reducing reliance on external shipping pathways, African nations can strengthen their economies and improve the accessibility of goods across borders.
Read: The AU is in dire need of new directionThis restructuring aligns with the AfCFTA's goals and empowers member states to leverage the collective bargaining power and resources within the continent.
While the AfCFTA is a crucial step towards intra-African economic integration, it should not be viewed as the sole solution to the complex challenges faced by the continent. Its potential should not overshadow the realities of trade inefficiencies and structural barriers that continue to impede progress.
As Africa navigates the turbulent global trade landscape, a cautiously optimistic approach is necessary. By investing in systemic changes, particularly a robust intra-Africa shipping infrastructure, Africa can position itself not merely as a participant in global trade but as a leader driving its economic renaissance.
Furthermore, it is important to recognise that the success of the AfCFTA will depend on the political will and commitment of African leaders. Addressing issues such as corruption, protectionism, and non-tariff barriers will be crucial for creating a conducive environment for intra-African trade.
Additionally, investing in human capital development and technological advancement will be essential for enhancing Africa's competitiveness in the global market.
The AfCFTA presents a unique opportunity for Africa to take control of its economic destiny. However, realising its full potential will require a concerted effort from all stakeholders, including governments, businesses, and civil society.
© Copyright 2022 Nation Media Group. All Rights Reserved. Provided by SyndiGate Media Inc. (Syndigate.info).
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