Africa is barely 13 months ago from commencing what will be the world’s biggest free-trade zone in terms of geographical size, market population and number of countries involved. The International Trade Centre, earlier this week released an insightful, research-driven report on the structure of the impending common market and what needs to be done by its members to maximize its contributions to their collective economic growth and development. We present here the first part of a two-part, edited version of the report.
African policymakers are embarking on what may be the most ambitious regional integration effort of the 21st century. The African Continental Free Trade Area (AfCFTA) Agreement aims to design a first-of-its-kind common strategy for Africa’s trade competitiveness and development. As policymakers advance AfCFTA negotiations, they will have to assess how trade strategies in Africa fit with AfCFTA’s vision for the continent.
In some areas, straightforward win-win situations are expected to arise. In others, trade-offs may have to be made.
The AfCFTA is part of an emerging trend in Africa over the past 15 years to develop more national and regional strategies for export competitiveness and development. Against this backdrop, this paper assesses Africa’s existing national and sub-regional strategies to identify common thematic and sectoral trends as well as potential sources of tension in the ongoing AfCFTA negotiations.
The report suggests that African trade policy considerations should take into account the following trends:
- While Africa’s regional strategy discourse is on manufacturing and industrialization, its national trade strategies continue to focus on agriculture and primary products. Agriculture accounts for less than 20% of the continent’s GDP but more than 60% of the priority sectors in African trade strategies.
Manufacturing and high value-added sectors are rarely prioritized at both the country and regional level. This focus on a narrow range of agricultural and primary products only contributes to perpetuate, rather than evolve, existing trade relationships within Africa and between Africa and other regions.
- With almost half of the world’s regional trade strategies, Africa is a champion of regionalism. Close to 80% of existing trade strategies in Africa identify trade integration and regionalism as crucial policy areas, but currently only 10% of African strategies have a regional scope, which indicates there is space for regionalism to grow.
- There are significant similarities in the sectors that African countries prioritize in their national trade strategies, with agricultural products being prioritized across all regions. Differences can nevertheless be appreciated in the sectoral focus across African regions.
North Africa focuses mostly on energy and bio-fuels while textiles and clothing predominate in sub-Saharan Africa. East Africa and West Africa focus on foodstuffs, animals and animal products. Services sector priorities are highly concentrated on tourism, transport and, to a lesser extent, on information and communications technology, and finance.
- Given the degree of overlap of sector priorities at the country and regional level, developing a common space for a regional strategy for Africa is not going to be simple. Overlapping sector priorities could become a potential source of tensions during AfCFTA negotiations. Neighbouring countries find themselves very often prioritizing the same type of agricultural products.
Examples include maize (Democratic Rep. of the Congo, Uganda, United Rep. of Tanzania), pulses (Ethiopia, Kenia), mango and onions (Burkina Faso, Mali), and cashew (Benin, Burkina Faso, Mali, Côte d’Ivoire, Gambia, United Rep. of Tanzania) among many other.
Moving forward, this paper suggests that:
- The AfCFTA can provide the opportunity to change the strategic direction of the continent, as the current strategic focus is on a very narrow range of agricultural and primary products.
- A larger focus on innovation may be needed. Innovation is seldom featured as a priority in African trade competitiveness strategies, yet it will be important for upgrading and diversification.
- African countries have tended to allocate fewer resources to the implementation of their strategies and also have a lower degree of country ownership. These aspects may have to be addressed for the AfCFTA to be a success.
- Smaller nations in Africa can play a key role in building the African common market. They tend to engage more in regional strategies; a phenomenon that has also been identified in the context of European integration. Policymakers from smaller nations should pursue a more aggressive stand towards production and export diversification. The AfCFTA offers the opportunity to discuss a new trade strategy for the African continent, focusing on sectors that can add value and contribute to African industrialization.
CONNECTING TRADE STRATEGIES WITH REGIONAL
AMBITIONS FOR AFRICAN INDUSTRIALIZATION
The ongoing negotiations of the African Continental Free Trade Agreement (AfCFTA) aim to design a common strategy for Africa’s trade and development. This section analyses the sector priorities of existing trade strategies in Africa and reveals that while Africa’s official discourse is on manufacturing and industrialization, its trade strategies continue to focus on agriculture and primary products. If the AfCFTA is to foster competitiveness and economic transformation, its strategic focus may have to deviate from these previous efforts.
African countries have overlapping export priorities
Most African trade strategies prioritize a similar group of export products and services. Africa’s sector priorities are concentrated on a very narrow range of agricultural products, and historical data shows little variation over time. From 2005 to 2018, services accounted for 25% of the sectors included in trade strategies. The remaining 75% consisted of product sectors, with agricultural products representing two-thirds of goods produced.
Agricultural sectors have traditionally been highly prioritized in Africa. This focus on agriculture began a decline from 60% in 2010 to 50% in 2016. It has stabilized at this level.
Fewer than 20% of the priority sectors in Africa’s country-specific strategies have a link to manufacturing. The focus on industrial and manufacturing sectors has been in a constant and gradual decline since 2005. It is clear that African interest in services sectors far exceeds that of manufacturing.
Comparing African sector priorities to their relative weight in economic activity (proxied by African share of GDP in those sectors) shows that services are under-prioritized and agriculture over-prioritized.2 In 2018, in sub-Saharan Africa, agriculture accounted for less than 20% of the continent’s GDP but more than 60% of the priority sectors in African strategies.
The weight of manufacturing sectors on GDP was approximately the same as the sector priorities (28% and 25%). When only international strategies are considered though, the difference is very striking (9% and 25%) with international strategies under-prioritising manufacturing sectors.
Domestic policymakers are not signalling a big push for industrialization, and are in fact slightly under-prioritising manufacturing. The message that they are sending is that they see their economic future in agriculture sectors
There is a large degree of coincidence on the actual sectors that countries prioritize. Although some differences can be appreciated in the sectoral focus across African regions, vegetable products are prioritized across all regions.
North Africa focuses mostly on energy and biofuels, while textiles and clothing predominate in sub-Saharan
Africa. East Africa and West Africa focus on foodstuffs, animals and animal products.
The focus of Africa on primary products is evident. Very few countries prioritize sectors with higher value added. What seems to be common is the interest in service strategies. There is little variation across regions on the share of priority sectors in services. The most prioritized categories of services sectors are tourism, transport, financial, educational and communication services. This indicates a widely shared perception on
how these sectors can help to empower economic growth.
An analysis of priority sectors in strategies that are currently under implementation shows that most of them focus on agro-industry, fisheries, coffee, as well as energy and biofuels. Among the services sectors, ICT and tourism are the most important ones. Manufacturing is not very present. These are, to a large extent, existing primary sectors for the most part with a limited potential for economic transformation.
The pattern that emerges from the sector analysis at the regional level is that agriculture products are prioritized across all regions, but geographic location determines the type of products. As a result, neighbouring countries find themselves very often prioritizing the same type of agricultural products.
Examples include maize (in the Democratic Republic of the Congo (DRC), Uganda, and the United Republic of Tanzania); pulses (in Ethiopia and Kenya); mangoes (in Burkina Faso and Mali); onions (Burkina Faso and Mali); cashews (in Benin, Burkina Faso, Mali, Côte d’Ivoire, the Gambia and the United Republic of Tanzania). Palm oil is prioritized the most in the DRC, Ghana (around the Guinea gulf), Liberia and Sierra
Leone. Most coastal nations have fisheries strategies.
Generally, there is a trend to define manufacturing sectors much more loosely than other types. Textile and clothing receive much attention across all African regions, but particularly in the eastern and central parts of the continent.
Services sector priorities are highly concentrated on tourism, transport, ICT and finance.. Generally, services strategies cut across most African countries regardless of their income level or geographic location. Tourism, Energy, ICT, Education are the most
These strategy choices reflect African attempts to enhance key competitiveness features of the business environment. Countries are focusing on upgrading transport-related facilities, access to finance and telecommunication infrastructure, which are fundamental services for regional integration and the growth potential of small and medium-sized enterprises (SMEs).
World tourism continues to grow and given the nature of the industry, this is an area where overlapping priorities could lead to collaboration (i.e. combined destination offerings) and consensus rather than tensions.
Africa takes the initiative on its diversification strategy
While Africa’s official discourse is on manufacturing and industrialization, its trade strategies continue to focus on agriculture and primary products. If the AfCFTA is to foster competitiveness and economic transformation, its strategic focus may have to deviate from these previous efforts. For example, the Action Plan on Boosting Intra-African
Trade (BIAT), which accompanies the AfCFTA, aims to provide a comprehensive framework to pursue a developmental regional strategy. To achieve this, diversification of the productive capacity will need to become a central element of the BIAT. One would expect the choice of sectors being prioritized to widely reflect this diversification rationale. Instead, the range of sectors is quite homogeneous across Africa, and policy efforts are concentrated on a small group of primary sectors. African policymakers are concerned about diversification but their worries are not reflected in their choice of sector strategies of the world.
More and better efforts to diversify the range of prioritized goods are needed. Manufacturing sectors such as machinery, pharmaceuticals and transportation equipment are seldom prioritized, despite their potential to contribute towards diversification. The AfCFTA provides an opportunity to accelerate the development of new trade priorities across Africa.
One way in which African countries can increase their ownership is by working together regionally. In fact, African countries have started to make some progress in this direction. There seems to be a strong foundation upon which to build regional cooperation.
The remaining part of this report will be published on Friday.