Strengthening Africa’s Capacity to Trade
The World Trade Organization’s report, Strengthening Africa’s Capacity to Trade, published earlier this year, highlights the means by which Africa can re-engage in global trade as it recovers economically from COVID-19.
Although the continent has largely been spared the death rates seen in more developed countries, African economies have drastically suffered during the pandemic. The report highlights detrimental effects of the pandemic on commercial activity, such as the effect of social distancing protocols on the informal economy, which accounts for one-third of the region’s economic activity.
The report indicates that the continent is also highly susceptible to global macroeconomic events. The continent’s exports decreased greatly during the 2008 global financial crisis, an outcome which is being repeated during the pandemic, in response to low demand for African-produced inputs. Thus, Africa’s exporting capacity is highly contingent on the ability of its major trading partners, notably China and the European Union, to resume production.
Trade on the continent has also been hindered by currency depreciation, as capital has exited to more secure environments, primarily US dollar-backed assets. Thus, two large economies on the continent - South Africa and Nigeria - have both experienced a decline in the value of their respective currencies against the US dollar.
In order to mitigate interruptions in globalised trade, the report platforms the nascent role to be played by the African Continental Free Trade Agreement (AfCTFA). The Secretariat of the AfCTFA noted the ability of the agreement to act as an economic stimulus, in the absence of fiscal and monetary capabilities of national jurisdictions to release actual stimulus themselves.
Partnered with the AfCTFA is the Trade Facilitation Agreement, which “ensures a common platform for the implementation and widespread use of trade facilitation measures at the global level”. The report highlights the crucial role played by the Agreement in reducing trade costs (of which African countries have some of the highest globally) and consequently revitalizing trade in the continent post-COVID-19. The report acknowledges the much-needed revenues obtained by African countries through duties, taxes and tariffs, yet notes that the more robust administration of trading activities under the Trade Facilitation Agreement would recoup leakage and discourage corruption, thus maintaining needed revenues.
The report identifies the Aid for Trade tool as a crucial means to build sufficient supply-side infrastructure in Africa. Such infrastructure is needed to achieve economic diversification, a key objective noted by 34 out of 35 African states in the survey. Digital connectivity infrastructure is particularly highlighted in the context of COVID-19, as it is needed to underpin the remote working activities of small-to-medium enterprises in Africa. The report concludes that the development of SMEs can contribute to a more robust, diversified economy.
The report highlights three principal ways in which trade in Africa will be recovered after the pandemic. First, through successful implementation of the African Continental Free Trade Agreement. Second, through the related but separate framework of the Trade Facilitation Agreement. Last, economic diversification achieved under the Aid for Trade Tool, which assists countries in the building of infrastructure to develop a more robust supply-side production capacity.
If you know of a report that you’d like us to review, send us an email at support@australiaafrica.com