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AfCFTA can drive Africa’s industrialisation – but policies are key say experts

By , ITWeb
Africa , 30 Nov 2022

The African Continental Free Trade Area (AfCFTA) will spur Africa’s industrialisation and deepen regional integration provided the continent institutes supportive policy reforms and foster trade.

This is according to trade and economic experts who participated in a panel discussion Industrialising Africa: Renewed commitment to inclusive and sustainable growth, hosted by the International Growth Centre and the Firoz Lalji Institute for Africa at the London School of Economics and Political Science.

The discussion, part of events to mark the Africa Industrialisation Week 2022, explored key questions regarding the industrialisation strategies that different African countries have adopted and on how the AfCFTA will influence industrialisation strategies that contribute to poverty reduction and environmentally sound industrial development in Africa.

Stephen Karingi, Director, Regional Integration & Trade Division at the United Nations Economic Commission for Africa (ECA) said the African Union Summit on Industrialisation and Economic Diversification, hosted by the Republic of the Niger in November, discussed industrialisation on the continent extensively.

Key discussion themes included the question of regional value chains and special economic zones, standards and quality policy, decarbonisation and industrialisation.

“There is consensus that one of the key reasons we have the AfCFTA was basically to foster industrialisation and transformation of the continent. The question is how do we do that,”said Karingi.

Describing the questions of creating regional value chains are critical, Karingi said while African countries had committed to tariff reduction and removing non-tariff barriers to boost inter-African trade, AfCFTA sought to exploit the comparative advantages in the different African economies.

“There is a question of how do you have regional value chains that allow you to get intermediate inputs from other African countries considering that today a lot of the raw materials that are being used in most of the global value chains are normally coming from the continent,” said Karingi, remarking that special economic zones were a perfect tool to promote regional value chains.

“The African consumer is as demanding as any other consumer outside Africa and so it is important for African consumers to be able to demand and buy what is produced under the industrialisation agenda of the continent,” he continued, noting that with some African manufacturers being uncompetitive, the AfCFTA was an opportunity to trade in services.

Trade and economic experts cited research from the World Bank which stated that AfCFTA is a major opportunity for countries to boost growth, reduce poverty, and broaden economic inclusion by lifting an estimated 30 million Africans out of extreme poverty and boost the incomes of nearly 68 million others.

“Furthermore, implementing the trade area would boost Africa’s income by US$450-billion by 2035 and increase Africa’s exports by US$560-billion, mostly in manufacturing and agro processing,” they claimed.

Olawale Ogunkola, Professor of Economics, Department of Economics at the University of Ibadan, Nigeria, said by all indicators industrialisation was still low in Africa as some policies and strategies that would foster value addition were not effective as were established special economic zones.

“We moved to export strategies but we are yet to take off in terms of increasing manufacturing value addition not only for our benefit but to address some of the basic things we think will help us in terms of development,” said Ogunkola.

“For some countries economic zones are like military zones, keep off. They are so disconnected from the domestic economy,” charged Ogunkola, calling for special economic zones to be connected to the economy of host countries in terms of sourcing of inputs and skills training. He added that an integrated kind of approach and policy coherence were key in making special economic zones relevant.

Fatima Haram Acyl, Vice-President, Central African Economic and Monetary Community (CEMAC) said while the ACFTA is an enabler of employment opportunities, it must be inclusive of women who make up half of the population on the continent and constitute 58% of self-employed people yet they suffer from gender wage gap.

“If we are serious about our development we cannot operate at half of our capacity. We need to include women all over and we need to empower them … policy makers need to be deliberate and intentional with regard to complementary policies in higher education with emphasis on STEM,” said Acyl.

Commenting on the financing gap for infrastructure development in Africa, the panelists felt that integration was key to infrastructure financing. Multilateral finance institutions should be part of the free trade area and countries need to enhance their capacity to come up with bankable projects that will attract funding.

The African Development Bank (AfDB) estimates that Africa needs US$170-billion a year for infrastructural financing with an estimated gap of about US$100-billion.

Karingi noted that involving the private sector was one way of fixing the infrastructure financing gap as well as tapping innovative finance through instruments such as carbon credits.

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