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Digital trade is the next big thing in Africa

by Kingsley Ighobor
25 Jul 2020 at 07:57hrs | Views
Textile trader in Elubo (Ghana), a border town from across neighboring Côte d’Ivoire. I ©Franck Kuwonu/AR
Wamkele Mene was recently appointed Secretary General of the African Continental Free Trade Area Secretariat. Because of COVID-19, free trade for countries that have ratified the agreement did not begin, as planned, on 1 July 2020. In this interview with Africa Renewal's Kingsley Ighobor, Mr. Mene explains the way forward, how increased intra-African trade can boost economies post-COVID-19 and how digital trade will be next big thing on the continent:

Africa Renewal: You have said that digital trade is the next big thing in Africa. Most of the trade in Africa is informal and is usually carried out by women, especially cross-border trade. How does digital trade fit that picture?

Mr. Mene: First, digital trade is possible through mobile phones. We know, for example, from the experiences of various countries across the African continent, that you can access distant markets using your mobile phone. So, the digital platforms are already there. We also know that Africa has one of the fastest-growing penetrations of mobile subscribers. It is a question of leveraging all those technological innovations and advantages into a common platform for free trade in Africa, under the AfCFTA agreement.

In countries where women are most active and contribute significantly to the economy - I am thinking here of Kenya and Nigeria, among others- there are examples of women who use digital solutions in informal trade. We seek to establish the requisite regulatory environment and architecture, through laws and digital platforms. The other area that is very important is customs authorities. We need to find a way to digitize our customs capabilities such that they are seamless across the continent. It is going to take quite a lot of work, but I believe it's possible.

Do you have any plans to capture the imaginations of young people, to bring them on board?


During my appointment and election process, I identified young Africans and women in trade as segments of society that we must bring with us, to benefit from the implementation of this agreement. If it benefits only the big multinational corporations in Africa, it will have failed. We are going to create a platform to engage young Africans, women in trade and small- and medium-sized enterprises in a dialogue to put this vision into practice. We don't have all the answers. We want to hear from young Africans. We know that if you go to Kigali, you will find young African software engineers at the forefront of innovation. These are the people that we want to bring into the fold of the agreement. We can create the appropriate environment for young Africans to benefit. Our rule will be to establish the conducive environment for young Africans to leverage their ideas. This is especially important. We don't have the answers to innovation, but we can create and establish regulatory frameworks within the context of the AfCFTA.

It appears that many young Africans are not yet aware of some of the lofty goals of the AfCFTA. How do you encourage countries to raise awareness among young people?

It's going to be a joint effort between the Secretariat and individual countries. We take advocacy and awareness-raising seriously. The basic iterate of the agreement is only one month old, but we are already recruiting the best and the brightest Africans to ensure that we reach our mandate. We are going to engage each of the five regions of Africa through regional outreach and advocacy programs. We will work with national governments. And we will complement the efforts of national governments to raise awareness about the benefits of the agreement, as well as the potential risks, and advise African populations - young people, women in trade - on how to take advantage of this unprecedented agreement. So, we are going to roll out a robust awareness-raising campaign in the five regions, in a way that complements the efforts of individual governments.

What's your idea of success in the short and long terms?


In the short term, success is having an institution that is established and functions smoothly. Institution building is never easy. Building a Secretariat of eventually 55 countries is not going to be easy. It's a big challenge. Establishing a dispute settlement mechanism is going to be a particular challenge, because it signals to African investors that they should have confidence in the market. If we can operationalize a credible mechanism, that will be a short-term success.

In the long term, we aim to reach our objectives and action plans in industrial development. We might have value chains in two or three priority sectors, especially in critical areas such as agro-processing and automobiles. These are the areas that have a direct impact on job creation and economic growth in Africa. That, for me, would be a long-term success.

How would you describe the impact of COVID-19 on AfCFTA so far?

Well, the impact has been, as anybody can imagine, extremely negative, starting with just the state of the economy in Africa. According to the African Development Bank, the [African economy] was set to grow between 4% and 5%  this year. And so, the dynamism in African economies was there, right up until COVID-19 hit. We know that over 53% of Africa's exports go to countries particularly in Europe, but those consumers are now suffering from the pandemic. That has had a subdued effect on our export markets. The services sector in Africa, especially travel and hospitality, is set to fall by between 20% and 30% this year. In general, the virus has had a devastating effect on Africa. We have to find ways to mitigate the effects of the pandemic. But, for now, the primary focus should be on saving people's lives.

Given the current situation, do you have any idea when free trade for participating countries could begin?

We have made a recommendation to the Assembly of Heads of State and Government, which is the body that has the authority to delay or postpone the date originally set for 1 July 2020. We have advised that, given the unprecedented public health crisis that we are in and the fact that there is some unfinished technical work to be completed, we are not in a position to trade on 1 July. We lost about two-and-a-half months of technical work.

So, free trade will not begin until the pandemic is defeated? Or do you have a plan?


Well, we are exploring other ways of continuing the work, but as you can imagine, the trade negotiations are very, very technical. Within the African Union, we negotiate in four languages and across different time zones. Plus, there are requirements for confidentiality. All these things must be considered before we can continue the negotiations, if at all. We are also exploring the use of virtual platforms. We would like to resume our work as soon as possible, as soon as the pandemic contagion is contained. But if, for whatever reason, the pandemic continues, which we hope it will not, we are exploring other ways of advancing our negotiations.

So, right now, you cannot say, for instance, trade can begin in February or April 2021?


Your guess is as good as mine as to when COVID-19 will be defeated to the point we can resume negotiations. We also don't know what precisely the new timelines will be, whether the heads of state will give us new timelines. But I am sure that the heads of state will consider the fact that we are in an unprecedented crisis. They may discuss a delay to free trade. But I stress that it is entirely up to them. We are determined to continue working as soon as the physical conditions allow, or when we find a virtual means of doing so.

In event that the pandemic is protracted, what will you be doing specifically?


We are exploring the possibility of negotiating using virtual means. I must stress that it's an exploration at this point, because we are talking about very complicated negotiations with more than 300 people at a time. The technical feasibility question is what we are exploring right now. But, as I said, there are constraints for trade negotiations, even when you are in the same room: the four different languages of the African Union, the confidentiality of the process, the different time zones of the African continent.

You just mentioned that the pandemic has the potential to decimate economies. How do you think you can regain momentum?


There are short- and long-term tools at our disposal. The first short-term tool, from a trade policy standpoint, is that our heads of state agreed to establish trade corridors to enable the transit of what the Africa Centres for Disease Control and Prevention refers to as "essential goods," or products that are necessary to combat the pandemic. These goods include soaps and other germ-killing products. The heads of state have agreed that these products must be given priority transit across borders, particularly in the case of landlocked countries. And second, the ministers of trade are exploring the possibility of reducing customs duties on these essential products so that they are more affordable to African populations across the continent. This would be a temporary measure to ensure that we have access to the tools we need to protect public health.

In terms of the long-term tools, it is our view that accelerating Africa's industrial development objectives and Africa's industrial development action plans is key to reconfiguring our supply chains, establishing regional value chains, and manufacturing the essential goods that we need now. This would also boost Africa to a higher value-added product and manufacturing capacity. The second point is a review of our intellectual property rights. We aim to assess whether our intellectual property regimes enable Africa to have a generic drug industry, which would ensure that we have access to affordable health care. This is also linked to whether a vaccine is found in the next 18 months or so. It goes through to the heart of questions around intellectual property rights. Finally, we are looking at the AfCFTA agreement itself. As you know, many countries in Africa do not have the monetary policy space or the fiscal policy space to provide large bailouts that go in the trillions and trillions of dollars for economic recovery. Therefore, for Africa, the stimulus package is the AfCFTA, the implementation of this agreement. This is what will enable Africa to drive economic growth and economic development post COVID-19, by increasing intra-Africa trade.

The commencement of free trade in Africa trade was expected to increase intra-African trade from 18% to about 50% within a few years. Is that timetable still on?

We aim to reach up to 50% of intra-African trade between now and 2030. So, there is not that much time. COVID-19 aside, whether we can reach 50% of intra-African trade depends on our capacity to accelerate regional value chains in Africa's industrial development. Second, the manner and pace with which we implement the agreement, collectively, will also determine whether we increase that number from 18% up to 50%, and hopefully above that. So, it is an objective that we will have to actively work towards, and we will have to vigorously pursue.

Do you think the current crisis will discourage the more than 20 countries that have not ratified the AfCFTA from doing so?


We hope it encourages them to ratify the agreement. As I said, it is desirable for any government or economy to have a stimulus package in a time of an unprecedented crisis like this. You need tools of trade, such as this agreement, to accelerate economic recovery and return to pre-pandemic growth projections. I think that boosting intra-African trade is one of the tools that is available to us. Countries that do not ratify the agreement, of course, will not enjoy the benefits of liberalized trade and will not be able to explore new markets in Africa. So, I hope that they will look at it very, very positively.

Do you have a way of communicating the points you just highlighted to these countries?

I think the countries that have not yet ratified are engaged in the necessary domestic consultations and processes to do so. It is a sovereign decision to enter into an international agreement. There is a standing call from the Assembly of Heads of State and Government that asks all countries to ratify the agreement as soon as possible, or as soon as domestic legal processes allow it. So, I think they are aware of the importance of this agreement. And as you've just suggested, it has now taken on a new dimension, as the COVID-19 pandemic continues.

Are there fears that the pandemic could encourage some countries to adopt protectionist policies?

The AfCFTA, like many other trade agreements around the world, makes provisions for countries to take measures to protect and advance public health in times of crisis. There is a degree of flexibility within trade agreements for countries to take particular measures to protect public health. However, these measures should not be permanent, and it will be up to us, as the Secretariat, to ensure that any measures that create protectionism and do not meet the need of necessity for public health are removed. We will undertake that monitoring function. And I do believe that most countries understand the importance of having an integrated market in Africa. This is why the AfCFTA was the fastest-ratified trade agreement in the African Union, by an initial 28 countries, because they recognized the importance of an integrated market as opposed to isolationism and autarky. I know that the countries that have not yet ratified are considering ratification, in line with their domestic laws.

What is your message to potential investors and traders outside of Africa?

My message is that we have established an agreement that creates a single market in Africa, from Cairo to South Africa, from Senegal to Djibouti. This single market of 1.2 billion people has a combined GDP of over $2.5 trillion, a growing young African population and a growing middle class whose purchasing power is increasing. I think all these things combined send a signal to investors that, once the agreement is fully operationalized, they will be able to do business on a single set of trade and investment rules across the African continent. This is something that will attract investors. Since they will be able to achieve economies of scale, they will overcome the challenges of market fragmentation. And, as I said, they will have the advantage of a market that is dynamic and fast-growing. You may recall that, in 2019, the World Bank said that of the 10 fastest-growing economies in the world, six were in Africa. I think, post-COVID-19, if we can implement this agreement, the dynamism of African economic growth will return. We will be able to recover. It's going to take time; it's not going to happen overnight. But we're going to have to start working on economic recovery as soon as the conditions allow.

Do you have ways of discouraging countries from entering into bilateral trade agreements, even at this stage?

Discouraging countries from entering into trade agreements with third parties is a political goal. Under the agreement, countries can enter into agreements with third parties provided that they give African countries similar or better treatment than they are giving to the third party. So, in terms of AfCFTA law, it is permissible. But, since our political objective is to integrate and consolidate our market first, it is obviously desirable that countries refrain from doing so.

So, you expect, based on solidarity, that countries focus more on the trade area in Africa rather than getting into agreements with third parties?


Yes. And the Assembly of Heads of State and Government has said precisely that. It is a political aspiration.

As you prepare to launch, what is your message to Africans across the continent and in the diaspora?

After my election, I received literally thousands of messages congratulating me and wishing me well in this task. I received these messages from Africans in Africa, from Africans in the diaspora. I think all Africans, including me, see this as an opportunity to turn a new page on Africa's economic development and Africa's growth trajectory. This is an opportunity that is unprecedented. In fact, I think that since the end of colonialism, Africa has not had such a big opportunity. I am conscious of the high expectations that that all Africans have of this Secretariat. In all the messages that I have received, the theme is the same: We want Africa to succeed and we want this trade agreement to have a long-term impact. I think people are aware, as much as they have high expectations, that it is not going to happen overnight. In the same way that market integration in Europe happened over 50 years, in Africa it will also take a long time. I think what is being celebrated is the fact that Africa has reached this point where we are moving rapidly towards an integrated market.

We are determined to make it work. When we started negotiating, some said that we would never conclude the negotiations. We concluded the first phase of negotiations in less than four years. Then, they said that the countries would never sign it. Out of 55 countries, 54 signed the agreement. Then, they said it would never be ratified. The agreement was ratified by 28 countries, which enabled it to enter into force. Now, they are saying that we will never be able to implement it. I want to tell the doubting Thomases out there that we will implement it. This agreement will be a shining example of how a trade agreement is negotiated in a way so it has strong development features and onboards the segments of society that have been historically left behind. It's one of the reasons why there are problems in Europe, and one of the reasons why globalization is being rejected in Europe by some. Segments of society have been left behind. We have learned from the lessons of Europe and other parts of the world. We are determined to ensure that we bring everybody on board as we implement this agreement, that the biggest and the smallest countries in Africa benefit equally from this agreement. That is our determination.
For more information on COVID-19, visit www.un.org/coronavirus



Source - www.un.org/africarenewal

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