Africa set for big things with continental free trade area operationalization, ECA

Africa’s integration agenda is experiencing a critical and momentous epoch with the Continental Free Trade Area (CFTA) scheduled for operationalization this year and with the creation of a Single African Air Transport Market (SAATM), that are set to be launched by Heads of State at the January Summit in Addis Ababa, says ECA’s Soteri Gatera.

Gatera, Chief of Infrastructure and Industrialisation in the Regional Integration and Trade Division, said things are looking bright for the continent with these developments while addressing delegates at the Programme for Infrastructure Development in Africa, PIDA summit.

“These two, as with all other regional integration initiatives, will contribute to the Africa We want if PIDA is made to deliver,” said Mr. Gatera.

PIDA is a continent-wide programme for the development of priority regional and continental infrastructure in transport, energy, trans-boundary water and ICT.  Adopted by African leaders in 2012, the PIDA has 433 projects, 51of which are marked as priorities for the continent.

“PIDA as we all know is at the heart of the African Union’s Agenda 2063 and has endorsed infrastructure development as a key enabler for the continent’s integration and if we are to get there with all the positive things coming our way, capacity development, both in the public and private sectors aimed at fostering the skills and knowledge of delivering hard projects, has to be a new priority,” said Mr. Soteri.

He added there were challenges that require attention by continental bodies and their partners.

“Many national infrastructure investment strategies, including PPPs, face issues in improving their understanding, knowledge, capacity, skills and establishing efficient processes that would allow them to properly develop and deliver the PPPs projects.”

Capacity development, said Mr. Gatera, has to be a long-term process requiring a systemic approach, demand for improved public sector performance and supply of well-structured organizations and skilled personnel.

“We have to create institutional partnerships among and between relevant organizations, that involves commitment at the highest level, that can develop a long-term capacity building program for infrastructure that will be tied to the promoting of bankable projects. The institutional arrangement should contractually include the private sector who will participate in both the funding and delivery of infrastructure projects,” he said.

Mr. Gatera said the ECA will soon be reaching out to its partners to discuss the need for a focused program on capacity development for infrastructure delivery Africa, with the objective of enhancing PPPs and particularly private sector participation in infrastructure assets delivery.

This initiative will focus on capacity building to develop policies, strategies and regulatory frameworks for PPPs in Africa.

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Will intra-Africa trade come of age in 2018?

Overcoming the barriers for intra-African trade to double in a decade can feel like a Sisyphean task – impossible to complete. But that is the objective of the Boosting Intra-African Trade (BIAT) action plan, which targets to double flows between January 2012 and January 2022.

Many individual African nations will not, on their own, have significant production or purchasing power any time soon. To accommodate such young populations and produce or enable meaningful employment, GDP growth has to sky-rocket, not hobble along. That requires clubbing together.

Yet global and regional trade agreements are grappling with shifting geo-politics or are being tripped up by populism. Or both. So, on a continent not known for its speedy cohesiveness, will leaders have the pragmatism to give up lofty individual ambitions that may be more realisable at a regional level?

Traditionally, governments have sought the hegemony given by a national airline, stock exchange, broadcasting corporation and grid. But when, in November 2017, an east African chief justice broached the idea of a regional court to handle electoral disputes, it sounded sensible and not just because it would mitigate the risk of bias. It would also enable the building of expertise.

Of course, there is no shortage of plans and accords in Africa. Most political leaders can put together a team of policy wonks, legal eagles, technology experts, financial pundits. Eventually a reasonable agreement is likely to be born, preferably capturing the many disparate, uneven needs and desires across the continent, after behind-the-scenes retreats and maybe even Skype calls.

Once agreed, implementation creates a whole new world of opportunities. It also opens a Pandora’s box of Machiavellian tricks that can appear as suddenly as police officers on our roads.

This requires leadership at another level. Leadership that is about anticipating, preventing and removing blockers to make way for a common good. Leadership that is equally about promoting the upside and advocating compliance (in actions, not just words), as well as celebrating success just long and judiciously enough to make it feel worthwhile. There is still too much to be done.

The BIAT action plan focuses on seven interlinked areas. The objectives, at times, reiterate the obvious, such as harmonising and simplifying customs and transit procedures and documentation.

One of the worst legacies of colonialism is a disproportionate passion for forms, stamps and (in some cases) queues. All reinforcements of an outdated authority. Even introducing technology has not always been radical enough. We need to go back to basics. Allow the trader to transport that food product or spare part container to its destination quickly, safely and legitimately.

The plan’s success rate will be improved if it uses African and global lessons learnt where appropriate.

Coupled with BIAT – as closely as possible if we are to avoid duplications and contradictions – is the Continental Free-Trade Agreement (CFTA), due finally to be adopted in March 2018. How it will overcome the hurdles that the current regional economic communities have not remains to be seen.

The president of Niger and the executive secretary for the United Nations Economic Commission for Africa consider intra-African trade to be “different from the trade goods that flow from Africa to the rest of the world, which are mostly crops, mineral products, metals and oil” — presumably because all of these are susceptible to globally-determined prices and bought by companies that want to create their own end products in factories that have reliable, cost-effective power, trained labour, good transport links, scale and so on.

Instead, President Mahamadou Issoufou and Vera Songwe believe that the CFTA will allow local small and medium-sized enterprises, the continent’s overwhelming employer, to manufacture and sell “value-added and industrial products like processed agricultural goods, basic produce, and financial and retail services” to neighbours, both next-door and a few thousand kilometres away. This could force infrastructure and education to improve. It could even substitute imports.

It is incumbent upon BIAT and CFTA to enable and require Africans to:

1. Produce physical and digital products and services that Africans need or want

Here’s a list to start with:

  • Dairy, especially in west Africa. I know Hausa-Fulani cows can produce yoghurt, as I saw it on sale in Ibadan, Nigeria. I went back to buy it the following day, having been assured I would find the shop open. It was firmly closed. (Will the trade agreement encourage better service?)
  • Suitable textiles and clothes for the different climates across the continent.
  • Solar PV panels. Renewable energy is a significant new employer in countries like the United States of America, Germany, India, China and Brazil.
  • Integrated inter-city and urban transport using renewable energy (carriages and stations) and offering modern payment options and amenities such as Wi-Fi.
  • Affordable financial services (not only plain vanilla collateralised loans) for small and medium-sized enterprises. Fintech platforms such as loans4SME.com, Lendingkart Finance and incomlend.com already exist and, where appropriate, could be adapted for Africa.
  • Patent lawyers. Generally, I am concerned Africa is producing too many lawyers, given the advancements in artificial intelligence, but this is a specialisation the continent needs.

2. Make it easier to pay for them

Ever tried buying cotton from Burkina Faso when you’re in Nigeria? Flutterwave is a Nigerian/US payments solution that can be used across the continent. Binkabi is allowing cross-border trade to take place without using the US dollar.

3. Resolve disputes quickly and online

To encourage cross-border (including high volume, low value, business-to-consumer) trade, buyers and sellers must have confidence that any issues will be resolved in a timely and efficient manner.

Consumer ombudsmen have signed up twenty large, voluntary retailers (including supermarkets) in some European Union countries on a single platform. Once a customer inputs a case onto this platform, the retailer has to respond, otherwise it gets heavily penalized. This gives a controlled environment, with a centralized authority.

In Africa, we require functioning ombudsmen in the major economies where there are common retailers. How will the CFTA/BIAT address this?

4. Protect personal data

Governments in Africa must start taking data protection and encryption far more seriously. Only then can they get the private sector to do so. And not just for financial transactions – data can be worth more than the money.

5. Protect intellectual property

The capacity for evaluating and protecting intellectual property varies vastly across the continent. It needs to be in place in order to improve the quality, relevance and timeliness of research and development on the ground.

6. Have affordable, reliable Internet access

“The ability for businesses and consumers to use the Internet requires an enabling environment – a set of laws and institutions that support the process of buying, paying, and delivering digital [and physical] products”, hence the points above. Robust Internet and communications technology is the infrastructure to enable e-commerce, which will in turn bolster cross-border trade.

7. Selectively use blockchain

Nuts don’t require sledgehammers.

It is, understandably, tempting to use technology that can combat corruption, even at a price. However, scalability, latency, lack of mainstream understanding, resistance (deliberate or otherwise) by some sectors to rely exclusively on data in digital form, outdated legacy systems (which may not always be the case in Africa), lack of national/cross-border regulation (which may appear counter-intuitive, but is it being discussed by CFTA/BIAT?), standardisation, interoperability, accountability, legality of smart contracts, privacy/security, and competition/anti-trust are all open challenges. Private distributed ledgers could help, but the cost-effectiveness still needs to be evaluated.

8. Cede national pride for the benefit of the continent

CFTA has to be phased in if it is to work. Competition will, like IP and e-commerce, only “be part of the second phase of CFTA negotiations – expected to be launched after the conclusion of negotiations on goods and services”. However, it is one of the causes for any regional trade agreement to unravel. Still, African governments that are ready to stop hanging onto old, territorial ways of doing business and share the cake (or kola nut or other equivalent) may be pleasantly surprised at the results.

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Africa’s CFTA trade accord holds promise in spite of barriers

Global trade is unravelling. Most recently, the World Trade Organisation biennial trade talks ended with no new agreements, with the WTO calling on members to do some “soul searching”. But amid the doom and gloom, Africa is proving to be one of the arenas for moving regional trade negotiations forward. During recent trade talks in Niger, African governments made a critical step towards creating one of the world’s largest trading areas.

A draft agreement to establish the Continental Free Trade Agreement (CFTA) was reached in Niger this month, meaning it is now awaiting adoption at a summit of the African Union in March next year. Covering a market of 1.2bn people and a combined GDP of $2.2tn, the CFTA holds considerable potential. With the continent’s economy expected to grow to $29tn by 2050, the CFTA may evolve to cover a market that is larger than Nafta today.

Notably, this new accord comes at a time when other mega-regional trade agreements are stalling. President Donald Trump’s decision to withdraw from the Trans-Pacific Partnership sent member states back to the negotiating table. At the same time, negotiators from Canada, the United States and Mexico continue to hit walls in Nafta negotiations.

Now, however, there is hope on the horizon. Africa’s ambitious trade deal covers 90 per cent of goods traded within the continent, with the remaining 10 per cent of sensitive items and excluded products to be reviewed and phased-in. It goes beyond traditional trade agreements in mere goods. Through the agreement, services too are to be progressively liberalised.

This is to be supported by a mechanism for addressing Africa’s prevalent non-tariff barriers, like border delays, burdensome customs and inspection procedures. In its next phase, negotiations will begin on competition policy, intellectual property rights and possibly also e-commerce. When trade grows, markets open and economies begin to diversify. Intra-African trade is especially valuable, comprising a large share of value-added and industrial products like processed agricultural goods, basic produce, and financial and retail services. It is also different from the trade goods that flow from Africa to the rest of the world, which are mostly crops, mineral products, metals and oil.

The CFTA will revolutionise the way Africa trades. Moving away from commodity-driven exports will help to secure a more sustainable and inclusive trade that is less dependent on the fluctuations of commodity prices. This will be of particular benefit to Africa’s small and medium-sized enterprises, which support 90 per cent of jobs, and which are better positioned to tap into regional destinations than markets overseas.

An enlarged regional market also provides better incentives both for inward foreign direct investment and for cross-border investment from within the continent. Most African markets are small and fragmented, but through integration we can create the scale necessary for industrial investments. Cumulatively, these benefits from the agreement will contribute to several Sustainable Development Goals (SDG) — from targets for decent work and economic growth to food security.

However, of utmost importance is furthering the SDG of keeping the pledge that “no one will be left behind . . . starting with the furthest behind first”. So, there is much to celebrate with the conclusion of the CFTA negotiations, but this is just the first step.

Matching ambition with implementation is now the challenge, as outlined in a new joint report by the Economic Commission for Africa, the African Union Commission and the African Development Bank on ‘Bringing the CFTA About’.

Implementing the CFTA requires an astute appreciation of the political economy of integration in Africa. It will involve tackling vested interests that benefit from the status quo and making difficult decisions over import taxes and trade openness. The Boosting Intra-African Trade Action plan will guide leaders to make these decisions.

It will address issues such as trade policy, capacity, infrastructure, and finance — tackling head-on elements which can quickly derail any agreement. What is required is the continued commitment of Africa’s leaders, and engagement from the private sector and civil society to power a new era of innovation, trade and investment steered by its vibrant youth population. Together, we can shape a better future for Africa.

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Africa Finance Corporation secures term loan

Africa Finance Corporation (AFC) has signed a US$200mn three-year term loan facility, to be used for general corporate purposes, including facilitating trade.

Mandated lead arrangers and bookrunners on the facility were First Abu Dhabi Bank, Industrial and Commercial Bank of China, Rand Merchant Bank and Mitsubishi UFJ Financial Group. KfW Ipex-Bank joined as arranger.

Norton Rose Fulbright and Jackson Etti & Edu acted as lenders’ counsel, with White & Case as borrower’s counsel.

According to Banji Fehintola, director and head of treasury and financial institutions at AFC, the facility will support the execution of the corporation’s infrastructure development mandate and provide it with the necessary capital resources required to continue bridging Africa’s infrastructure deficit and facilitating international trade on the continent.

“The successful closure of this facility, which was oversubscribed, attests to AFC’s strong credit profile and robust governance procedures, making AFC very attractive to global lenders and investors,” says Fehintola.

To date, AFC has invested approximately US$4bn in infrastructure projects, including power, transport, and telecommunications, within 28 countries across North, East, West and Southern Africa.

With a current balance sheet size of approximately US$3.5bn, AFC is the second-highest investment-grade-rated multilateral financial institution in Africa with an A3/P2 (stable outlook) rating from Moody’s.

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African Development Bank to pump in $77 million to link Cameroon and Chad

The African Development Bank (AfDB) will disburse €66 million (more than $77 million) for the construction of a bridge linking Cameroon and Chad. This was announced by AfDB on Monday, December 11, 2017.

The 620m bridge which will link Yagoua (Cameroon) and Bongor (Chad) will be built over a period of 4 years. It will built across the Logone River which is a natural border between the two countries.

This infrastructure will help boost trade between the two central African countries. “Besides its direct impacts on users and residents of the neighboring villages, the bridge should unlock the economic potentials in agriculture, timber and mineral sectors, in northern Cameroon and in the southwestern region of Chad“, Ousmane Doré, AfDB’s Director General for Central Africa Regional Development and Business Delivery Office, said.

This disbursement follows the conclusion of a co-funding agreement signed by the pan-African institution and the European Union in March 2017. The agreement should allow the construction of many cross-border infrastructures in order to boost economic integration in the region.

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Landmark agreement for African trade

Over the past decade Africa has been one of the world’s fastest growing economic regions. Starting from a low base, GDP across the continent expanded by 79% between 2006-17. Trade, chiefly commodity exports, powered a large share of this growth. But while trade has been important, it has mainly been conducted with economies outside the continent.

Overall African trade grew to $732bn in 2016 from $556bn in 2006. But intra-African trade contributed only $57bn of this increase. In absolute terms, African countries traded almost twice as much with the European Union as they did with each other in 2016.

This defies one of the principles of trade economics: that proximity matters. Underdeveloped infrastructure, as well as suboptimal trade routes that favour connectivity with former colonial powers, hinder intra-African exchange. Corruption, bureaucracy and poor governance are further barriers, while a lack of diversification limits the scope for trade given the similarity of goods produced in African economies.

To encourage greater volumes of intra-African trade, the continent’s leaders are working towards establishing the landmark Continental Free Trade Area involving all 54 countries in the region, comprising a population of more than 1.2bn people and a combined GDP of more than $3tn. The CFTA, conceived at a 2015 African Union summit in Egypt, was expected to be completed by the end of 2017. This is no longer realistic, but trade talks are making progress, unlike in the WTO. Negotiators have largely agreed on terms covering services trade, and are expected to sign the full agreement in March 2018.

The potential for the agreement to support the continent’s development is huge. According to forecasts from the United Nations Economic Commission for Africa, the CFTA has the potential to increase intercontinental trade by an additional 52% by 2022 from 2010. Trade in industrial goods is expected to see the largest boost, expanding by a further 53% over the same period. The agreement is expected, too, to improve African economies’ negotiating power in forging extracontinental trade deals. Up to now, when individual African countries have tried to establish bilateral trade deals, their small economic size has limited their negotiating power.

While reducing tariffs and setting common objectives are welcome improvements, removing trade barriers is an arduous task requiring persistent effort. Policy-makers should endeavour to improve the continent’s infrastructure, develop common standards for goods, and disincentivise governments from reverting to protectionism to benefit from tariff revenues.

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