How AfCFTA will curb poverty in Africa – Oyewole

Dr Babafemi Oyewole, the Managing Director/CEO, African Agribusiness Alliance, in this interview with EHIME ALEX, looks at how AfCFTA is aiding Africa’s agribusiness sector amid lots of concerns

The African Continental Free Trade Area agreement officially began on January 1, 2021. What have you observed?

The AfCFTA is outlined in the African Continental Free Trade Agreement, with trade commencing on January 1, 2021. AfCFTA is the largest in the world in terms of participating countries since the formation of the World Trade Organisation. The agreement was brokered by the African Union and was signed in Kigali, Rwanda, on March 21, 2018. AU member states have continued to show interest in this continental project and, to date, the agreement has been signed by 54 out of 55 member states. There has been a lot of progress since the agreement moved from conception to implementation of a trade area. The organisational structures and operational instruments have been put in place with the nomination of the chief executive officer and other principal officers and the formal opening of the headquarters in Accra, Ghana. The management of AfCFTA has swung into action, reaching out to regional and international partner organisations, as well as sensitising stakeholders about the objectives of the organisation. For example, the secretariat partnered with Future Investment Institute to launch an initiative that will eradicate illicitly traded products from AfCFTA countries, and the cooperation should help countries to reduce disruptive structures that deprive governments revenues through their operations in the informal economies. They are also introducing some initiatives such as the creation of the continental tool/mechanism for monitoring, reporting and elimination of non-tariff barriers to increase the volume of cross-border trade among African countries. These and other initiatives by the secretariat of AfCFTA are laudable. One only hopes that the momentum would be sustained, and African governments will continue to support the agreement for the economic transformation of the continent. As noted by the Acting Head of Africa, World Economic Forum, Chido Munyati, “The AfCFTA can serve as a framework for the region’s economic recovery from the pandemic. Implementing the AfCFTA will help usher in the kinds of reforms necessary for long-term growth, reduce poverty, and broaden economic inclusion.” If well implemented, AfCFTA holds a lot of opportunities for Africa’s socio-economic development.

 

The AfCFTA main objective is to create a single continental market for goods and services with free movement of people and investments. What do you see as a major concern for the agribusiness sector?

Development of regional markets, infrastructure, payment instruments and regulatory frameworks that will facilitate a competitive agribusiness market and trade is necessary, if the sector is going to benefit from AfCFTA. There is also need to develop mechanisms for standardisation of agribusiness products and services, to guarantee high quality products and services that will meet international standards that will make African agribusiness products and services effectively compete, not only with African markets but also at the international market. Further, trade policies to enhance cross-border trade in agribusiness must be promoted by AfCFTA. These are the issues that I see as major concerns for the agribusiness sector and which must be vigorously addressed by the AfCFTA secretariat to promote cross-border trade in agribusiness products and services, thereby encouraging the flow of investment capital into development agribusiness value chains and agribusiness trade.

 

The issues of high cost of doing business, occasioned by poor infrastructure, poor power supply and concerns relating to poor standards of local and exportable produce, play a major role in influencing investments and outputs in the agriculture sector. How should the continent leverage AfCFTA in solving some of these problems?

The cost of doing business in Africa is an issue that has made African agribusiness products uncompetitive in local and international markets. Poor infrastructure, especially power, tariff, and non-tariff barriers, etc., have significantly contributed to the high cost of doing business in Africa. They also have direct impact on the value addition carried out on agricultural products in the continent as well as the quality of products and services. This problem is very critical, and it cuts across almost all countries except South Africa and countries in North Africa with more developed infrastructure. It is the bottlenecks caused by poor infrastructure and other barriers that do not allow small and medium enterprises to benefit from the low cost of labour in African countries. Therefore, AfCFTA needs to do a lot of advocacy for the improvement of infrastructure and operating environment to achieve its objectives and make the desired impact on intra-African agribusiness. A continent-wide market will require a conscious effort to reduce all trade costs. In general, this will require legislation and regulations to enable the free flow of goods, capital and information across borders; create competitive business environments that can boost productivity and investment; and promote increased foreign competition and foreign direct investment that can increase productivity and innovation by domestic enterprises.

 

Every sector needs to attract local and international private investors to engage in value addition to promote economic development. What has been happening in the agribusiness sector since AfCFTA began?

AfCFTA has just started, and they (implementers) have a lot of issues on their hands to address. Generally, when the issue of enabling environment for trade within countries in Africa is tackled through the enactment of appropriate regional trade policies and guidelines that would be facilitated by AfCFTA. This will be an incentive to local and international private investors to engage in value addition along the agribusiness value chains, thereby attracting investment funds to develop products and services, generate employment and incomes that will support economic growth. According to the World Bank, it is estimated that AfCFTA implementation will increase the volume of intra-African trade by 81 per cent by 2035 and increase the volume of total African exports by 29 per cent. By boosting intra-African trade and fostering regional value chains and production networks, AfCFTA is expected to drive Africa’s structural transformation. Implementing the AfCFTA could increase wages by 10 per cent, with larger gains for unskilled workers and women. Freer trade under the AfCFTA is also expected to address gender inequality in Africa by increasing employment opportunities for women and helping to lower the gender wage gap on the continent. Given this potential, AfCFTA is being touted as Africa’s stimulus package to address the recurrent economic shocks on African economies. The agribusiness sector in some countries is preparing to take advantage of the expected opportunities of AfCFTA implementation. In Nigeria, for example, the government has been supporting agribusiness in various ways, not only to produce enough food for the teeming population but to position Nigeria to be the agribusiness hub for the export of processed agricultural products and services to the rest of the continent.

 

We understand there are challenges facing AfCFTA, but what should the agribusiness sector be doing to navigate the troubled waters?

The implementation of AfCFTA will, no doubt, face challenges in promoting intra-African trade in agribusiness, given Africa’s poor road and rail links, political unrest, excessive border bureaucracy and petty corruption will not disappear overnight. Other challenges include the need to prepare an annex to the deal outlining the rules of origin – an essential step for determining which products can be subject to tariffs and duties – which has not been completed yet. Meanwhile, 41 of the 54 member states have submitted tariff reduction schedules. Members must phase out 90 per cent of tariff lines – over five years for more advanced economies or 10 years for less developed nations. Finalising those schedules and communicating them to businesses must be done quickly. These are necessary instruments that will facilitate the achievement of the objectives of AfCFTA. The agribusiness sector is adopting an advocacy strategy to draw the attention of relevant public and private sector authorities on the need to promote cross-border trade in agribusiness to enhance intra-Africa trade in agribusiness products and services. The African Agribusiness Alliance is promoting a globally competitive African agribusiness through investment facilitation, business development, access to finance and policy advocacy. The alliance believes that with a conducive enabling policy, infrastructure and business environment, private agribusiness organisations would be able to fully exploit the enormous opportunities for investment along the value chains and, thereby, create employment for youths, save the huge foreign exchange spent on food imports and contribute to economic development of African countries.

 

Would you like to expatiate on the last question, looking at how investors can further explore opportunities provided by AfCFTA?

The objective of AfCFTA is to create a single market for goods and services to increase trade among African countries. As the implementation of AfCFTA enhances intra-African trade, it will promote an enlarged market and consumers of agribusiness products and services. This will be an incentive for the private sector economic operators to invest or expand existing facilities to accommodate the enhanced demand for their products and services. It will cover a Gross Domestic Product of $2.5tn and create economies of scale that could enable agribusiness enterprises to reduce their cost of operations and become competitive in both the local and international markets. AfCFTA will boost intra-African trade by 53 per cent once import duties and non-tariff barriers are eliminated and diversify intra-African trade, as it would encourage more industrial goods as opposed to extractive goods and natural resources that are the bulk of African export products. It is estimated that AfCFTA will enable the manufacturing sector to double in size from $500bn in 2015 to $1tn in 2025, creating 14 million jobs. Moreover, the elimination of import duties will open up trading activities to small businesses in the regional markets. Small and medium scale businesses make up to 80 per cent of Africa’s businesses. Increased intra-African trade will also facilitate small business products to be traded as inputs for larger enterprises in the region, thereby fostering forward and backward integration of business activities. The AfCFTA regional market is a major opportunity to help African countries diversify their exports, accelerate growth and attract foreign direct investment.

 

The business of agriculture requires strategic attention. What is your view as regards AfCFTA smoothly facilitating intra-African agric trade?

There are a lot of issues militating against intra-African trade and discouraging agricultural trade among African nations. Tariffs is one of them which AfCFTA is seeking to achieve. State parties will progressively eliminate import duties and apply preferential tariffs to imports from other state parties. If state parties are part of regional trade arrangements that are already in place, state parties must maintain and improve on them. Non-tariff barriers are also formidable stumbling blocks to intra-Africa agriculture and agribusiness, which AfCFTA is established to address. AfCFTA also provides a regional dispute settlement mechanism that would smoothly facilitate intra-African agricultural trade, as it will offer mediated consultations between disputed parties, though this mechanism is only available to state parties and not private enterprises. Creating a continent-wide market will require a determined effort to reduce all trade costs. Governments will also need to design policies to increase the readiness of their workforces to take advantage of new opportunities.

In conclusion, the establishment of the AfCFTA is a key milestone for Africa’s continental trade system. The size of the trade area presents promising economic development and sustainable growth that will positively impact all market sectors and participants. The agribusiness sector will benefit from expanded markets, elimination of tariffs, lower cost of operations as the business environment improves and ultimately contribute to wealth creation for the citizens. As observed by the World Bank, AfCFTA presents a major opportunity for African countries to bring 30 million people out of poverty and to raise the incomes of 68 million others, who live on less than $5.50 per day. The African Agribusiness Alliance will support AfCFTA to achieve its vision of promoting a globally competitive, sustainable and inclusive African agribusiness that will enhance intra-Africa trade in agribusiness.

Ehime Alex
Ehime Alex
Ehime Alex reports the Capital Market, Energy, and ICT. He is a skilled webmaster and digital media enthusiast.

Get in Touch

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Related Articles