Africa’s debt-laden economies bore the brunt of the global economic fallout from the pandemic, while the continent grappled with its first recession in twenty-five years. Sub-Saharan Africa’s pleas for debt relief were met with scepticism by richer nations, as 30m people on the continent slid into extreme poverty last year.
Yet as richer economies retreat into isolationism, they have failed to coordinate a collective response to the pandemic that considers the needs of poorer nations with less advanced healthcare systems.
Public debt in sub-Saharan Africa has ballooned to 66% of gross domestic product, while debt service payments average 32% of annual revenue, IMF data from 2020 indicates.
But there are reasons to be more optimistic in 2021 and beyond.
Firstly, the birth of the African Continental Free Trade Area (AfCFTA) was a timely reminder of where the continent’s priorities lie. Secondly, the drive for greater sustainability – turbocharged by the pandemic – gives Africa a chance to redefine sustainability in an African context and turn it into a competitive advantage.
The AfCFTA- A New Dawn?
Against a backdrop of a record GDP per capita contraction, the continent is feeling the pinch of dwindling export revenues and declining foreign direct investment (FDI). Uncertainty and economic tremors are heightening investor anxiety, who faced with the fight or flight option, have fled with $700bn from developing countries.
Multinationals have reduced, delayed or in some cases cancelled investment into Africa altogether, instead preferring to invest into safer ‘home’ markets.
Africa’s risk profile is in part shaped by the terms dictated by the global north. Though the AfCFTA may not achieve complete emancipation, it gives Africa more influence over its economic ambitions.
Only Africa can realise the substantial opportunities the AfCFTA offers, such as creating homegrown investment, domestic economic expansion, and jobs for its young, ambitious and entrepreneurial populations.
As other countries turn inward, trade over the next decade and a half will boost Africa’s income by $450bn and contribute $76bn to the world economy, underlining its importance to the global trade agenda.
At a bare minimum, better cohesion among Africa’s 55 countries is imperative to driving sustained growth, while leveraging the full potential of a region with a combined GDP of $3.4trn can be a powerful accelerator.
At present, only around 16.6% of goods traded by African countries remain on the continent’s shores.
The AfCFTA will stimulate progress towards a continental customs union, eliminating 90% of trade barriers, facilitating free movement, easing access to markets and trimming red tape, to boost intra-African trade by 50%.
Effective execution of the agreement will lift an estimated 30 million on the continent out of extreme poverty, as well as develop more supportive, sustainable social systems.
As Covid-19 exposes the fragilities of women’s economic positions across the continent, the AfCFTA will bolster their financial independence. Beyond that, the continent’s burgeoning aspirational youth, increasingly disenfranchised by earning a livelihood in the rural, primary sector will be afforded more opportunities as production and trade benefit from a more efficient value chain.
One of the largest impacts the AfCFTA can imprint on the continent is realising greater value from its wealth of natural resources. Despite having 60% of the world’s uncultivated arable land, Africa is a net food importer, just as the world’s tenth largest oil producer, Nigeria, relies on other countries for its fuel.
Raw materials account for the majority of exports with around 70% of value addition happening off African shores. Technological development, demographic shifts and changing lifestyle trends all support this movement.
As the continent works towards successful implementation of the AfCFTA, it should build an inclusive continental economy on existing foundations, that lifts up small and medium-sized enterprises (SMEs).
SMEs account for an estimated 80% of all businesses and even more job opportunities across the continent, making them vital to empowering marginalised members of the community.
The importance of SME success has been highlighted by initiatives led by the likes of the AfDB and Afrexim Bank, to strengthen the implementation framework in their favour. Their efforts will be supported by the first woman and African at the helm of the World Trade Organisation, Dr Ngozi Okonjo-Iweala.
Sustainability – an opportunity within AfCFTA?
Sustainability brings with it commercial advantage, allowing SMEs to be more competitive at home and abroad. However, sustainability in the African business context is largely misunderstood, both domestically and overseas, and often imposed ‘top down‘ as a cost of doing business with big corporates or multinationals.
However, Covid has accelerated the relevance of sustainability to all businesses, big and small, foreign, and domestic.
The importance of governance, environmental impact and relationships with consumers, staff and local communities have all been highlighted by the pandemic.
Paralysed global supply chains further highlighted the value of onshoring, or having local suppliers. When combined with the opportunities the AfCFTA brings, now is a unique moment for African SMEs to redefine what sustainability means to them and then go after it, increasing their competitiveness and market share.
This is not about protectionism or barriers, but the opposite. At a time when global institutions are looking increasingly insular and regional trading blocs are failing to function, the AfCFTA is an opportunity for Africa to lead the global trade agenda.
African countries must not allow it to be dictated by multinationals whose shareholders usually reside outside the continent. It must be their own success story: an African solution to the global challenge of sustainability.
William Pollen is the director of Invest in Africa, a non-profit with the vision to create prospering African economies.