Categories
Finance & Services Trade & Investment

‘AfCFTA gives Africa power to change terms of trade’

The International Trade Centre (ITC) is one of the most effective institutions in helping countries, and more particularly micro, small and medium-sized enterprises (MSMEs) become globally competitive. It does so by identifying the comparative and/or competitive advantages of these local businesses and building their productive capacity to integrate global value chains.  

Pamela Coke-Hamilton became executive director of ITC last October after a long career at UNCTAD and at the Caribbean Export Development Agency, where she was tasked with strengthening the private sector and MSMEs through investment promotion. She has been living and breathing trade for the last decade.

Originally from Jamaica and representing the islands of the Caribbean, she understands the challenges faced by small, disparate markets. At the same time, she has seen at first hand the bargaining power presented by countries acting together as a single entity as well as the appeal of dynamic emerging markets.

There was much excitement about the launch of the African Continental Free Trade Area (AfCFTA) in January. How do you turn a document into success?

Having been involved in several free trade negotiations over the years, I see a number of key elements that are important.

The first thing always is the political will to make it happen. Second, to make any free trade area work you must also get the buy-in from the populace. I say this because a top-down approach, driven and understood by politicians and ony a few in the private sector, will not yield the desired results. But if the populace understands the vision and buys into the vision of a single African trade area, it will completely transform not only how powerful the AfCFTA can be, it will also transform the lives of the people engaged in it.

So, both government and the private sector should engage in a widespread communication campaign that sells the vision, explains it and shows its benefits for the wider public.

How do you maximise the impact of the AfCFTA?

Transformational impact will depend on five priority areas: the first is boosting productive capacity and fostering local value addition.

The second is developing a strong “Made in Africa” brand. What is important for this is, however, to establish and develop a clear criteria for rules of origin. The effective application of rules of origin will be critical to ensure that “Made in Africa” fosters brand recognition not only within AfCFTA but in export markets.

The third area is, of course, market and consumer intelligence; fostering that, making sure that access to trade and market intelligence across the entire platform of the AfCFTA is provided for entrepreneurs and also for government negotiators. It is important to understand what people want, spending habits, and the tastes and preferences of the consumer.

The fourth area is physical and digital infrastructure. One of the key elements that has come out of Covid-19 is how important it is to ensure that the digital infrastructure can actually service e-commerce and allow it to take place, and that the physical infrastructure is there – the ports, roads, airports – for these goods to move.

A fifth area is services. It is important not to overlook services. Services today represent 70% of the world economy and despite the fact that we talk about global manufacturing and productive capacity, it’s important to look at the role of services across the board, digital services, creative services, professional services, tourism, and how that can transform Africa’s engagement through the AfCFTA.

The second half of the last century was driven by Japan, South Korea, China, and export-led growth. Is this export-led model still a recipe for growth and rapid development?

I think it’s a yes and no answer. Trade will always be an important factor of any country, region or continent’s overall development. Where the AfCFTA is important is that it will leverage export-led trade internally. In other words, taking advantage of the local market, where local becomes the entire continent of Africa, which is 1.3bn people. And using that as a lever to also develop the African internal markets and ensure that there is demand there as well.

To make that happen you need to improve the ease of doing business, create an ecosystem for business that reduces red tape and the cost of doing business within the continent, ensure the construction of key infrastructure to address the supply-side constraints and lastly, invest in education and skills.

Improved education can facilitate the growth of a higher skilled labour force and boost knowledge capital. Why? Because we are now well within the fourth industrial revolution and market-led skills will be critical going forward.

One other element that is very important to consider is the AfCFTA as a continental agreement and as a continental force to leverage Africa’s ability to renegotiate the terms of engagement with multinationals.

It can now use this scale and bargaining power to change the terms of trade and to improve, and perhaps even remedy for good, the extractive model of exporting primary products and importing back finished goods. As a trade bloc, it can demand more investment in local infrastructure, in technology transfer, in ensuring that FDI contributes to building the continent rather than extracting value from it. It can demand that skills and knowledge remain within the continent.

In my view, the export-led growth is one element but there are more powerful mechanisms that need to be put in place that also take advantage of an internal African market and at the same time, re-examine the modes of engagement for investment and for overall exports.

Can you talk us through your approach to help countries integrate into global value chains?

Our main role as an institution is to help MSMEs in the developing countries to address the more salient issues and maximise the benefits of trade in a dynamic and interconnected globalised economy. We empower MSMEs to capitalise on trade opportunities.

In addition to working with MSMEs directly, we also work with policymakers to devise export strategies for specific sectors and market development strategies for particular products and services. Once the domestic support system is in place, it positions businesses for success. With improved marketing and connections with value chain operators and companies, businesses can pursue higher value-added goods and command a higher price in the international market.

It’s the difference between producing low value commodities such as cotton and cocoa to producing designer fashion and fine chocolate. An ecosystem that ensures that MSMEs can function effectively and competitively in a dynamic international market will yield tremendous benefits.

Are there any quick wins or quick fixes for productive capacity?

Productive capacity is a huge quick win for the AfCFTA. This goes back to the issue for me of renegotiating the terms of engagement with investors, in a way that Botswana has been able to do with diamonds, for example.

Is there a way for Africa to begin to renegotiate? There are several products where Africa commands the lion’s share of global production. For example, 60% of the world’s production of cobalt comes from Africa, and it is a key component of batteries in electric vehicles.

These are elements that can boost Africa’s internal capacity to increase foreign exchange earnings and increase employment, increase value addition, increase gender inclusiveness, empower youth and promote youth employment.

Is the fourth industrial revolution a double-edged sword, with jobs being replaced by machines?

In the African context, the concern around job replacement is overblown. Manufacturing currently employs less than 8% of the workforce on the continent. Also what we found is robotisation in developed countries is concentrated in a few technology-intensive sectors such as automotives, rubber, plastics, metals and electronics. So, the impact is limited in terms of labour intensive industries, textiles, light manufacturing and some agri-processing, which are the predominant industries in Africa.

There is a lot of talk about countries building resilience and shortening supply chains due to the pandemic. Is there an opportunity there for Africa?

Covid-19 has exposed weaknesses and the vulnerability in several value chains. In a sense we do see that there will be a movement to seek closer regional partners. We’ve already seen this with respect to the United States, we’ve seen this with respect to some European countries, we’ve seen it even in Asia itself, where reshoring and relocation have been observed.

All this can be beneficial for strategic export markets such as North and East Africa and this is an opportunity for increased trade and production for SME suppliers to upgrade their productive capacity. China’s strength has been its reliability and its ability to ensure continuous and consistent supply. This is important for a well functioning value chain. While near-shoring or reshoring will continue, if there is not reliable supply then it may result in simply a shift from say, China to Mexico or China to Vietnam or to another country that can guarantee supplies rather than to smaller countries that are nearer geographically.

Asia is Africa’s biggest trading partner. Do you see the growth of South-South trade continuing?

Definitely, South-South trade is going to continue to grow. It was almost 30% of global trade flows in 2019.

Even though the threat of protectionism is always there we’ve seen already how Southern countries are embracing integration and becoming part of larger economic partnership agreements such as the Regional Comprehensive Economic Partnership (RCEP). RCEP now accounts for nearly 30% of global GDP, which is incredible and powerful.

Are the terms of trade unfair to smaller economies?

If we look at the last 25 years, many developing countries and small economies have not been able to fully reap the gains from international trade.

We have an environmental crisis and a health crisis on a scale that we have not seen in a century. There have been tariff hikes, which have reduced global exports by 3% and strongly affected African countries and smaller countries across the globe. Global trade flows dropped in 2020 due to Covid-19. It’s clear that the global economy is not as resilient as we might have hoped. In 2020, 93 countries applied temporary export measures related to the pandemic and there is now a $82bn trade finance gap in Africa, dramatic drops in commodity prices and a contraction in FDI flows to the continent that could be as much as 35%.

The impact of the global economic crisis has been severe, and especially so in small economies that face serious structural weaknesses. Many small economies are at the frontlines of climate change and are also highly susceptible to external shocks..

ITC interviewed thousands of businesses across the world and we found that a higher proportion of businesses in Africa were strongly affected by Covid-19. The number was 65% for Africa as opposed to 52-55% for other countries.

The trading system has worked well for those who are already in a position to take advantage of it but it has not worked as well for those who have been vulnerable, who have been struggling and who have been trying to address their internal productive capacity, their internal debt situation, and their vulnerability to external shocks such as natural disasters

We have to find a balance that can address this inequity in the application of the rules. What is important is how do we get back to the multilateral table at the WTO and ensure that the small Pacific economies, the small African economies, and small Caribbean economies can truly be integrated into regional and global value chains in a way that respects and recognises the need for special and differential treatment responsive to the specific vulnerabilities of these small vulnerable economies? How do we create global rules that ensure a smooth and fair flow of essential goods and services during a crisis?

We already saw the ban of particular goods like ventilators that were destined for certain vulnerable countries. We saw what happened in terms of the request for the waiver on the IP for the vaccine, and the fact that even my own prime minister [Andrew Holness, prime minister of Jamaica] recently came out with a statement that the vaccine is being hoarded at the expense of poorer countries.

It needs to be rebalanced. There has to be a recognition that, as the common saying now is, we’re all in the same storm but we’re not all in the same boat. A recognition that some boats are not yachts and some will require greater assistance and attenuation of the global trade rules to address those weaknesses. Looking at a green agenda for our trading system as well and recognising that many SMEs in the Organisation of African, Caribbean and Pacific States already produce in environmental friendly ways which should be scaled up and protected by multilateral rules.

As a Jamaican, how do you see trade evolving between the Caribbean and Africa?

Actually it has already started. In December there was a very first direct flight from Nigeria to Jamaica, welcomed by our prime minister and foreign minister, which suggests that there is an opening, in addition to which in the last year and half we’ve had two presidents visit the region from Ghana and from Kenya. In 2020 Barbados set up High Commissions in both Kenya and Ghana for example.

There is clear engagement now between Africa and the Caribbean and a recognition by the Caribbean leaders that Africa is a huge potential market for the region such as in hospitality, creative and cultural industries, healthcare, education, tourism and IT enabled services. We had a large number of nurses who came from Ghana to help with the Covid situation.

South–South trade between Africa and the Caribbean is ramping up, and there is a clear commitment on both sides to enhance this export and partner diversification. If you can enter the African continental space as one single market, it definitely will empower the Caribbean to explore the market more and reap the benefits of a one Africa that I see emerging.

I think it will be a powerful thing and what we’re looking at is to also support joint development and adaptation of appropriate technologies so we harness the energies of the women and the youth. Our cultures are very similar and there is a natural rhythm and a natural engagement and a natural fit given our shared history. We’re very excited about that.