THE BLOG
03/05/2018 12:07 SAST | Updated 03/05/2018 12:07 SAST

Africa’s Institutions Need To Be Developed

Africa’s ambition has not matched that of other advanced nations.

Antony Njuguna/ Reuters Photographer/ Reuters

A few remarks on the recently signed African Continental Free Trade Agreement:

On March 21, 2018, 44 member states of the African Union [AU] signed African Continental Free Trade Agreement (CFTA) during an extraordinary summit of the AU in Kigali, Rwanda. The CFTA is arguably one of the world's largest free-trade blocs (by number of member states), and there are a number of reasons to be excited about this development.

Noteworthy is to outline that CFTA will only be legally binding once it is ratified by at least 22 signatories. It is very impressive to think that the official engagements started in 2002, for the signing to be in 2018.

However, one of the surprises of the signing was the fact that both South Africa and Nigeria did not sign.

The CFTA is strategic, considering that from a demand perspective, the continent's market will grow to over 2-billion people by 2030. Meanwhile, from a supply-side perspective, the agricultural and agribusiness sector is expected to grow to US$1-trillion [~R12.7-trillion] in the same period, a projection that had already excluded the impact of the consolidation of the continent's market.

Moreover, the fundamental reason why private-sector participants ought to be excited in the wake of the CFTA, over and above the projected growth of the supply and demand side of the food and fibre sector, is what they call "regulatory convergence".

If under a worst-case scenario, Africa fails to capitalise on its own market growth for one reason or the other, we can draw optimism from the harmonisation of trade and investment rules. That alone provides a sufficient basis for the continent's food and fibre sector to be growth-ready, as and when market conditions and factors permit the industry to capitalise on them.

It may sound counterintuitive for one to be excited by the state of readiness of an outcome, rather than the outcome itself. But such a level of ambition becomes plausible if one has a situation where the infrastructure, institutions and systems are not sufficient to provide the initial conditions for growth to take place.

Many experts have argued that part of the reason why Africa's ambition has not matched that of other advanced nations is its reluctance to negotiate third-generation issues such as trade in services.

At this stage, it is the preconditions that matter the most, rather than prematurely induced trade growth — which in all likelihood, will lead to inequitable growth. Perhaps for now, Africa needs to make every effort to negotiate and strengthen its own "rules". Africa's institutions need to be developed and strengthened in order to get the best out of the CFTA (which is rules-based).

At least this part of the debate speaks to a broader global trend of multilateral trade agreements, which are based on "rules". Many experts have argued that part of the reason why Africa's ambition has not matched that of other advanced nations is its reluctance to negotiate third-generation issues such as trade in services.

South Africa's Minister of Trade and Industry Dr Rob Davies had noted that the continent is simply not ready to start opening up markets — especially on the new-generation agenda — because the extent of their impacts on the smaller economies is yet to be fully understood. While that fear is well placed, the CFTA should lay the groundwork for a work programme that will begin to explore those new-generation issues with respect to rules.

The irony of the CFTA is that it comes to fruition at a time when the continent is still facing some fundamental challenges among its own regional economic communities (RECs) — which include the East African Community (EAC), the Southern African Development Community (SADC) and the Common Market for Eastern Southern Africa (COMESA).

Some of the issues — such as rules of origin — will be resolved contemporaneously, as countries negotiate the CFTA. The agreement could be seen as the server, if some of these pertinent issues are addressed in the CFTA text.

Kapuya (@TinasheKapuya), Sihlobo (@WandileSihlobo) and Nyhodo (@nyhodo1) are agricultural economists.