In March of 2018, Africa witnessed the signing of the African Continental Free Trade Area (AfCFTA). The historic moment represented the dawn of possibilities as it gave birth to the world’s largest new free trade area since the establishment of the World Trade Organisation in 1994.
The AfCFTA allows enterprises to trade more value-added goods and services more freely throughout the continent, driving industrialisation.
The World Bank estimates that the AfCFTA will by 2040 lift 30 million out of extreme poverty and substantially increase the income of 68 million people who are just above the poverty line.
The United Nations Economic Commission for Africa envisions the AfCFTA boosting intra-African trade in goods and services by up to 25 percent by 2040. This figure takes a significant importance given the evidence that Africa trades with the rest of the world and not with itself. Intra-African trade is currently below 20 percent.
The challenges
The African manufacturing sector is projected to more than double to $1 trillion by 2025, a significant growth by any measure. However, the continent’s labour force continues to be largely low skilled as trade is marked by unprocessed agricultural and natural resource produce.
The AfCFTA provides the opportunity for Africa to develop its manufacturing and industrial sector and improve the global competitiveness of the continent.
The need for a fundamental shift in the structure of our economies is urgent and long overdue as manufacturing must account for the greater share of domestic investment.
Exporting raw materials
The AfCFTA will not realise its full potential if its members continue to export raw materials and import finished goods and products from global manufactures in Asia, Europe and the Americas.
The fourth industrial revolution provides an opportunity for Africa to improve its efficiency and productivity.
The technological innovation that comes with the fourth industrial revolution will lead to outstanding transformation in manufacturing, with long-term benefits in efficiency and production. Transportation and communication costs will fall, logistics and global supply chains will become more efficient and trade costs will fall, opening up new markets, creating jobs and driving economic growth.
Industrialisation that can sustainably generate sufficient outputs to satisfy both domestic and export markets and create jobs for the continents huge unemployed youth population must therefore be anchored on well-coordinated and thought-out policy interventions.
A good starting point is the need for development and implementation of national industrial policies that stimulate investment flows to sectors that are both competitive and labour-intensive. The establishment of special economic zones in some African countries like Kenya, Nigeria, Egypt and Ethiopia has been seen as a big incentive to investors. Albeit they need to be well structured for purpose.
Attracting investment
While our leaders have made it clear that Africa wants trade and not aid, it is important to put in place policies that will make it easy and affordable to do business and attract investors who want to set up factories on the continent.
Furthermore, strategic investment in the right infrastructure is a prerequisite to industrialisation. We need investment in the right infrastructure.
Access to affordable and reliable electricity forms the basis of an industrialised economy. Transport and connectivity on the continent is an important linchpin.
Industrialisation will increase demand for different modes of transport, including maritime transport. It is, therefore, critical and urgent to finance adequate transport infrastructure. This is an area we cannot leapfrog; we must simply build it from the ground up.
Last, modernisation of agri-systems and value addition will ensure better foreign exchange inflows as well as food security for the continent’s population. Agriculture done right will move millions of Africans from poverty.
Modernisation of agriculture must, however, be guided by an acknowledgment of the prevailing climate change pressures.
As we shift focus to Niamey, Niger, where African leaders converged on November 25 for a special African Union summit on industrialisation and economic diversification, many young people are hopeful and following closely the outcomes of the summit that has the potential to transform our continent.
The writer is director for East Africa and the AU at ONE Campaign
