New trade deal could transform Africa's agricultural value chains
The long-awaited implementation of the African Continental Free Trade Area (AfCFTA), slated for January 2021, could transform agricultural value chains, agri-business, employment, and food security in the region, according to a new report from the Malabo Montpelier Panel. The free trade area could add as much as USD 76 billion to global income and increase intra-African trade by more than 50 percent.
Realizing the potential of the AfCFTA, however, will require a rules-based framework, as well as technological, institutional, and policy innovations. The Malabo report, Trading Up: Policy innovations to expand food and agricultural trade in Africa, draws on the experience of three successful regional economic communities (COMESA, ECOWAS, and SADC) to help African policymakers implement the AfCFTA and increase intra-regional agricultural trade in a sustainable, effective manner.
Why does intra-regional trade matter?
Intra-African trade remains extremely low: less than 20 percent, with the majority of that trade centering in minerals and petroleum products. In addition, while more than half of Africa’s labor force is employed in agricultural value chains, food and agricultural imports cost the region approximately USD 72 billion per year, with that cost rising annually. As Africa’s population continues to grow and rapidly urbanize, there is tremendous opportunity to enhance the competitiveness of the region’s agricultural and agro-processing sectors by expanding intra-regional trade.
This expansion will also help improve food security, incomes, and overall well-being across the region. Increased intra-regional trade spurs economic growth and creates new job opportunities for the region’s burgeoning youth population. Smallholder farmers can gain greater access to local and regional markets, while consumers could see improved access to more affordable and nutritious food.
Increased trade of any kind does bring with it certain risks, however. These include environmental degradation and dependencies on trading partners. Any plan to boost trade needs to address these risks in order to realize the benefits without exposing countries to new or unexpected shocks.
Recommendations for the AfCFTA
Luckily, according to the Malabo report, the experiences of Africa’s RECs provide clear actions to help address the risks and reap the benefits of enhanced intra-regional trade. These can be broken down into six broad recommendations.
- Support traders with increased information and data. To have effective, mutually beneficial relationships, trading partners and governments need access to quality information from both sides of the border. This includes information on trade scale, product quality, trade flow patterns, and prices for both formal and informal cross-border trade. Providing improved training and access to resources to help producers and traders meet international food quality and safety standards is also key, as is designing gender-sensitive infrastructure and programs to build capacity for women traders.
- Lower tariff and non-tariff barriers. High tariffs continue to pose a problem for intra-regional trade in Africa, as do non-tariff barriers like quotas, complicated customs processes, subsidies, and sanitary and phytosanitary regulations. Efforts to reduce these barriers by lowering tariffs and coordinating quality and sanitary / phytosanitary requirements across countries, and improving communication (particularly through the use of ICTs) around customs measures and other logistical requirements could lead to more efficient trade.
- Optimize infrastructure. Trade obviously involves the physical movement of goods, which requires functioning transport infrastructure like roads, ports, and vehicles. However, modern trading systems also rely on other types of infrastructure: energy, telecommunications, and other logistical infrastructure, as well as the regulatory/institutional structures and processes that support all of these factors. Governments play a key role in maintaining and enhancing all of these infrastructure systems. However, private sector actors should also be brought in to provide financial resources, training and education, and technological and logistical innovations.
- Focus on aligning priorities across borders. Many African countries and regional blocs have existing = National Agricultural Investment Plans (NAIPS) and Regional Agricultural Investment Plans (RAIPS). By better aligning the priorities laid out in these plans, policymakers can realize the benefits of increased intra-regional trade while mitigating the potential risks.
- Prioritize value chain upgrades to enhance competitiveness. Boosting trade means boosting supplies of agricultural and food products, as well as food processing capacities. Investing in value chain upgrades can improve both the quantity and quality of food available for trade, making regional value chains more competitive with imported food goods. However, the report highlights that any efforts to improve competitiveness should also include opportunities for education and training and for the protection of workers’ rights.
- Coordinate crisis prevention and response. National and regional crises can disrupt trade. Thus, a coordinated effort is needed among countries in the region to strengthen resilience to shocks, including extreme weather events, conflict, economic shocks, and food crises. Regional taskforces can play a key role in formulating and instituting joint policy responses, as well as in increasing response capacity and providing the human and financial resources needed to keep trade flowing in the face of a crisis.
Overall, the implementation of the AfCFTA presents a tremendous opportunity for Africa to create jobs, reduce import bills, improve food security, and strengthen resilience. Whether these benefits materialize depends largely on the political will and coordination shown by member governments in the coming months.