What does AfCFTA Look Like Through the Prism of a Global Pandemic?

Exports within Africa make up less than 20% of the continent’s total exports, and this low figure of intra-continental trade has been a principal driver in favour of the continent’s bold integrationist initiative, the African Continental Free Trade Agreement (AfCFTA). Fitting snugly into Africa’s 2063 transformation agenda, implementation of AfCFTA is estimated to bring about increases in regional trade by a third when the deal is in full swing.[1]

Pre-Covid 19, phase 1 of the framework agreement, which focuses on trade in goods and services, was planned to take effect from 1st July 2020, while phase 2 negotiations covering investment, competition and intellectual property, are to be completed by January 2021. But peering through the prism of this new world order, we’ve taken a moment to ponder the impact of the corona virus on AfCFTA. 

Start date push back. South Africa’s Wamkele Mene was sworn in as AfCFTA’s first secretary general in March 2020 but just shortly after inauguration, the continent and Mene went on lockdown and into survival mode: “It would be unreasonable for any government to direct resources to meet the deadline…my view now is that the focus should be on saving lives[2]”. Meanwhile, Stephen Karingi, Director of Trade at the UN Economic Commission for Africa said that “there is definitely going to be a delay to the 1st July start date[3]” but what exactly this will look like in terms of timing, we’re not yet clear on.

Balancing national & continental priorities. At the last count, the UN reduced its growth projection for the continent from 3.2% to 1.8% for the year. Covid-19 is clearly putting pressure on African economies so there is likely to be a delicate balancing act to ensure national priorities don’t conflict with continental ones. For instance, Nigeria has cut its oil revenue target for this year (USD7 billion) by about 90%, in light of oil prices hovering at USD20 per barrel. This is staggering, given that about 60% of the nation’s revenue comes from oil[4]. In spite of this significant dent in public coffers, the Central Bank has said that it is earmarking USD63m for loans to SMEs (and households) affected by the outbreak. This is precisely the type of government support that SMEs need in order to survive Covid-19 and also take advantage of the incremental lowering of tariffs – currently at 6.1% for intra-African trade - over a 5-10 year period [5].

Impetus to Innovate: They say that necessity is the mother of all invention and at this time of staying indoors, ideas are being birthed, for both the present and the post-Covid era. Deputy Executive Director of the AfCFTA Policy Network, Emmanuel K Bensah shares that “AfCFTA is still on the minds of a lot of people, they want it to happen” and that from his vantage point, AfCFTA presents “an opportunity for countries to do things on their own. They can become more innovative”. Indeed, we’re seeing innovations which connect with our wellness, especially in healthcare, come to the fore. In South Africa, Denel and Defy are among large local manufacturers partnering the government on the latter’s National Ventilator Project to locally produce 10,000 ventilators by the end of June. In March, spirit manufacturers in Uganda planned to begin producing hand sanitizers from their ethanol supply—encouraged by government promises of tax incentives. And similarly in Ghana, Maudo Jallow at the Tony Blair Institute shares how government contracts are being awarded to local manufacturers of personal, protective equipment (PPE). 

Short term financing constraints: Incremental tariff liberalization is a central feature of the AfCFTA deal as African governments aim to boost regional trade and raise the competitiveness of local goods. However, achieving those aims depends on reducing the costs of producing and distributing goods in Africa, and improving infrastructure is essential for lowering these costs for businesses. Even so, Covid-19 mitigation may constrain infrastructural financing in the near term. Angola for instance suspended all capital spending in March pending a budget revision. Angolan Finance Minister Vera Daves de Sousa said a -1.21% GDP contraction is expected this year. Precedent tells us that during uncertain times, investors also do become more risk-averse about project bankability. For instance, in the post-2008 financial crisis some government-funded and PPP projects in countries like Uganda were set back due to the squeeze.[6]

Opportunity for the most resilient companies during Covid Yet, for fund managers who take a longer-term view, Covid has only put the brakes on temporarily. One fund manager currently in Belgium but who normally operates from Cote d’Ivoire shared with us how as soon as the restrictions are lifted he'll be back to Abidjan to work on deals. But for the meantime, no decisions on new deals can be taken because of the fact that full-scale due diligence (including site visits) cannot be carried out. But certainly, opportunities which show themselves to be robust even in the face of Covid – among them, healthcare, digital finance, e-commerce, creative industries, agri-processing - will certainly be sectors and companies to watch, in the AfCFTA era.

[1]https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2128

[2]https://www.politico.eu/article/coronavirus-scuppers-africa-mega-trade-deal/

[3]https://www.politico.eu/article/coronavirus-scuppers-africa-mega-trade-deal/

[4]https://nairametrics.com/2020/04/16/see-5-signs-indicating-that-nigeria-is-heading-for-a-recession/

[5]https://www.un.org/ldcportal/afcfta-what-is-expected-of-ldcs-in-terms-of-trade-liberalisation-by-trudi-hartzenberg/

[6]https://www.sciencedirect.com/science/article/pii/S1879933710000035