In order for Africa to reap the full benefits of the African Continental Free Trade Agreement (AfCFTA) as well as China’s Belt and Road Initiative (BRI) and the promises of the Forum on China-Africa Cooperation (FOCAC), Africans have to ensure that there is integration and innovation in the African economy.
This was the theme of my presentation at the BRI Talk Africa seminar at Tsinghua University in Beijing this past December. More than fifty African and China specialists had gathered in order to interrogate the BRI’s interaction with Africa and sought to understand what the benefits and dangers of the Initiative were to Africa. The need for an integrated and innovative economy on the African economy is critical in the global economy today. According to the African Union, by 2050 the population on the continent would have grown to over two billion people with more than a quarter of the world’s working population resident on the continent.
The possibility of reaping the demographic dividend is therefore quite real. However, even today with over a billion people in Africa, we are not reaching our potential as countries such as China, with over a billion people as well, or trading areas such as the European Union.
Data from trading economics suggest that in 2017, Africa enjoyed more or less the same gross domestic product as India at about US$2.5 trillion. On the other hand, the free trading area of the EU, with half of Africa’s population, was yielding a GDP on par with China at US$12.6 trillion. In other words, even with a billion more people, China was yielding the same demographic divided as the EU. As a result, the AU can look to the EU as an example.
Interestingly, one understands that the Chinese population is a much older one than the African and Indian populations. Hence the phasing out of the ‘one-child’ policy. While Africa and India’s populations are younger, India, at times described as a continent on its own, is a country with a strong central government. Lesson one for Africa is to get a strong AU and therefore South Africa’s upcoming chairpersonship of the continental body becomes strategic.
With all, but one, African countries participating and Eritrea soon joining, AfCFTA will be the largest trading area on the globe. It will commence on 1 July 2020 and is a flagship of the AU’s Agenda 2063. Importantly though, in order to understand this free trade area we need to be familiar with the characteristics of the Africa economy.
Based on data from the AU, eighty percent of African businesses are SMME’s while women traders are estimated to account for seventy percent percent of informal cross-border trading in Africa. According to the Trade Law Centre, eighty percent of intra-continental trade is non-agricultural goods which include minerals, fuels, oils, gas, electricity, shipping vessels, motor vehicles to carry goods, among others.
While some countries are more industrialized than others, this could be an advantage and a disadvantage. The advantage is that the other countries could concentrate on sectors such as agriculture which will provide food security for the continent. On the other hand, as certainly has even been in the case in China, some regions will be more developed than others. In China, the east of the country is relatively more developed than the west though this has been given attention in recent years. This is where integration becomes important.
Yet if the African economy wishes to develop and ensure that it reaps the full potential of AfCFTA and BRI it must develop its second and tertiary sector economies. In other words, to state the obvious, we must move away from exporting primary goods and unprocessed materials, especially raw materials. For example, tertiary sectors such as the services remain low in Africa, according to the Trade Law Centre. In 2016/17, there was a decrease of one percent of African services exports globally while at the same time, globally, services trade had increased by seven percent.
If one were to look at the tertiary economy and see where the potential lies then we would understand that nearly forty percent of the continent’s services exports is travel, a third is transport and four percent is telecommunications.
Intra-continental trade, according to the AU, will be boosted by fifty-two percent within two years; that is by an estimated US$35 billion. The results are therefore almost immediate. It will be easier for Africans to trade with each other and, probably most important, Africa will be able to start financing its own development, if we are able to stymie illicit outflows.
While the BRI and FOCAC therefore hold potential and Africa will be able to respond better to the demands of the Chinese market because it would have increased capacity and supply, the relationship between China and Africa would be entering a stage of maturing. There truly would be a ‘win-win’ situation, as enthusiastically espoused by President Xi Jinping, because the African economy would be a much more integrated and innovative one.
As the incoming chairperson of the AU, South Africa must therefore use this opportunity to champion AfCFTA as a positive priority and rally the continent around this crucial development.
Wesley Seale is pursuing his PhD in international relations in Beijing.