How a single market would transform Africa’s economy.
Africa is charting a new path towards a single continental market – and it’s going to be an economic revolution.
Nigeria’s president, Muhammadu Buhari, reasserted the resolve of the African leaders during the recently-concluded 30th African Union Summit, where he said: “We must push ahead to speedily establish the Continental Free Trade Area (CFTA), which will make Africa more integrated, united and prosperous.”
But what is the CFTA, and how will a single market solve Africa’s economic ills?
According to the African Union, the CFTA is a project to bring together all African countries – comprising 1.2 billion people and a combined GDP of over $3.4 trillion – under a single continental market for goods and services, including free movement of business people and investments, and expansion of intra-African trade.
Trade is crucial to development. Unfortunately, Africa currently has the lowest percentage of intra-regional trade in the world at 18%, compared with 70% in Europe, 55% in North America, 45% in Asia, and 35% in Latin America.
Nonetheless, analysts are confident that Africa is marching forward, citing the CFTA plus other developments as notable indications. An estimate by the United Nations Economic Commission for Africa notes: “The CFTA could increase trade between African countries by as much as $35 billion, an increase of more than 50 percent from current levels.” What’s more, it will make Africa the world’s largest free-trade area in terms of member states.
Here’s how the single market will pave the way for a remarkable transformation in Africa’s economy.
Actualizing Africa’s economic independence
There’s ample research that validates how impossible it is to achieve economic development without trade. As such, it’s excruciating that Africa does not trade enough with itself.
The only way to improve the current dismal levels of regional trade is to disrupt all the existing barriers on the demand and supply sides that limit its rapid increase. According to Oby Ezekwesili former vice-president of the World Bank’s Africa division and co-founder of the anti-corruption NGO Transparency International, only a single market model has the enormous potential to deliver such a massive scale of disruption and, ultimately, place Africa on the route to economic prosperity.
Aligning the trade policies, regulations and institutions of the 54 countries to promote continental trade will enhance the economies of scale, structural transformation, diversification, efficiency and productivity boosts. This will benefit producers, consumers and governments in phenomenal ways.
The single market has the potential to push regional trade levels up from 15% to 25% within a decade, which will, in turn, exponentially increase the continent’s annual economic growth, create wealth more inclusively and reduce poverty.
From tariff liberalization to massive investment rate
A major obstacle to intra-African trade is the tariff barrier. Firstly, it makes the process of trading extremely difficult. On top of that, it raises the price of imported goods, as well as hiking transaction costs.
If the central goal of the single market is to jump-start the continent’s economic prospect, then tariff reduction or a total elimination of custom duties on imported goods from within the continent is a necessity. By recommending these measures, the CFTA presents the hope for a more stable trade regime, continental market access and huge increase in the rate of investment. This is because the CFTA will trigger trade liberalization, an imperative catalyst for economic prosperity and sustainable development.
By and large, Africa would gain tremendously from a single market – plus other highly anticipated projects, such as a single currency, which would enhance regional monetary unions and international currency value.
As stated by African Economic Outlook’s 2017 report: “Trade between African countries has the greatest potential for building sustainable economic development and integration.” It will not only increase the scale and rate of mobility of persons, businesses, goods, services and capital across and within Africa. It will also create higher-wage jobs, catalyze economic evolution and unlock greater business opportunities.
With all this, the McKinsey Global Institute is right to characterize African economies as “lions on the move”.