The African Continental Free Trade Area (AfCFTA) is no doubt an ambitious undertaking. It strives to create a single set of rules for trade and investment among all African countries and provides legal certainty for traders and investors through the harmonization of trade regimes. But it comes at a tricky time when we are far from being the diverse, strong economy we dream of being. How do we plan to use trade, investment and infrastructure development as instruments to build strategic influence, as well as to bring commercial advantage?
The United Nations Economic Commission for Africa estimates that the AfCFTA will increase intra-Africa trade from the current 10-16% margins, to approximately 52% by the year 2022. Woah! More than half of African trade volumes amongst African countries themselves? The work that would have to be put in would have to be aggressive, intentional and audacious to say the least. We would have to replicate Big Paul Kagame and his leadership style across the majority of African states. The West wouldn’t be amused.
Needless to say, the African Union’s ambitions are not misplaced. African states need bold pronouncements followed by even bigger actions and deliverables. The agreement is expected to favor small and medium-sized enterprises (SMEs), which are responsible for more than 80% of Africa’s employment and 50% of its GDP. SMEs are already top of the list when it comes to struggling entrepreneurship ventures. They experience difficulties in retaining their businesses, staying consistent and having adequate access to finance, and to top it off, a middle class with relatively weak buying power due to the absence of a reasonable minimum wage.
Obviously, any economic policy that facilitates imports and exports among countries, with lower or no tariffs, free access to the market and market information, and the elimination of trade barriers, offers numerous benefits to SMEs. And as history’s largest free trade agreement, which has a market size in the region of $3 trillion, the optimism is justified. But impending challenges remain, especially those which affect SMEs. These must be addressed if the AfCFTA is to achieve its objectives.
With the advent of a continental free trade area, Botswana’s trade policy is soon to experience transformational change, shaped by global and regional events. If we are to have effective trade relations and a booming manufacturing sector, we must position ourselves to predict the change. But the image of African trade itself hasn’t been all glorious. To start it off, the already existing regional economic communities do not trade enough amongst themselves. The SADC Free Trade Agreement, which was signed 10 years ago, is essentially defunct. Free trade deals have been an ideal that only exists on signed protocols but never ratified and implemented. Botswana has recently signed the AfCFTA but hasn’t made public any timelines on ratification.
The regional power dynamics are as problematic. One of the major concerns for smaller economies is that the continental free trade area will only serve to benefit larger economies with more advanced and mature manufacturing sectors and well-functioning trade infrastructure. This is a legitimate concern. It will take at least another decade or two for Botswana to transform its very nascent manufacturing sector into a full-fledged large scale manufacturing-for-export sector. What will it take for this to happen? — Targeted policy interventions that will require Botswana to put up tariff and non-tariff barriers to protect and grow its nascent industries. This isn’t a bad thing. Huge export based economies have achieved their level of growth through combinations of closing and opening up their borders when necessary until their local firms were mature enough to compete with foreign firms.
The government of Botswana must put out a valid position beyond the generic fact sheets with statistics of African GDP and trade statistics. A National AfCFTA strategy, if you will, will have to set out a comprehensive framework to advance the country’s economic prosperity in the contested and competitive space of African trade. What are our interests in a continent-wide trade bloc? How do we view the African continent, the AU and the evolving power dynamics? A white paper on AfCFTA would go beyond regurgitating facts that are put out from the outcomes of AU summits. It would be a straightforward interpretation of the current trade policy climate. If government has a threat analysis of barriers to trade on the African continent, we would know about it through this white paper. Where are the opportunities for business, manufacturing industries, the consumer and policy makers? How do we view the evolving technological landscape and its impact on trade policy? Women in trade? Our intertwined interests with the regional giant South Africa? People, cities, immigration! These are key questions and issues that the strategy paper would address to provide context before delving in deeper to analyze AfCFTA propositions, protocols, dispute settlement mechanisms, tariff concessions and intellectual property rights.
As a starting point, it must be remembered that Botswana’s choices are limited. Botswana is not the ultimate prize, nor is it in a position of power in any forum. It is a middle income economy striving for high income status, increasingly dependent on world trade and investment, especially exports of diamonds.
Recent events such as the global financial crisis (and its ongoing effects) have challenged Botswana’s economy and significantly increased the importance of securing stable export markets. Botswana is in no position to fully dictate trade terms (yet). Instead, this nation must seek gains within the framework established by the larger players on the continent.
Most modern FTAs not only focus on tariffs but also on eliminating other forms of barriers to trade (cutting costs of moving ideas, moving labor, and moving goods and services). It is no longer just about trade barriers but also “fair” trade. An AfCFTA strategy white paper would have a central thesis, that although Botswana is light years away from seeing the full benefits of an openly trading Africa, it advocates for a rules based trading system. ‘We are invested in a successful African trade bloc because we benefit from a well-oiled trade system with strong, resilient institutions’ — and so the sound bite would go.
International trade and investment opens up opportunities for Botswana ventures to expand their businesses. The basic rationale is that trade agreements can improve market access across all areas of trade — goods, services and investment — and help to maintain and stimulate the competitiveness of local firms. This benefits Botswana consumers through access to an increased range of better-value goods and services.
The country ought to position its AfCFTA strategy in line with changes in the trade environment, which is being battered by the waves of protectionism. The already existing FTAs are barely fulfilling their role as a “shield” against protectionism and import regulations. We need to calmly reassess whether this has also benefited socio-economically vulnerable sectors. FTAs should be reoriented toward small and medium-sized enterprises, the self-employed, farmers and fishers, in line with the objective of an income-led growth paradigm.
Is Botswana enhancing its economic and geo-political interests by negotiating free trade agreements (FTAs) or is it simply mindlessly engaging in world trade policy? Global paradigms are changing; our approach to trade policy should be more thoughtful and calculated. This isn’t a case of “we would be better served by focusing trade policy on the region or adopting a specific region or country-focused policy”. The choice of one region over the other is a false dichotomy; the implications of choosing are too complicated to predict with any certainty. The choice is rather how and on what terms to participate in the different fora.
There will be a problem of reciprocal concessions. How far will bigger African markets concede access to their markets especially when they already have strong manufacturing sectors? The forces at play will be too big. We will need to carefully assess all our value propositions and have a negotiating position. As a member of the southern African region, how do we align our interests with the rest of the region and how does this feed into the bigger picture of African trade? What the AfCFTA does offer is strategic engagement and geopolitical value in the region most important to Botswana’s trading and diplomatic future. Deeper regional economic engagement is not just desirable but necessary for Botswana to maintain (and potentially increase) its export markets.
Botswana must continue to stake out its best position now and into the future in order to protect export opportunities and influence future AfCFTA negotiations. The only way of achieving this is to engage in all forms of arrangements. Policymakers should not lose sight of the original purpose of trade agreements: tools for strengthening ties through economic means. There is no such thing as a perfect deal. We will gain a great lot from AfCFTA if we can set up a robust trade policy regime that is carefully crafted to achieve a perfect balance between attracting investments, guaranteeing technology and skills transfer while timeously and simultaneously protecting local industries.