Balance of Trade webinar: The journey of positioning Africa on the Global Trade
06 November 2020
In Q2 of this year, African imports collapsed 25% year on year, while exports collapsed 35% and African FDI is already down -28% in the first six months of 2020 down from the half-year average of the previous year. These declines have slowed during the summer, but with second waves of Covid-19 spreading across the world, the headwinds facing Africa will remain for some time.
After a decade of stagnant trade and investment, the current pandemic is an inflection point in a shift towards a new more localized global economic geography with shorter, greener and more regional value chains. The future holds more re-shoring, regionalization, and resilience beyond the pandemic. The future of global trade will see shorter supply chains, greater digitalization and a lighter global production footprint. It will mean a shift from “just in time” logistics to “just in case” resilience, and increased focus on the sustainability, on the green and blue economy, and on changes in consumer tastes towards the local, greener and healthier.
De-globalization trends are also being accompanied by a shift to more intangible, more digital and more services-led value chains. African countries need therefore to look carefully at how they create and capture value from their engagement with each other and the wider world. The traditional export-led growth model may be running out of steam for some countries, although China’s rising wage may yet still allow some low wage manufacturers in Africa to increase market share.
But there is also increasingly wide scope for creating and capturing value through services trade and digitalization, which are also being accelerated by the pandemic. This this changes how Africa seeks continued benefits from globalization. African countries will need to work harder to capture higher value from more intangible, production processes, closer to home. Importantly they will need to strengthen their capacities for digital creation, so they do not simply remain digital consumers.
Africa needs to be smart about how it reacts to this reconfiguring of global value chains– we must not for example quickly pursue new bilateral deals with large economies – such as the US seeks across the Continent, for example, for it risks locking in overreliance on consumer imports and weak terms for mostly commodity exports. Instead Africa should turn to itself for new sources of value creation.
AfCFTA becomes even more important in this context. The reality of shorter value chains, “go-it-your-own” populism and the deflating spirit of international cooperation are a wake-up call to Africa to get its own affairs in order for protecting lives and livelihoods. AfCFTA will hinge on its ability to put in place simple, transparent and predictable rules that can help create more viable region-wide value chains, closer to home across the African market. The prospects are good for viable African value chains in industries like tea, cocoa-chocolate, cotton-apparel, beverage, cement and automotive, for example.
AfCFTA must be a game changer for pan-African industry. While overall intra-African trade currently remains miniscule, 42 percent of it consists of industrial goods and this number is expected to grow under AfCFTA. A focus on more intra-African trade in industrial goods promotes African industrialization and the advancement of its manufacturing sector, providing more employment opportunities for the continent’s booming youth population.
AfCFTA can also galvanize regional collaboration to tackle the scourge of illicit financial flows. IFFs generate nearly $90 billion in lost financing from Africa every year, accounting for nearly half the SDG investment gap in the region. The countries affected most by illicit flows, due, for example, to trade misinvoicing, spend 25 per cent less on health and 58 per cent less on education.
