Nairobi Forum 2020
19 November 2020
Trade Beyond Covid19: Unpacking the AfCFTA for East African MSMEs
The second quarter of 2020 saw a dramatic collapse in African trade with the onset of the global pandemic. 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 2019.
In East Africa, the impact on the services segment of economy, particularly in tourism and transport has been massive with disproportionate impacts on women, as many tourist dependent jobs are low-skilled low-paid jobs performed by women. Women, small and micro entrepreneurs have found it particularly hard to continue operating their businesses as the COVID-19 pandemic curtails economic activity. For the coming months and years, vulnerable micro and small entrepreneurs, especially women, will need support to overcome this hurdle, but also to adjust to new realities.
After a decade of stagnant trade and investment, the current pandemic is driving a shift towards a new more localized global economic geography with shorter, more regional value chains. The future of trade holds more re-shoring, regionalization, and resilience beyond the pandemic and will see shorter supply chains, greater digitalization and a lighter global production footprint. “Just in time” efficiencies will adapt to “just in case” resilience with increased focus on sustainability, on the green and blue economy, and on changes in consumer tastes towards the local, greener and healthier.
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, and we need to make sure these opportunities can be extended to the most vulnerable. African traders and producers need 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 merely remain digital consumers.
Africa needs to be smart about how it reacts to the reconfiguring of global value chains. All this changes how Africa seeks continued benefits from globalization. African countries need to look carefully at how they create and capture value from their engagement with each other and the wider world. Some on the continent would push for new bilateral deals with large economies – such as the US is seeking across Africa, but this 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 due to the pandemic. Shorter value chains & economic nationalism – which may persist despite the recent US election – plus a deflated spirit of international cooperation require Africa to take its trading future into its own hands to save lives and livelihoods.
The success of AfCFTA hinges on its ability to put in place simple, transparent and predictable rules that 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 strengthen the link of industrial value chains to services and digital enterprises, especially at the front end of these value chains in design and financial services as well as the tail end of the value creation in sales, marketing and retail. AfCFTA’s manufacturing drive must go hand in hand with the deeper service-ification and digitalization of these value chains in order to provide more employment opportunities for the continent’s booming youth population, and to crowd in the continent’s digital lions and start-ups.
Finally, AfCFTA must also galvanize regional collaboration to tackle the scourge of illicit financial flows. This is especially important given the fiscal burden that the pandemic will continue weigh upon governments for years ahead. 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% less on health and 58% less on education.
