ACFTA africa free trade

Seize the opportunity offered by Africa’s continental free trade area

Li Yong Trade, Industry & Investment

Since the turn of the millennium, Africa has experienced a steady and unprecedented economic growth.

However, poverty continues for people across the continent, especially in the sub-Saharan region. Unemployment and inequality have remained high. The rural population and the urban poor, women and youth, have not benefited from economic growth.

African policymakers realize that, for the benefits of growth to be shared by all, there needs to be a structural transformation of the economy. Specifically, there is an acknowledgement that its composition should change, with increased shares of manufacturing and agro-related industry in national investment, output, and trade.

Manufacturing, thanks to its multiplier effect on other sectors of the economy, has always been one of the most important drivers of economic development and structural change, especially in developing countries. Manufacturing is an “engine of growth” that enhances higher levels of productivity and greater technical change, thus creating more jobs with higher wages for both women and men.

Recognizing this, the United Nations has proclaimed the period 2016-2025 as the Third Industrial Development Decade for Africa (IDDA III) in order to increase global awareness and encourage partnerships to achieve inclusive and sustainable industrialization.

Today, Africa has exceptional opportunities for industrialization. In the next few decades, Africa will become the youngest and most populous continent in the world with a working age population expected to grow by 450 million people. or close to 70 per cent of the total, by 2035.

With a rapidly growing population and one of the world’s highest rates of urbanization, the middle class is on the rise too. This will drive consumption of consumer goods, creating a market worth USD 250 billion, set to grow at an annual rate of 5 per cent over the next eight years.

Industrialization, diversification and job creation in Africa, however, cannot happen without continental economic integration. The recent signing of the historic agreement for an African Continental Free Trade Area (AfCFTA) by 49 out of 55 countries creates an opportunity for inclusive and sustainable economic development, moving away from structural stagnation and commodity-based economies. The AfCFTA agreement will create the world’s largest single, integrated market for goods and services, and a customs union that will enable free movement of capital and business travellers in Africa.

This will provide great business opportunities for trading enterprises, businesses and consumers, unlocking trade and manufacturing potential and further enhancing industrialization in Africa. With the AfCFTA agreement, exports of processed or intermediate goods will increase rapidly, further opening the way to Africa’s economic transformation to dynamically-diversified economies and globally competitive industrial production locations.

Higher trade among African countries will also strengthen African regional value chains, making it easier for local small and medium-sized enterprises, which account for around 80 per cent of Africa’s businesses, to build competitiveness, supply inputs to larger regional companies, and participate in, and upgrade to global value chains.

This will give unprecedented opportunities to exploit the full agri-business potential of the continent. Strengthening the continent’s agro-industries can generate high social and economic returns, create jobs in rural areas and for young women and men, as well as responding to the urgent need to ensure food security and poverty reduction.

By taking bold actions in advancing the agenda of the AfCFTA, using it as one of the best means of promoting industrialization, African countries are well-positioned to build an Africa that can become a strong link in today’s interdependent global economy.

Structural transformation, however, is never automatic. Political goodwill and commitments are a first important step; but a multi-pronged, action-based approach with partnerships at the heart, along with concrete industrial policies, is needed for this to become a reality.

That is why UNIDO has developed an innovative country-owned, multi-stakeholder partnership model to provide governments with a platform to bring together various stakeholders, including development finance institutions and the private sector, to mobilize large-scale resources, accelerate industrialization and achieve a greater development impact.

Using this Programme for Country Partnership (PCP) approach, and helping governments to identify priority sectors based on prospects for job creation, strong links to the agricultural sector, high export potential and capacity to attract investment, UNIDO has already started assisting Ethiopia, Senegal, Morocco and other countries in Asia and Latin America in achieving their export goals and enabling the manufacturing sector to compete on the increasingly globalized market.

Now more than ever, such innovative schemes and mechanisms for enabling partnership building and resource mobilization for sustainable industrial development are needed to address the urgent need for structural transformation in Africa and seize the opportunities offered by the AfCFTA.

Written by

Li Yong, Director General, United Nations Industrial Development Organization (UNIDO), has had an extensive career as a senior economic and financial policymaker. As Vice Minister of Finance of the People’s Republic of China and member of the Monetary Policy Committee of the Central Bank for a decade, Mr. LI was involved in setting and harmonizing fiscal, monetary and industrial policies, and in supporting sound economic growth in China. He pushed forward financial sector reform, and prompted major financial institutions to establish corporate governance, deal with toxic assets and strengthen risk management.