AfCFTA and the economic emergence of Africa
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Enquête+ | 18 January 2021
AfCFTA and the economic emergence of Africa
by Mariama Diémé
The operationalization of the African Continental Free Trade Area (AfCFTA) is far from opening the doors to the economic emergence of the continent, let alone propelling inter-African trade as indicated by its initiators. This is what economists Ndongo Samba Sylla and Jacques Berthelot revealed during this month’s edition of "Samedis de l’économie", whose theme focused on this agreement.
The African Continental Free Trade Area (AfCFTA) is now operational since January 1, 2021, after its entry into force in May 2019. The agreement should, according to its initiators, boost trade between African countries by 50%, lift 30 million Africans out of extreme poverty. But it would also increase the income of 68 million more people living on less than $5.5 a day, and of the $450 billion in potential gains, about $300 billion would come from trade facilitation measures and simplified customs procedures. This would mean, for the most optimistic, that AfCFTA would put Africa on the road to development through industrialization and job creation.
However, speaking this weekend as part of the monthly edition of "Economics Saturdays", the economist Ndongo Samba Sylla said that these elements are the results of conventional economic literature. "In theory as well as in practice, there is no reason why free trade should increase economic growth. Empirical work has failed to show that episodes of trade liberalization have increased growth. From the point of view of neoclassical/mainstream economic theory, the argument for free trade is not about growth but about efficiency", he explains.
Sylla says free trade is promoted not because it creates growth, but because it is supposed to bring efficiency. That is, firms will produce at lower costs, and that cost reduction can eventually be passed on to the consumers involved. To achieve efficiency, the economist notes that there are several conditions that must be met and there are at least five.
"The first condition is that there is no unemployment or underemployment. If one wants to benefit from efficiency, it is full employment, not involuntary unemployment. The second thing is that with trade liberalization, firms can adjust their production. Clearly, these assumptions are not fulfilled anywhere, not even in rich countries and, a fortiori, in the poorest ones. What most of us don’t know is that the simulations of the economic impact of AfCFTA are based on these assumptions", he says.
Thus, he points out that the work that has been produced so far by the African Union (AU) and the World Bank (WB) to defend the merits of the Continental Free Trade Area is based on the assumption of full employment. In other words, there are no unemployed or underemployed in Africa. The assumption that the loss of customs revenue will not reduce public expenditure and aggregate demand.
"The last thing is that there is no balance of payments problem. If you import too much and you have trade deficits, that’s not a problem. Because exchange rates are flexible, it will allow an automatic adjustment of the trade balance and the balance of payments. This means that we don’t have a problem with foreign debt", continues the Senegalese economist and author.
Data produced with "unfounded extrapolations"
On the 50% increase in inter-African trade, Ndongo Samba Sylla argued that this figure was produced from "very old", "very rudimentary" data and with "unfounded extrapolations".
Therefore, he said that ordinary people who think that AfCFTA will bring more development to Africa "are very much mistaken”. For him, it is even "naive" to wonder if AfCFTA will help Africa out of underdevelopment. "Despite all these assumptions, the results are really very disappointing compared to the free trade propaganda of the AU. The same 2012 study that says free trade will increase inter-African trade by 50%, says very clearly that net food importing countries like Angola, DRC, Mozambique, Botswana, some West African countries like Nigeria, those of North and Central Africa, will be penalized and their incomes will decrease. It also points out that half of the African countries will be in a worse economic situation after the implementation of the AfCFTA. And the same study concludes by saying that, despite everything, the Continental Free Trade Area will benefit you," it reports.
According to him, there is also another recent study published by the World Bank that says very clearly that it is not interested in the impact of the AfCFTA on employment. Because it says that the employment volume is given. The World Bank says that the size of the industrial sector in the Gross Domestic Product (GDP) will decrease in 18 of the 24 countries it studied.
This makes the economist say that those who expect industrialization with AfCFTA will also "be disappointed". "The IMF also recognizes that exporting companies are very large, highly productive enterprises that employ few staff and offer salaried jobs with high wages. Jobs are created by small and medium enterprises (SMEs) and SMIs that are not often in the export business," he adds.
Towards worsening inequalities between African states
Faced with these challenges, Ndongo Samba Sylla believes that with free trade, there will be "increased inequalities" between African states. The countries of the Sahel will be all the more "destabilized". Because they are landlocked, with a labor force that is not very qualified and financial institutions that are not very well developed. "Trade between African countries may increase, but it is not an end in itself. Because we live in an era marked by ecological constraints. What is needed, in such a situation, is rather to relocate production. We need to reduce international trade and limit the flow of goods and services to what is essential for ecological preservation. The growth of intra-continental trade will not necessarily be the same as that of inter-African trade. Intra-continental trade will increase because there are different actors and multinationals will be there to stimulate it. But it is not said that this trade will be driven by African SME-SMIs," he said.
The economist argues that the fact that African trade vis-à-vis Western countries and China is higher than inter-African trade will not change soon. For it is finance that determines the geography of trade flows. If China has more and more market share in Africa, this is justified, according to him, by the fact that it has development banks, financial instruments that allow its companies to establish themselves in Africa and also to grant import credits. "France has lost market share in the early 2010’s in its African sphere of influence. But it is in the process of regaining them. The latest French Treasury report on trade and financial relations between France and African countries clearly shows that the emerging Senegal Plan (PSE) has enabled France to increase its trade surplus vis-à-vis Senegal. It is one billion euros," he reveals.
As long as Africa does not have financial sovereignty, he believes it is futile to hope that, just through the elimination of tariff barriers, it is possible to develop trade between African countries. "There is a lot of exaggerations around the AfCFTA. But this will pose a huge economic and democratic challenge. At the end of the day, what is likely to happen with this integration are xenophobic, populist tensions, as is the case in Europe," he regrets.
Moderator of the conference, economist Chérif Salif Sy pointed out that the foundation of the free trade system, in its recent form, is based on classical economic theories of the division of labor. Although he admitted that nowhere in the world is the future described in advance, Mr. Sy argues that we cannot, however, ignore how free trade actually works in different parts of the world. "If we look at the areas concerned: culture, health and public services, we regret that certain services such as freedom of movement, freedom of travel, mobility of human beings, are set aside. (...) For economists like Noah Smith and Paul Krugman, free trade, in substance, wherever it has existed, has not kept its promises. Since the effects of international trade have been profoundly dense in terms of inequality. Paul Krugman goes further, talking
about the immaturity of the agreements that have been put in place," he points out.
Promoting a much more modern industrial strategy
French economist Jacques Berthelot shares the same thoughts as his Senegalese colleague Ndongo Samba Sylla. The former lecturer at the Ecole nationale supérieure agronomique de Toulouse goes further in his recommendations.
On an industrial level, he feels that a much "more modern" strategy should be promoted, one that does not compete in global value chains. This should be done by promoting nano-enterprises in the informal sector and encouraging them to group together. It’s urgent, for Mr. Berthelot, to reduce production and exports of cocoa that "destroy the environment" and promote the textile industry to supply the domestic market. Since it has been the basis of industrialization of most countries in the South. "This would be a good way to add value to the African cotton by removing it from the vagaries of fluctuating world prices and dumping from the United States and the European Union. This, provided that we can effectively protect imports at broken prices of second-hand clothing exported mainly by the EU and put pressure on China and other garment exporting countries. In order to authorize the protection of the African industry. On the monetary and financial level, it is necessary to apply modern
monetary theory and minimize foreign currency debt," he suggests.
If the political will of African heads of state is to achieve a continent that, in the long term, would reduce its food deficit and become self-sufficient in basic food products in a context of very high population growth, the French economist says that we must use the means of protection used by all developed countries, including those in Asia. Which continue to put very high tariffs on food imports.
"On the commercial level, it is necessary to delink from the world market by denouncing and at the very least renegotiating all free trade and investment agreements. And this starting with the Economic Partnership Agreements (EPAs) with the EU. And that the Regional Economic Communities (RECs) become members of the WTO (World Trade Organization) in order to have bound customs duties that significantly increase the protection of the domestic market in all areas," he argues.
Concerning the agricultural and food component, Mr. Berthelot advocates a radical reform based on five pillars. These are agricultural land reform, the guarantee of remunerative agricultural prices, and the promotion of agro-ecological production systems. But also the compensation of agricultural price increases for consumers and the change of their consumption patterns, by refocusing consumption on tropical regional products and reducing dependence on imported cereals, especially wheat and rice.
