Africa’s future is plurilateral

The new world order – that is being built on a rise in populism and nationalism – is poised to destabilize long-standing liberal trade arrangements. The distortion to trade will stem predominantly from softening global economies, however, trade wars will play a significant role in changing trade patterns. Weaponization of tariffs and introduction of other barriers to discourage imports could increase, so as to eliminate unilateral trade deficits. In addition, many countries will seek to diversify their supply chains, a lesson from the ongoing pandemic. But what does the new nationalist world order portend for Africa?

The African continent predominantly consists of agrarian and extractive countries. According to the World Trade Organization (WTO), about 65% of Africa’s export earnings come from agriculture and mining. However, this is a drop in contribution from an average of 73% in the 2000’s. The drop is due to the commodity price down cycle, which saw the price of oil close the 2010’s 15% lower, as well as the gradual shift to renewable energy sources in advanced economies. These two factors pose major threats to the region’s export earnings, particularly the 38% that come from fuels. Therefore, the region could be extremely vulnerable to de-globalization and a change in consumption patterns/preferences at this time, because of the absence of well-developed industries that can add value to primary and intermediate merchandise from the agriculture sector. There are also issues around standardization of the African exports that makes it less competitive in the global market when placed side by side with exports from other regions.

Going forward, the structure and patterns of trade will clearly be modified. Future trade agreements are bound to be smaller and/or messier, but they would still be worthwhile. Africa will remain a significant cog in the mechanism of global trade and investment because of the nature of its output (primary and intermediate commodities form a substantial share of the continent’s output), and comparatively low cost of labour. However, because of similarities in initial conditions among individual countries, the continent may be sure-footed to maximize the advantages of engaging in global trade on a plurilateral platform.

This makes the implementation of the Africa Continental Free Trade Agreement (AfCFTA) crucial now more than ever, as countries that trade together are more likely to vote together. At the multilateral level, because of the regional integration that the AfCFTA could foster, African countries can put up a united and much stronger front when issues of African interest are being addressed. In addition, the trade agreement could create opportunity for countries to discover new local markets, in order to wean Africa off its reliance on the external markets and eventually reduce the vulnerability of exports in the event of an external shock that cripples demand from its major trading partners (Europe and Asia).

Lockdown measures to contain the spread of the coronavirus and existing fiscal stress on African countries are currently a hindrance to the implementation of the AfCFTA, forcing a shift in launch date tentatively to Jan’21 from the previous schedule of 1st July. However, the outbreak has stressed the need to strengthen intra-Africa trade relations. Although we note that the terms of the AfCFTA may not benefit all of its signees equally, because of the varying levels of industrialization across the countries, it however sets the stage for a long-term focus on industrialization by promoting healthy competition among member countries.