HIS EXCELLENCY WAMKELE MENE
SECRETARY-GENERAL, AfCFTA SECRETARIAT
KEYNOTE ADDRESS ON OCCASION OF THE BRANDHILL SEMINAR
THEMED: THE ROLE OF TRADE AND INVESTMENT PROMOTION IN ADVANCING THE AfCFTA
SANDTON, SOUTH AFRICA
6TH MAY, 2022
Mr. Saul Molobi, Group Chairman and Chief Executive Officer, the Brandhill Africa Group
Ladies and Gentlemen
I am delighted to join you today and to be among such distinguished participants and friends.
Let me start by thanking the organisers, Brandhill Africa Group, for the invitation to address this Seminar.
Let me also recognise the good work you have been doing, in advocating for investor-friendly regulatory environment; and opening market access opportunities for “Made in Africa” service and product brands.
In this regard, I want to congratulate you on the recognition as the “Best Brand” at the “Brand Leadership Award 2021” by the World Branding Congress and also on the initiative you have taken to organise today’s Seminar, on the theme: ‘The role of trade and investment promotion in advancing the AfCFTA’.
Distinguished Ladies and Gentlemen
The significance of trade and investment in the economic prosperity of countries, both developed and developing cannot be overemphasised.
For instance, many studies on international trade, both theoretical and empirical, have shown a strong positive impact of trade on economic growth, especially in sub-Saharan African countries.
Currently, however, Africa accounts for only about 2% of world trade and less than 3% of world GDP, despite its enormous endowments in natural resources, including 60% arable land, 90% raw material reserve, 50% of bauxite reserve, 40% gold reserve, and 33% of the diamond reserve. Not to mention all the agricultural products such as coffee, tea, cocoa, groundnuts, the continent is endowed with.
Demonstrating the critical importance of trade to growth, some estimations have shown that increasing Africa’s share of world trade by 1 percentage point, from the current 2 to 3%, for example, would generate about $70 billion of additional income annually for Africa.
It is also worrying that, African countries do not trade with each other that much, with no more than 18 percent of trade taking place between African countries. In contrast, in Europe, about 70 percent of trade happens within the continent, and in Asia it’s just 51 percent.
Africa’s trade continues to follow the “colonial economic model” – exporting a very narrow range of primary commodities to countries in the North and importing manufactured (capital) goods. And as you know, this model ties Africa’s fortunes to the volatility of the primary commodities market which is detrimental to the continent’s economic development as well as undermines its ambition for greater integration.
With the AfCFTA, we are on course to reversing this “historical anomaly”, where most of the trade undertaken by African countries is with the rest of the world, and involves primarily raw material exports, inclusive of extractive materials like oil and minerals, while importing manufactured goods, such as automobiles, electronics, and pharmaceuticals, among others.
Indeed, in today’s increasingly interdependent global economy, Africa cannot delink itself from trading with the outside world. However, the continent can reduce its vulnerability to external shocks and improve its trade and economic performance if our market integration is deepened and we do more of our external trade with each other. Thus, a major lesson to be drawn from the systemic shocks in the global economy, including the impact of the Covid-19 pandemic, is the need for Africa to promote intra‐continental trade.
And there is great potential for increasing intra-African trade and generating sustainable outcomes through increased regional trade. Studies show that, if effectively implemented and complemented with efforts to boost trade-related infrastructure, the AfCFTA is likely to significantly boost intra-African trade.
Since intra-African trade involves a higher share of manufactures and processed products (than Africa’s trade with the rest of the world), growing such trade can create new opportunities for manufacturing and processing industries in Africa, and in turn generate high numbers of decent jobs, especially for the teeming, youthful African population.
Studies show that what Africa sells within Africa has more value added than what Africa sells to the rest of the world, which is mostly raw materials. That means intra-African trade creates more employment in the source country than Africa trading with the rest of the world. We look to gain more industrial and value-added jobs in Africa because of intra-African trade.
Intra-African trade is also attractive for Africa’s SMEs, which make up the vast majority of Africa’s firms. SMEs typically face lower barriers to entry into regional markets than into international ones. Engaging in regional trade and integrating into regional value chains is easier for such firms, but also provides them with opportunities for learning (by doing. Integrating into regional value chains can be a stepping stone for African SMEs (and larger firms) to internationalise their business.
The World Bank (2020), estimates that implementing the AfCFTA will increase the volume of intra-African trade by 81% by 2035, and grow the volume of total African exports by 29%. It will also diversify intra-African trade as it would encourage more industrial goods as opposed to extractive goods and natural resources.
To boost trade, African countries need to enhance their productive capacity to produce the goods and services that are in demand and which can be competitive in continental and global markets. Key to building this capacity is the creation of a vibrant enterprise sector, the bedrock of economic development.
Both domestic and foreign direct investment (FDI) can play important roles in meeting this challenge, by contributing directly to the creation of productive capacity and, in the case of FDI, by serving as a catalyst for the growth of domestic enterprises.
That is why trade and investment promotion are crucial in our circumstances. And that’s why this Seminar is critical and timely.
Distinguished Ladies and Gentlemen
To enhance trade and investments (both FDI and intra-African investments), on the continent, several areas need to be developed and existing ones strengthened.
Key actions include developing common rules and regulations – protocols – on trade and investment to harness the expected static and dynamic effects of trade and investment flows, as well as the implementation of the Action Plan for Boosting Intra-African Trade, covering the seven clusters, namely, trade policy, trade facilitation, trade finance, trade information, productive capacity, trade-related infrastructure and factor market integration.
In this regard, the main thrust of the AfCFTA Protocol on Trade in Goods is to boost intra-African trade through the progressive elimination of tariffs and non-tariff barriers among the member countries, while the Protocol on Trade in Services is about improving the competitiveness of services and promoting cross border trade in services in Africa, boosting FDI and promoting industrial development.
We have also operationalized the Protocol on Dispute Settlement, with the establishment of the Dispute Settlement Body (DSB) and the Appellate Body. As you know, in a free trade area, trade disputes are bound to arise and the inauguration of the AfCFTA DSB in April 2021, signals the readiness of the AfCFTA dispute settlement infrastructure to take up any disputes that may arise in the course of trading among the State Parties, particularly disputes arising from the instance or occurrence of unfair competition, dumping, among others to boost intra-African trade and investment.
The conclusion of protocols on Investment, Competition Policy, Intellectual Property Rights (IPRs), Digital Trade and Women and Youth in Trade, will further strengthen the investment and business environment in Africa and enhance the attractiveness of Africa to investors.
The AfCFTA Protocol on Investment is expected to enhance investment governance and policy coordination and cooperation across the continent. The Protocol is expected to address barriers to investment entry in Africa, reduce time and costs of investment approvals, enhance transparency, improve efficiency and address fragmented investment regulatory frameworks on the continent. Investors and investments will be protected and also have access to remedies when rights are violated.
Under the Protocol on Intellectual Property Rights, patents and licenses, among other intellectual property rights for investors’ goods and services will be protected not just in the host country but on the whole continent. IPRs will provide incentives to inventors to develop new knowledge and the right to obtain a patent for an invention, for example, will encourage the investment of money and effort in research and development.
With the competition policy, we want to create an environment where businesses will conduct themselves in a competitive manner in order to effectively compete globally. The idea is to allow competitors to enter the market while at the same time promote consumer welfare. Besides, some studies have shown that cross-border cartels do exist in Africa. This makes cross-border regulation of market competition in Africa critical. Therefore, the AfCFTA Competition Protocol when it comes into force, will create an opportunity to deal with cross-border cartels, which seem rampant in the region.
The majority of traders in Africa are women. However, the contribution of women to trade is much lesser than expected because of non-tariff barriers that typically constrain the trading activities of women and women-owned enterprises.
The AfCFTA, through the Protocol on Women and Youth in trade, intends to effectively address the constraints women and youth in trade face and create an environment that allows them to utilise the agreement by accessing wider markets, improve on their competitiveness and grow their businesses.
Ladies and Gentlemen
It is also important to highlight the role of financial integration in attracting investments to the continent.
The advent of the AfCFTA presents opportunities for African financial markets to expand, which would facilitate cross-listing, efficient pricing, increased competitiveness in regional and global value chains and more opportunities for innovative business financing.
The AfCFTA can also constitute a vehicle to channel investment to actively support small and medium-sized enterprises on the continent, through the formulation of common rules for financial services.
Regarding regional payment systems, a major development is the recent launch of commercial roll-out of the Pan-African Payment and Settlement System (PAPSS) by the Afreximbank and the AfCFTA Secretariat in January this year.
The continent-wide digital payment system would serve as a platform for the processing, clearing and settling of intra-African trade and commerce payments, leveraging a multilateral net settlement system. Its full implementation is expected to save the continent more than US$5 billion in payment transaction costs each year.
By simplifying cross-border transactions and reducing the dependency on hard currencies for these transactions, PAPSS is set to boost intra-African trade significantly and underpin the implementation of the AfCFTA.
The PAPSS is a major leap in releasing the continent from overdependence on external players and factors in achieving a long yearned-for acceleration in intra-continental trade and investment.
Furthermore, successful regional trade under AfCFTA will connect the region’s more developed and less developed countries, promote the growth of value chains and lay the foundations for increased cross-border trade in the process.
To kick-start the process of developing value chains for the continent, and thus reduce its vulnerability to external shocks, the AfCFTA Secretariat, in collaboration with partners, have launched an AfCFTA Private Sector Engagement plan, to promote industrialisation in Africa through regional value chains, as part of the implementation of the agreement.
The Plan focuses on four initial priority sectors or value chains, namely agro-processing, automotive, pharmaceuticals, and transportation and logistics for quick wins, based on the potential for import substitution and existing production capabilities on the continent.
Significantly, interventions designed in these value-chains have the potential to add over US$11 billion annually in production and over US$5 billion annually in intra-Africa trade – more than double the current contribution of these value-chains to intra-Africa trade. This increase in production and trade could create over 700,000 jobs, 55% of which will be for women and youth.
With this, businesses and investors are in a better place to make sound decisions on where to invest to seize AfCFTA opportunities. And those areas where further improvements need to be made are also pointed out to create stronger chances for a Made-in-Africa Revolution.
These are the quick wins that we are prioritising for the implementation of the AfCFTA to be successful and reduce Africa’s over-dependence on imports and stimulate intra-Africa trade and investments.
Distinguished Ladies and Gentlemen
Today, as African countries build back from the severe impacts of the Covid-19 pandemic, we must address key bottlenecks to trade and investment, leveraging the AfCFTA.
To bring more investments to Africa, we have to work towards addressing very important business environment issues and put in place new and innovative financial instruments that should help boost capital flows in Africa by making investments less risky and more attractive.
Our end goal, however, is to attract quality investment that will deliver the sustainable development needs of the continent. With this, we can address the challenges of industrialisation, infrastructure development and youth unemployment, among others.
As Secretariat, we are, committed to implement the AfCFTA in such a way that it would significantly boost intra-African trade and enhance our investor profile. Indeed, we have to implement the trade and investment rules that we have agreed on to become a much more attractive investment destination than we have ever been.
It bears emphasizing that although the AfCFTA Agreement was negotiated at the continental level, much of its implementation and gains will be at country level. The agreement must, therefore, be translated and contextualized to domestic realities.
African countries must strategically take advantage of it to derive its full benefits. For those that have developed national AfCFTA strategies, they need to effectively implement it, while those that are yet to do so take steps to identify opportunity export sectors and value chains that can benefit from the AfCFTA market access openings, and the measures needed to support them for urgent implementation.
The AfCFTA is a milestone for Africa’s journey towards prosperity. The agreement is poised to transform the continent’s economic landscape, creating a single market for goods and services, business and investment.
I am confident that this Seminar will help promote prosperous trade and investment between and among African countries.
I look forward to hearing the outcomes of this Seminar.
With these remarks, I wish you all the very best in your deliberations and discussions.