Keynote by Mr. Claver Gatete on ‘The AfCFTA as Africa’s Blueprint for Developmental Integration: from vision to commitment to implementation’

Brookings Event: UNECA's pivotal role in driving Africa's sustainable development agenda

Keynote on 'The AfCFTA as Africa's Blueprint for Developmental Integration: from vision to commitment to implementation'

By Claver Gatete

United Nations Under-Secretary-General and

Executive Secretary of the United Nations Economic Commission for Africa (ECA)

Washington DC, USA

17 April 2024

Mr. Brahima Sangafowa Coulibaly, Vice President and Director, Global Economy and Development, The Brookings Institution

Mr. Aloysius Uche Ordu, Senior Fellow and Director, Africa Growth Initiative, The Brookings Institution

Excellencies Distinguished delegates Ladies and gentlemen,

It is an honor to be with you today to discuss how we can scale up efforts to deliver on the African Union Agenda 2063 and the Sustainable Development Goals.

I thank the Brookings Institution, particularly the Africa Growth Initiative, for this opportunity.

Excellencies Distinguished delegates

While Africa continues to exhibit remarkable resilience against a series of shocks that it has not created, it is off track to meet the Sustainable Development Goals (SDGs).

Africa is the second fastest growing region in the world, but poverty and hunger have been rising over the past five years.

At the United Nations Economic Commission for Africa (ECA), we are well aware that a major preoccupation of many of African Governments is how to address the unrelenting debt, financial and climate challenges.

We have seen debt levels increase by over 180 per cent since 2010. For Africa as a whole, public debt now amounts to 66 per cent of GDP and high repayment costs are crowding out essential expenditures on health, education, and climate action.

In March, at the ECA Conference of Ministers of Finance, Planning and Economic Development, African Ministers called for alternative solutions to what they perceive as the failure of the global financial architecture to come through for Africa.

Despite a projected growth of 3.5 per cent in 2024, from 2.8 per cent in 2023, growth is not high enough for Africa to fulfill the goals of Agenda 2063.

Complex global shocks have disrupted supply chains, eroded fiscal space and reduced access to finance.

Twenty-one African countries are at high risk of, or in, debt distress.

Only 2 have their credit ratings in the investment grade and 3 have already defaulted on their sovereign bonds.

Moreover, tax-to-GDP ratio remains at 15.8 per cent and inflation reached 18.3 per cent in 2023.

A lack of concessional borrowing is leaving African governments to decide whether to borrow at national level and crowd out the private sector or borrow externally and deal with the challenges of foreign exchanges and exchange rate fluctuations.

Naturally, all this takes its toll on the most vulnerable. Based on latest data, 476 million people in Africa are projected to live in poverty in 2024, about 50 million more than before the Covid.

Ongoing threats of climate change are reducing the fiscal space, costing governments up to 5 percent of GDP annually.

Countries urgently need cheaper financing, but the continent is losing up to US$75 billion because of high-risk premiums and unfair credit assessments, based on a recent UNDP analysis.

Yet, we know that we need about US$3 trillion a year until 2030 in development and financing to reach SDGs.

For Africa, infrastructure and climate change is estimated to cost between US$68 billion and US$108 billion per year.

Excellencies Distinguished delegates

We are confronted with hard economic choices.

But, Africa still can generate its own solutions and the ECA has a critical role to play. Not least because Africa remains the region with an abundance of every kind of resource demanded for globally.

It is for this reason that today I will focus on the potential of the African Continental Free Trade Area, the AfCFTA.

We see this as Africa's most ambitious initiative to move from a continent of 'potentials' to a 'serious investment destination'.

Market size matters. There are recognized benefits that follow scale in economics.

Africa's post-independence history can be described as a history of deliberate and sustained, if at times faltering, efforts to overcome economic fragmentation.

And, ECA has played a pivotal role in the establishment of every single major regional integration instrument.

I believe it is useful to mention the important milestones leading to the launch of the AfCFTA.

Excellencies

It is important to note that the idea of "establishing a free trade area between the various African countries", and even "the establishment of a common external tariff", was tabled at the first summit of African Heads of State and Government at the establishment of the Organization of African Unity (OAU) on 25 May 1963.

Back then, we could not argue with the fact that a more integrated, prosperous, and politically stable Africa serves the world better.

This fact still holds true.

This inaugural Summit established the "preparatory economic committee" to study the issues of a free trade area and a common external tariff, and the ECA was requested to work with governments on this study.

However, Africa's six-decade journey towards greater regional integration has not been without its challenges.

But let us remember that it took the European Union 25 years to establish its single market.

And Africa has managed to start trading on the AfCFTA in just five years because of the solid foundations that countries built.

The 1979 Monrovia Summit of the OAU, the 1980 Lagos Plan of Action, the 1991 Abuja Treaty that proposed the establishment of the regional economic communities (RECs), the 2002 Constitutive Act that established the African Union, and the 2013 adoption of Agenda 2063 are among the shiniest landmarks on that long and winding road to integration.

These efforts provided the building blocks for the launch of the AfCFTA in 2018, in Kigali, Rwanda, because we already had functioning RECs.

This single market creation, on 21 March 2018, signaled to the world the consolidation of a new independent state.

Excellencies, Distinguished delegates,

The vision of the AfCFTA is about progressively replacing the many small and fragmented national markets with a single continent-wide marketplace.

Whichever way we want to look at it, it makes more economic sense to have seamless trading in one big market than to deal with over 800 bilateral investment treaties.

When goods and services flow freely across borders, entrepreneurs take investment decisions with the knowledge that their products and services will be placed inside a single market of 1.4 billion people whose collective spending power is close to US$3 trillion.

As investment increases, so do the opportunities for creating jobs and raising the hopes and aspirations of young people.

To use a term coined by my friend and colleague, Ambassador Albert Muchanga, the African Union Commissioner for Economic Development, Trade, Tourism, Industry and Minerals:

I quote, "with the AfCFTA in place, Africa is every entrepreneur's domestic market". End quote.

Indeed, one of the greatest benefits of the full implementation of the AfCFTA is the resulting uniformity of standards and coherence of processes that, in turn, facilitate the creation of consistent and predictable policy environments.

This can only be a good thing for attracting foreign direct investments.

Furthermore, our recent estimates also point to the job creating and poverty and inequality reducing benefits of the AfCFTA across all countries, although with varying degrees.

And Africa is making great strides on the implementation.

Forty-seven countries have ratified the agreement, representing 95 per cent of Africa's GDP, 91 per cent of the population and 96 percent of total intra-African trade.

Phase I Protocols on regulating trade in goods, trade in services, and dispute settlement entered into force in May 2019.

Phase II Protocols on investment, competition policy, intellectual property rights, digital trade and women and youth in trade, are being negotiated for entry into force.

But, more importantly, trading has commenced.

We are now making gradual progress in what makes up intra-Africa trade.

And, yes, while unprocessed primary commodities still make up majority of Africa's merchandise exports, internal trade is becoming more balanced.

Over 40 per cent of intra-African exports between 2017 and 2022 comprised of manufactured goods.

There is consensus amongst all researchers and think tanks, including the World Bank, and IMF, about the AfCFTA's potential to transform African economies.

The only difference amongst them lies not on what the AfCFTA can contribute, but on the magnitude, and by how much.

With these differences being the result of the type of institutional techniques applied.

ECA's latest empirical research shows that the most impressive economic benefits from AfCFTA implementation are expected to come in intra-African trade.

In relative terms, while overall intra-African trade would increase by about 35 per cent, intra-African trade specifically in agri-food, services, and industry would grow by 50.2, 37.6, and 36.1 per cent respectively in 2045 when compared to a situation without the Agreement.

Intra-African trade in energy and mining is also expected to increase by 19 per cent, albeit substantially lower than the other main sectors.

Furthermore, ECA's research has shown that, to meet the AfCFTA's transport and logistics needs, Africa requires around US$500 billion investment by 2030.

However, the process of implementation will improve infrastructure investments in transport corridors, and this is expected to boost intra- African trade in transport services by up to 25 per cent.

Excellencies, Distinguished delegates,

The world is also changing, and technology and artificial intelligence are at the heart of global innovations.

Connectivity and digitalization, supported by a system of payment facilities, are now essential vehicles to trade across borders.

Yet, Africa lags behind the rest of the world on digital and technological capabilities.

We all know the obvious data - only 40 per cent of total population is connected to the Internet, compared to a global average of 66 per cent.

However, concerted effort to implement the AfCFTA will require a skills revolution underpinned by science, technology, engineering and innovation.

This in turn will yield significant benefits for innovation for a continent that currently only accounts for 0.1 percent of global innovation.

With the right investments, young people, equipped with digital skills, will be able to tap into the artificial intelligence market, projected to reach US$18 trillion by 2030, for example.

Small, micro and medium-sized enterprises also stand to benefit. Digital trade is already making it easier for small holder businesses with digital capacities to buy and sell goods.

Therefore, protocol on digital trade becomes even more significant for SMEs and we cannot overlook the fact that the implementation of the AfCFTA is an imperative for economic diversification, industrialization and boosting competitiveness.

Excellencies, Distinguished delegates,

The debate is no longer about the merits of the AfCFTA or a comparison of the AfCFTA against any other trading agreement.

We know what it is. We know what to do.

The most important question is the 'how to fastrack implementation'.

And, indeed, implementation is the ultimate test for Africa's seriousness.

This is because, ultimately, implementation is primarily about what individual African governments do to bring their national laws, administrative practices, and related processes into conformity with the requirements of the Agreement.

Let me now use this opportunity to say a few words on how we are supporting this goal.

I want to preface this by underscoring that our work is to provide support to the African Union in its role as the continental leader on Africa's agency.

So for us at ECA, we are looking at how we do things differently and practically to implement the AfCFTA faster so that countries can leapfrog development.

First, through ECA's support, 36 countries and two RECs have developed and adopted respective national and regional AfCFTA implementation strategies.

Second, I spoke earlier of the importance of a regional approach. Now I want to be more specific on the need to create more regional value chains (RVCs).

Regional initiatives offer scale that allow spillover benefits to multiple countries and entire subregions, as well as investments that yield transformative outcomes.

We are therefore scaling up support to countries on the development of regional value chains across the agricultural sector, livestock sector, energy, battery and electric vehicle industry and critical minerals sector, but to name a few.

For example, in Zambia and Zimbabwe we are focusing support on the development of a common agropark. When the impact of extreme weather events on agriculture is considered, initiatives such as this offer these countries the potential to be the bread baskets of the region and to address the critical issues of high food inflation and insecurities.

With the governments of the Democratic Republic of Congo and Zambia, we are advancing in the development of a battery and electric vehicle special economic zone.

Africa is a major supplier of critical minerals needed for electric vehicles, wind turbines, solar panels, and other products. Our critical minerals have to work for our development agenda.

Recent analysis by BloombergNEF estimate that the battery and electric vehicle market is expected to reach US$46 trillion by 2052.

Therefore, together with DRC and Zambia, and a coalition of regional partners, we have signed a memorandum of understanding to establish centres of excellence for battery manufacturing and cross-border special economic zones for mineral processing and battery manufacturing.

In Botswana, we are working with the Arab Bank for Economic Development in Africa (BADEA) and the government to explore the expansion of the beef export market.

In the Southern African Development Community (SADC), we are supporting the harmonization of the regulatory framework for regional power pools that will ultimately lead to local manufacturing, reduced costs and enhance energy services across the SADC region, a region currently struggling with severe energy challenges.

For these initiatives to work, partnerships are critical, and we work with regional partners such as African Development Bank, African Export- Import Bank, African Union Development Agency, African Finance Cooperation, BADEA, and others, to maximize support to governments.

Having said this, we do not overlook the challenges of attracting investments.

This is another important area of ECA's work.

The financing of large-scale interventions like these requires private sector participation.

But the business environment is often considered too risky.

Thus, ECA is working with partners to enhance derisking mechanisms that will offer the necessary investor market confidence.

We know that derisking tools such as guarantees, power purchase agreements and tariff inflations indexing can help.

We are strengthening our capabilities to provide analytical support to countries so that there is a better understanding of the investment options and uncertainties facing investors around policy, regulatory and legal frameworks.

Our ultimate goal is to contribute to increasing the pipeline of bankable projects, especially in the areas of energy and infrastructure to support intra-African trade.

This goal is key for Africa as a continent with the world's youngest population in an age where other regions are grappling with ageing.

Excellencies, Distinguished delegates,

The capability of the AfCFTA to transform Africa's development trajectory does not have to be a dream! A common African market is good for global business.

And the AfCFTA strengthens the business fundamentals for investments on the continent.

Ultimately, at the heart of whatever we do this week is the need to improve the dire economic and social conditions of our most vulnerable populations.

Both Agenda 2063 and the SDGs urgently need to be back on track.

For this to happen, we need economies of scale, regionalism, and replicability and the AfCFTA can help us achieve these.

A successful AfCFTA is a successful Africa.