A shot at economic logic

jyoti
By jyoti July 9, 2019 14:03

Article

Mahesh Sachdeva, the former ambassador expressed his views on African Continental Free Trade Agreement (AfCFTA) and its impact on India.

Important Analysis

  • 54 of 55 of African Union (AU) member states signed the African Continental Free Trade Agreement (AfCFTA) for goods and services at the 12th Extra-Ordinary Summit of the African Union (AU) which concluded on July 8 at Niamey
    • Of these countries, 27 have already ratified it.
  • Actual cross-border free trade could start by July 2020 with the elimination of customs duties on 90% of the tariff-lines.
    • If taken to its logical conclusion, this audacious project would eventually create an African Common Market of 1.2 billion people and a GDP of over $3.4 billion — the metrics are comparable to India’s.
  • The AfCFTA would be the world’s largest FTA, and in a world dependent on African markets and commodities, it would have a global impact. 

Significance of AfCFTA

  • Given the strong global headwinds including a cooling Chinese ardour for Africa, greater collective self-reliance through African economic integration makes eminent sense.
  • AU Commission which is not famous for efficient planning, it has prepared an extensive road map towards the AfCFTA with preliminary work on steps such as incremental tariff reduction, elimination of non-tariff barriers, supply chains and dispute settlement
      • In December 2018, it organised the first Intra-African Trade Fair in Cairo with 1,086 exhibitors signing $32 billion in business deals.

 

  • Looking into the future, a recent UN projection showed that nearly half the world’s population growth between now and 2050 would come from sub-Saharan Africa, the population of which would double to nearly two billion. This surge in consumer base would make the proposed AfCFTA even more important.
  • By the AfCFTA, the Africans are only trying to correct this historical distortion.

 

    • Before Africa was “discovered” by the West, it had a thriving overland trade. 
    • Large camel caravans ferried commodities such as ivory, gold, mineral salt, precious stones and slaves across prosperous trading centres such as Timbuktu, Ghana, Kano, Burnu, Agadez, Edo, Zinder, Ghat, Addis Ababa, Dar es Salaam and Cairo.
    • Subsequent colonialism and mercantilism destroyed internal trade routes, replacing them with an ecosystem in which Africans had better links with their foreign “mentors” than among themselves.
  • It gives a push to the African transnational corporations such as Dangote, MTN, Ecobank and Jumia which have continental ambitions.

Issues and challenges

There are three main reasons to be sceptical about the viability of the AfCFTA.

  • First, the African Union (founded as the Organisation of African Unity in 1963) has been largely ineffective in dealing with the continent’s myriad problems such as decolonisation, underdevelopment, Islamic terrorism and the Arab Spring.
    • Thus, it raises the question over AU to successfully implement AfCFTA
  • Second, serious political, organisational and logistical challenges to the AfCFTA notwithstanding, the national economies in Africa are generally weak with a low manufacturing base.
    • They also lack competitiveness and mutual complementarity. Only a sixth of Africa’s current total trade is within the continent.
  • Third, the AfCFTA seems to be countercyclical to the ongoing global protectionist trends as seen in the U.S.-China trade conflict, Brexit and the stalemates at the World Trade Organisation and the United Nations Conference on Trade and Development.
    • World trade is likely to grow only by 2.6% in 2019, a quarter of last year’s figure. Commodity prices are stagnant and globalisation is often being reversed.

India and Africa

While India’s global exports have been largely stagnant, those to Africa have surged. Africa still has unfulfilled demand for Indian commodities, especially foodstuffs, finished products (automobiles, pharmaceuticals, consumer goods) and services such as IT/IT-Enabled Service, health care and education, skilling, expertise in management and banking, financial services and insurance.

  • For instance, exports to Nigeria in 2018-19 grew by over 33% over the previous year. 
  • India with total annual merchandise trade estimated at $70 billion or nearly a tenth of our global trade. India is Africa’s third largest trading partner.

India on AfCFTA

  • African economies becoming more formalised and transparent would be in India’s interest. India needs to anticipate the AfCFTA’s likely impact on its interests and try to influence and leverage it to enhance India-African economic ties.
    • While local manufactured items and services may ultimately compete with Indian exports, Indian firms can co-produce them in Africa.
  • If handled in a proactive manner, the AfCFTA is likely to open new opportunities for Indian stakeholders in fast-moving consumer goods manufacturing, connectivity projects and the creation of a financial backbone.

Steps need to be taken by India

 

  • India can help the AU Commission prepare the requisite architecture, such as common external tariffs, competition policy, intellectual property rights, and natural persons’ movement. 

 

  • It can also identify various African transnational corporations which are destined to play a greater role in a future continental common market and engage with them strategically. The cross-linkage of a three million strong Indian diaspora spread across Africa can also be very valuable.

Once the AfCFTA is accepted as a beneficial game changer, the African elite could perhaps contemplate crossing another Rubicon: an India-African FTA.

Source: https://www.thehindu.com/opinion/op-ed/a-shot-at-economic-logic/article28323314.ece

 

jyoti
By jyoti July 9, 2019 14:03