Ugandans urged to target $450b African market

The disruption of supply chains, especially for value-added products from overseas is an opportunity for Ugandan and African firms to identify products that should be urgently produced on the continent, experts have said.  

The observation was made at the 7th Africa Think Tank Summit on 18th and 19th November 2020 hosted by the African Capacity Building Foundation (ACBF), African Union's Specialized Agency for Capacity Development.  

The virtual Summit was dedicated to the theme, "Implementing the African Continental Free Trade Area (AfCFTA) Agreement: Assessing country readiness and the implications for capacity-building." 

Prof. Emmanuel Nnadozie, ACBF's Executive Secretary said that the Summit examined the implications of the COVID-19 pandemic for making the AfCFTA a reality and country readiness in the implementation of the AfCFTA among other things. 

The Summit attracted experts and representatives from at least 45 African Countries, and partner institutions such as the Afreximbank, African Development Bank, and the United Nations Conference on Trade and Development among others. 

"Value addition is very doable if you are able to sell anywhere within the continent. We don't have something to sell that they (the west) want, that's why we find ourselves importing from them," Nnadozie said.  

"For a very long time African countries have been talking about value addition but we hope that the Covid-19 pandemic has opened our eyes to see what we need to add value to," he added.  

Prof. Kevin Chika Urama, Senior Director African Development Institute of the African Development Bank Group noted that Africa could suffer GDP losses in 2020 between $145.5b (baseline) and $189.7b (worst case), from the pre-COVID-19 GDP estimates.  

He said that some losses are carried over to 2021, as the projected recovery would be partial. He noted that the pandemic affected trade, FDI, remittances, prices of commodities, and several other important economic variables which have trended downwards.  

"For the first time in more than 50 years, Africa is expected to enter a deep recession in 2020. The most affected economies are those with poor healthcare systems, those that rely heavily on tourism, international trade, and commodity exports, and those with high debt burdens and high dependence on volatile international financial flows," Urama said.   

However, he noted that implementing the AfCFTA could boost Africa's income by $450b, bring 30 million people out of extreme poverty, and raise the incomes of 68 million others who live on less than $5.50 a day.

Other diverse additional expected benefits are industrialization, increased FDI flows, reduced dumping and unfair trade practices, export diversification, structural transformation, and sustained growth, he pointed out.  

He said that the AfCFTA will address key challenges that have dwarfed the "Giant in Africa" in the critical area of trade and development such as Trade in Goods and Services, Intellectual Property Law, Competition Policy, and Investment Flows. 

"Although Africa is endowed with many commodities that are traded in world markets, Africa has benefited least from global trade, compared to its peers in other regions," he said, pointing out that even though Africa is a major oil producer, raw crude oil is exported and sold as a price taker and refined products are imported, again as price taker.  

He said that the same happens with cocoa: noting that cocoa beans are exported as price taker and chocolates are equally imported as price taker. He said that a large market exists within the continent if value was added to the raw materials locally.  

Furthermore, he pointed out that Africa hosts 30% of the world's mineral reserves and accounts for more than 20 of global annual production of five key minerals namely; 80% platinum, 77% cobalt, 51% manganese, 46% of diamonds, 39% chromium and 22% of gold.  

Africa also possesses 60% of the world's arable land, 13% of the global population and is the most youthful continent with about 60% of its population under the age of 25 as well as abundant energy potentials. 

He also pointed out that approximately 70% of cotton exports from Africa are in raw form, embodying limited value addition. Only 12% take the form of yarn and 18% of cotton fabrics. Conversely, the continent imports around 72%, of its cotton fabrics. 

This trend cuts across almost all major commodities most African countries export. They are exported in raw form with little or no value addition while the value-added versions are imported by expending scarce foreign exchange. 

"Despite this wealth in natural capital endowments, African economies remain among the least developed countries in the world with the size of economies amongst the lowest compared to other regions," Urama said. 

"The current COVID-19 pandemic has further revealed the need for strengthening regional value chains. The COVID-lockdowns is testament to the fact that countries and regions need to build and strengthen national and regional supply chains," he added.  

Operationalization of the AfCFTA 

Upon entry into force and with the deposit of 22 instruments of ratification and membership, AfCFTA will become the largest Free Trade Area (FTA) in the global economy that covers a market of 1.2 billion Africans with a combined GDP of $2.5 trillion, expected to reach $29 trillion by 2050. 

AfCFTA could deepen and expand intra-Africa trade from its very low base of 15% to 52%. At the national level, the estimated welfare gains of around 2.64% of continental GDP will be shared among all participating countries.  

"On individual level, it will increase real wages for both skilled and unskilled workers in diverse sectors as employment shift from agricultural to nonagricultural sectors like manufacturing and services," Urama said.