Kusi Festival 2020: Toward a Post-Covid Africa - Recovering Together
08 December 2020
Africa’s dependence on distant world markets increases its vulnerability to crises. A key socio-economic transmission channel of COVID-19’s impact worldwide has been via trade flows through supply disruptions. Changing trends in trade linkages in the world today have widened the impact of COVID-19 on global output and reshaped the paths to recovery.
For the last decade, the share of African exports going to other African countries averaged just 15%. The comparable figures for the Americas 55%, Asia 60%, and Europe 69%. Africa’s dependence on external markets for basic foods, medicinal and pharmaceutical products is particularly acute. From 2010 to 2019, Africa imported on 95% of its pharmaceutical needs from and 85% of basic food!
The excessive reliance of African economies on world markets underscores their vulnerabilities, especially during the COVID-19 crisis. In 2020, global trade is expected to decline some 7-10%. For Africa, COVID-19 could lead to a contraction of exports from the continent by about 17 per cent leading to a 5 per cent loss in public revenues. At least an additional 31 million Africans are expected to be pushed into extreme poverty.
Prior to the onset of COVID-19, fundamental shifts in global production networks was already underway. Value chains are getting shorter. Production is drifting to localization or regionalization closer to the end consumer. FDI flows are following the pattern of going local or regional. Investment is shifting into intangibles in the rising digital revolution where Africa remains far behind the rest of the world. These are trends mainly driven by rising economic nationalism in some key trading nations, geopolitical tensions and technological changes. These trends are reaching a tipping point during the pandemic. The consequences are that Africa needs to look local and regional today more than ever before.
Greater integration and cooperation under the AfCFTA could help Africa produce more of what it consumes. Shorter supply chains will reduce vulnerabilities. Africa’s top imports, mainly sourced from the rest of the world, are agro-processed products (rice, milk, sugar, etc.); manufactured base metals (cathodes and tubes, iron and steel bars, etc.), wood, textiles and rubber products, petroleum oil and its by-products, medicinal and pharmaceutical goods. Most of these goods could be manufactured across the continent, given Africa’s resource endowments.
Yet, the fragmentation of African markets and persistent bottlenecks to trade have impeded the emergence and development of regional value chains. Impediments to regional trade include non-tariffs barriers and cumbersome customs procedures and incoherent regulation. This increases the cost of African-made imports as much as 14% for vegetables, 11.4% for beverages and tobacco, 11.3% for machinery and 11.1% for optical and medical devices.
The African Continental Free Trade Area (AfCFTA) aims to alter this reliance on world markets. For example, AfCFTA could support a stronger continental pharmaceutical sector, building greater resilience of Africa’s health sector to future pandemics. Countries such as South Africa, Kenya, Ghana, Egypt, and Nigeria have local industrial capacities to manufacture medicines for export to African markets, especially for generic and essential medicines.
Challenges faced during the outbreak of the pandemic and lessons learned suggest that momentum has to be maintained behind the implementation of the AfCFTA. Deeper regional integration can build the resilience of African economies to future health crises. COVID-19 has delayed the start of first trading under the AfCFTA, previously planned for 1st July 2020 and now expected for January 2021. This momentum must continue!
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