Posts

Economic Policies in AfricaCOVID-19 has had disastrous effects on Africa’s fight against poverty. After a 25-year streak without a recession, sub-Saharan Africa now faces a new uphill battle. In spite of the challenges posed by the global pandemic, several economic policies in Africa are being quickly implemented by African governments stepping up to combat pandemic-induced poverty.

Impacts of COVID-19

Projections in 2020 indicated that the economic effects of COVID-19 would lower Africa’s GDP by three to five percentage points. A lower GDP is projected to increase the number of Africans living below the international poverty line by 13 million people. In sub-Saharan Africa, a projected loss of $37-79 billion is expected in output losses.

Facing a dire economic situation, several African nations are implementing comprehensive policies and strategic partnerships with key financial institutions. These economic policies in Africa come with the goal of providing much-needed economic support for individuals and families hit hardest by the pandemic.

Cameroon’s Joint Initiative

In late November 2020, French multi-international bank, Société Générale, and the European Investment Bank (EIB) confirmed a new joint initiative to support economic development in Cameroon. The new initiative aims to provide support for private sector development to help increase the economic resilience of companies across Africa that have been impacted by COVID-19.

Among the initiatives is the SocGen-EIB COVID-19 economic resilience financing program. It will allow working capital expenses, and most importantly, payment of salaries and social security and tax, leaving out a minimum maturity requirement to help ease the economic effects of COVID-19. By increasing backing for financial investment through more flexible disbursement conditions, the initiative hopes to support the economic challenges faced by Cameroon and the Central African economy.

Rwanda’s Economic Recovery Fund

Among the most effective economic policies in Africa, Rwanda’s government finalized an Economic Recovery Fund in June 2020 to increase the number of businesses eligible for economic support. The recovery fund initially included approximately RWF100 billion aimed at supporting local businesses most financially impacted by COVID-19. Benefiting the most from this recovery fund has been hotels. Through refinancing initiatives, hotels are able to restructure loans and working capital to avoid lay-offs and ultimately keep their doors open.

Although only a portion of the total funds (roughly RWF50 billion) was slated for hotel refinancing, the portion looked to restructure at least 35% of total outstanding loans of the hotel industry for some 571 borrowers by close of February 2020. The mark has already been met, resulting in John Rwangombwa, Rwanda’s central bank governor, approving RWF43 billion more in additional funds for hotel loans. The hotel refinancing loans are disbursed at a 5% interest rate compared to present market rates of 16%.

Zimbabwe’s Economic Blueprint

Zimbabwe’s President Emmerson Mnangagwa recently launched a five-year economic blueprint called the National Development Strategy (NDS). Targeting a 5% growth rate per year, the plan intends to establish the country as an upper-middle-income economy by 2030. The NDS will look to accelerate economic growth, improve infrastructure and improve investments and usage in information and communications technology.

The plan takes over from the now outdated Transitional Stabilization Program (TSP), which managed to help the country take steps toward a more stable economy. The NDS hopes to improve and bolster the economy even further through improved quality of life and more equitable and equal distribution of wealth. It was projected that the Zimbabwean economy would contract by 4.5% in 2020 due to the effects of COVID-19. Fortunately, the NDS is expected to expand the economy by 7.4% in 2021 and an estimated 760,000 formal jobs are to be created.

African Continental Free Trade Area Agreement (AfCFTA)

Malawi is working to finalize the ratification of the African Continental Free Trade Area (AfCFTA) with other key stakeholders in the African Union (AU). The AfCFTA went into effect on January 1, 2021, and will bring together 55 African countries, affecting 1.2 billion people. The initiative has ambitious goals such as boosting the region’s income by a projected $450 billion. If accomplished this would bring 30 million people out of extreme poverty and increase the incomes of 68 million Africans.

In the short term, the measure will help mitigate the immediate effects of COVID-19 by supporting regional trade and value chains. In the long term, it will lay a new foundation and framework for cooperation among AU members and policy reform needed to curb the shocks felt on the African economy after COVID-19.

The Road to Recovery

Unfortunately, COVID-19 is still a major global issue that continues to pose serious threats to the economic and social stability of Africa. The situation calls for government action, and fortunately, many African nations are stepping up to the plate. Strategic partnerships and expedient economic recovery plans put in place by Cameroon, Rwanda and Zimbabwe hope to set an effective precedent for other African nations to follow. More importantly, pan-African agreements that require continent-wide cooperation such as the African Continental Free Trade Area Agreement can lay the potential groundwork for a prosperous and strengthened Africa.

Andrew Eckas
Photo: Flickr

the AfCFTATrading within the African Continental Free Trade Area (AfCFTA) finally took effect on January 1, 2021. The AfCFTA is the world’s largest trading area since the establishment of the World Trade Organization with 54 of the 55 countries of the African Union (AU). The AfCFTA was established by the African Continental Free Trade Agreement signed in March 2018 by 44 AU countries. Over time, other AU countries signed on as the official start of trading under the provisions of the agreement approached. The AfCTFA is projected to create opportunities and boost the African economy. By facilitating this intra-African trade area, the international community expects sustainable growth and increased economic development.

The Implementation and Benefits of the AfCFTA

  1. Creating a Single Market. The main objective is to create a single market for goods and services to increase trading among African nations. The AfCFTA is tasked to implement protocols to eliminate trade barriers and cooperate with member states on investment and competition policies, intellectual property rights, settlement of disputes and other trade-liberating strategies.
  1. Expected Economic Boost and Trade Diversity. UNECA estimates that AfCFTA will boost intra-African trade by 52.3% once import duties and non-tariff barriers are eliminated. The AfCFTA will cover a GDP of $2.5 trillion of the market. The trade initiative will also diversify intra-African trade as it would encourage more industrial goods as opposed to extractive goods and natural resources. Historically, more than 75% of African exports outside of the continent consisted of extractive commodities whereas only 40% of intra-African trade were extractive.
  1. Collaborative Structure and Enforcement. All decisions of the AfCFTA institutions are reached by a simple majority vote. There are several key AfCFTA institutions. The AU Assembly provides oversight, guidance and interpretations of the Agreement. The Council of Ministers is designated by state parties and report to the Assembly. The Council makes the decisions that pertain to the Agreement. The Committee of Senior Trade Officials implements the decisions of the Council and monitors the development of the provisions of the AfCFTA. The Secretariat is established as an autonomous institution whose roles and responsibilities are determined by the Council.
  1. Eliminating Tariffs. State parties will progressively eliminate import duties and apply preferential tariffs to imports from other state parties. If state parties are a part of regional trade arrangements that have preferential tariffs already in place, state parties must maintain and improve on them.
  1. Settling Trade Disputes. Multilateral trading systems can bring about disputes when a state party implements a trade policy that another state party considers a breach of the Agreement. The AfCFTA has the Dispute Settlement Mechanism in place for such occasions which offers mediated consultations between disputing parties. The mechanism is only available to state parties, not private enterprises.
  1. Protecting Women Traders. According to UNECA and the African Trade Policy Centre, women are estimated to account for around 70% of informal cross-border traders. Informal trading can make women vulnerable to harassment and violence. With the reduced tariffs, it will be more affordable for women to trade through formal channels where women traders will not have to put themselves in dangerous situations.
  1. Growing Small and Medium-Sized Businesses. The elimination of import duties also opens up trading activities to small businesses in the regional markets. Small and medium-sized businesses make up 80% of the region’s businesses. Increased trading also facilitates small business products to be traded as inputs for larger enterprises in the region.
  1. Encouraging Industrialization. The AfCFTA fosters competitive manufacturing. With a successful implementation of this new trade initiative, there is potential for Africa’s manufacturing sector to double in size from $500 billion in 2015 to $1 trillion in 2025, creating 14 million stable jobs.
  1. Contributing to Sustainable Growth. The United Nations 2030 Agenda for Sustainable Development includes goals that the AfCFTA contributes to. For example, Goal 8 of the Agenda is decent work and economic growth and Goal 9 is the promotion of industry. The AfCFTA initiative also contributes to Goal 17 of the Agenda as it reduces the continent’s reliance on external resources, encouraging independent financing and development.

AfCFTA: A Trade Milestone for Reducing Poverty in Africa

The establishment of the AfCFTA marks a key milestone for Africa’s continental trade system. The size of the trade area presents promising economic development and sustainable growth that reaches all market sectors and participants. Additionally, the timing of the initiative launch is expected to contribute to the alleviation of the pandemic’s economic damages.

Malala Raharisoa Lin
Photo: Flickr