Some Regional Policy Options to Complement the AfCFTA

Some Regional Policy Options to Complement the AfCFTA

Compared with the rest of the world, African countries levy higher tariffs. But “traditional” NTMs, especially SPS/TBT restrictions, are often lower in Africa than in other regions. In general, low-income countries, including those in Africa, adopt traditional NTMs less often than high-income countries do. Still, a significant number of other barriers can be categorized as nontariff that restrict trade within the region. These include inadequate infrastructure, cumbersome customs procedures, higher transportation costs, high fragmentation, thick borders, poor coordination between and within country agencies, and a multiplicity of cross-border regulations.

More stringent NTMs restrict the growth of intraregional trade as well as imports of the essential intermediate and capital goods that are required for actively engaging in regional and global value chains. In exporting to the markets of high-income countries, African countries especially face restrictive NTMs, the most predominant of which are SPS/TBT. However, Africa’s NTMs are not as restrictive as those in other regions like Europe and North America. Market access for African exports in high-income countries is restricted more by NTMs than by tariffs. Effectively, NTMs pose even higher barriers to exports because some measures, like certification and standards requirements, are costlier to fulfill for African countries than for other, more-developed partners. A joint UNCTAD–World Bank study (2018) finds that NTMs hurt low-income countries (including those in Africa) disproportionately because of the relatively higher prevalence of NTMs in sectors of export interest to these economies (such as agriculture and apparel) and the lower capacity of firms in low-income countries to comply with such requirements.

As for trade within the region, NTMs in agriculture are very restrictive, even compared with those in other sectors, including manufacturing, where tariff barriers are significantly higher. Although agriculture remains a key source for jump-starting growth and development by initiating and strengthening new and existing value chains, this sector has been restricted by the high trade costs associated with NTMs. The AfCFTA could provide the much-needed impetus to reinforce cooperation to address these challenges, but, for the AfCFTA to succeed, countries must reduce these barriers.

Among other actions, reduction of NTMs should be a prominent consideration in national and regional trade reforms because they pose the biggest barriers to trade, particularly for trade within the region. By minimizing the distortions of tariffs and NTMs, Sub-Saharan African countries can provide more opportunities for their farms and firms to participate in regional and global value chains through increased integration, as is well-articulated in the AfCFTA and existing regional economic communities.

Addressing these challenges also requires stronger cooperation between neighboring countries to enlarge markets so they attract foreign investors, to secure access to critical intermediate goods, and to make the leap to new products less costly and risky. By looking at which sector offers the most

promise for further development, countries in a neighborhood can focus cooperation on sector-specific infrastructure (such as common standards, compliance and metrology systems) as well as specific curricula to build a skilled labor force and adapt new technologies. For example, given their comparative advantage, WAEMU countries can benefit from cooperation in specific production sectors—fruits and vegetables and their products, wood and its manufactures, cotton, low-tech manufactures, chemicals, and minerals—and reduce their overdependence on traditional agricultural exports such as coffee and cocoa.

What conditions would facilitate the fruitful participation of SubSaharan African firms in GVCs, and to what extent are these conditions under the influence of government policy? What must be done to reap the full benefits from GVCs? And how can we manage the negative consequences that may be associated with GVC activity? World Development Report 2020: Trading for Development in the Age of Global Value Chains examines in detail the drivers of GVC participation and lays out some key policy options that could complement the AfCFTA’s entry into force (World Bank 2020): • First, because market size matters, countries should liberalize trade to expand their markets and promote their participation in GVCs. • Second, because geography matters, countries should overcome remoteness by improving their connectivity and lowering trade costs. • Third, because institutional quality matters, countries should use deep preferential trade agreements to improve the rule of law and step up contract enforcement. GVCs thrive on the flexible formation of networks of firms. • Fourth, because endowments matter, countries should promote foreign investment and upgrade capabilities.

Special economic zones could also be a successful addition when they address specific market failures. However, even in a restricted area, getting the conditions right requires careful planning and implementation to ensure that the needed resources—such as labor, land, water, electricity, and telecommunications—are readily available, regulatory barriers are minimized, and connectivity is seamless. Communication with businesses in the targeted sectors is critical to ensure that the zone meets their needs. However, special economic zones cannot address all investor concerns such as political or macroeconomic stability. For example, a volatile exchange rate will affect investors inside and outside the zone.

To succeed, African countries must be integrated into world markets. Despite some progress in recent years, Sub-Saharan African countries still have heavy barriers around their borders, which exacerbates the fragmentation inherited from colonization and makes Africa the continent most prone to ethnic-based conflicts. What policies can help overcome the triple disadvantage of low economic density, long distance to world and regional markets, and thick borders? The development