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Somalia seeks a piece of the proposed Africa’s $3 trillion free trade area

Free business goods and services to benefit citizens of the member countries  

Somalia has joined 44 other Africa nations The African Continental Free Trade Area (AfCFTA) to form a $3 trillion continental free-trade zone encompassing 1.2 billion people, a move that would build the biggest trade agreement since the formation of the World Trade Organization in 1995

The country was represented by Minister of Foreign Affairs and International Cooperation, H.E. Amb. Ahmed Isse Awad at a summit of the African Union in Kigali, Rwanda. The summit was a step forward for the AU’s 2063 project for closer African integration, with 27 member states also signing a commitment for the free movement of persons.

The goal is to create a single continental market for goods and services, with free movement of business persons and investments. Some studies have shown that by creating a pan-African market, intra-Africa trade could increase by about 52% by 2022.

The agreement came off the back of the Single African Air Transport Market (SAATM), unveiled in January. A total of 23 member states signed a commitment to bring air travel under a common regulatory framework

The free trade agreement has the potential to deliver a great deal for countries on the continent. The hope is that the trade deal will trigger a virtuous cycle of more intra African trade, which in turn will drive the structural transformation of economies – the transition from low productivity and labor-intensive activities to higher productivity and skills intensive industrial and service activities—which in turn will produce better paid jobs and make an impact on poverty.

But signing the agreement is only the beginning. For it to come into force, 22 countries must ratify it. Their national legislative bodies must approve and sanction the framework formally, showing full commitment to its implementation.

Niger president Issoufou Mahamadou, who has been championing the process, aims to have the ratification process completed by January 2019.

The African continent has in the past been criticized of having too many barriers to trade. Better market access creates economies of scale. Combined with appropriate industrial policies, this contributes to a diversified industrial sector and growth in manufacturing value added.

Manufacturing represents only about 10% of total GDP in Africa on average. This falls well below other developing regions. A successful continental free trade area could reduce this gap. And a bigger manufacturing sector will mean more well-paid jobs, especially for young people. This in turn will help poverty alleviation.

Industrial development, and with it, more jobs, is desperately needed in Africa. Industry represents one-quarter to one-third of total job creation in other regions of the world. And a young person in Africa is twice as likely to be unemployed when he or she becomes an adult. This is a particularly stressful situation given that over 70% of sub-Saharan Africa’s population is below age 30. In addition, 70% of Africa’s youth live on less than $2 per day.

The continental free trade area is expected to offer substantial opportunities for industrialization, diversification, and high-skilled employment in Africa. The single continental market will offer the opportunity to accelerate the manufacture and intra-African trade of value-added products, moving from commodity-based economies and exports to economic diversification and high-value exports.

But, to increase the impact of the trade deal, industrial policies must be put in place. These must focus on productivity, competition, diversification, and economic complexity.

In other words, governments must create enabling conditions to ensure that productivity is raised to international competitiveness standards. The goal must be to ensure that the products manufactured in African countries are competitively traded on the continent and abroad, and to diversify the range and sophistication of products and services.

However, it wasn’t all forward progress. In a set-back for the African Union, Nigeria, one of Africa’s largest economies and the most populous, declined to sign the agreement.

Commenting on Twitter, Nigeria’s President Buhari said: “We will not agree to anything that will undermine local manufacturers and entrepreneurs, or that may lead to Nigeria becoming a dumping ground for finished goods.”

South Africa, also one of Africa’s largest economies, did not sign the agreement, but President Ramaphosa stated his commitment to the agreement once the necessary legal processes were put in place.

By Mohamed Dubo

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