Africa is appealing to business in two ways, its low-cost resources and free-trade agreements that promote trade across half the continent. Transformative is the word most commonly used when people refer to the African Continental Free Trade Area (CFTA). A primary aim of this ambitious effort is the expansion of intra-African trade by lowering the trade barriers to goods and services, as well as the movement of people throughout the continent The CFTA is thus intended to be a key driver of integration, production and industrialization, employment creation, income generation and poverty reduction. In effect, it is the first mega-trade arrangement of its kind. It will bring fifty-five (55) African countries and eight (8) regional economic communities (RECs)[1] together, to create a single continental market, with a population of more than a billion people and a combined gross GDP of USD 1.2 trillion.
The high cost of trading in services and hurdles in domestic regulatory and trade barriers continue to fragment the services markets on the continent. It is therefore significant that the AU Heads of State and Government decided to include trade in services in the first phase of negotiations for the CFTA when they launched it in 2012. Services have become a transformational force in the global economy, changing the structure of markets and accounting for the majority of GDP and employment in most countries, including in Africa.
At the same time as the CFTA was launched, the AU Assembly adopted the Action Plan for Boosting Intra-African Trade (BIAT).
The two initiatives – the CFTA and the BIAT Programme – are seen as two sides of the same coin. Trade agreements alone cannot deliver on the ultimate objective of promoting and encouraging inclusive and sustainable growth. They are one component of the necessary measures needed to stimulate and to achieve growth. In the context of the CFTA, they will be backed up with services sector development strategies, services policy frameworks and the required sectoral regulation (at regional and national level). Thus the relationship between the CFTA and the BIAT is critical in ensuring overall coordination of sector policy development to achieve a competitive services sector in Africa.
The rate of return on foreign investment is higher in Africa than in any other developing region (McKinsey 2010).[2] Services trade is mostly below par. Africa is said to be playing catch up when it comes to global services trade and intra-African services trade. Africa is however so diverse that a single view of the continent would be an oversimplification.[3] East Africa remains the best regional performer with average annual GDP growth forecast approximately 6 percent over the 2016-18. It is followed by North Africa 3.8 percent, Central Africa forecast to expand by an average of 2.9 percent, West Africa with an average annual growth of 1.9 percent and Southern Africa with an average yearly growth of only 1.6 percent over the same period (IMF 2016).[4]
…with the advent of the CFTA, Africa should only appear stronger vis-à-vis third parties.
The impetus to expand trade in services within Africa to enable a more diversified approach to the economies on the continent has galvanized African Ministers in their December 2017 meeting to push forward with the conclusion of a draft text. Considering that it was only in June this year that Ministers approved the modalities for negotiations on trade in services, good progress has been made to date where a draft Protocol on Trade in Services is in the last stages of completion. Once it is completed and signed, the Protocol will represent a blueprint for the establishment of a continental services trade market, opening tremendous opportunities not just in traditional services sectors such as infrastructure services but also creative and cultural industries such as film, design, art and sport.
Market access negotiations and development of regulatory frameworks for services trade liberalization will advance once the Protocol is signed. Such a process offers a chance to policymakers and negotiators alike to align their objectives for the opening up of regional value chains. Priority services sectors have been identified that will form the basis for the negotiations and work is already underway to provide negotiators with sector studies that will guide them in this process. The negotiation of the Protocol on Trade in Services has already benefited from understanding (through a range of analysis) by the negotiators of the status of their respective countries’ services sectors, including legal and institutional issues as well as domestic regulation and procedures. There are the usual gaps in statistical data on services mainly since statistics on trade tend to focus on modes 1 to 3, without accounting for mode 4 statistics.
The four GATS modes of services supply are defined as follows:
Mode 1: Cross-border supply; covers services flows from the territory of one country into the territory of another country (e.g., banking or architectural services transmitted via telecommunications or mail).
Mode 2: Consumption abroad; refers to situations where a service consumer (e.g., tourist or patient) moves into another country’s territory to obtain a service.
Mode 3: Commercial presence; a service supplier of one country establishes a national presence, including through ownership or lease of premises, in another country’s territory to provide a service (e.g., domestic subsidiaries of foreign insurance companies or hotel chains).
Mode 4: Presence of natural persons; persons of one country entering the territory of another state to supply a service (e.g., accountants, doctors or teachers). This mode includes self-employed persons and employees on temporary assignment (intra-corporate transferees).
The AUC Department of Trade and Industry (DTI), assisted by partners is intending to plug this gap through the development of a database on trade in services that will cover modes 1 through 4 and provide analysis of the impact of services policy on services trade, particularly exports.
As part of its bid to contribute to empirical evidence on services trade, the DTI has already developed a compendium of 5 case studies of successful services exports in Africa. Titled: Services Exports for Growth and Development: Case Studies from Africa, the publication highlights air transport services in Ethiopia, banking services in Nigeria, business processing outsourcing/ICT services in Senegal, cultural services in Burkina Faso and higher education services in Uganda. Overall the studies point to the fact that the services sector has the potential to become a significant driver of sustained economic growth and structural transformation in Africa.
As African countries negotiate with each other to develop a services trade market, their biggest trading partner, the EU, is negotiating the exit of the United Kingdom from the bloc. For African countries, it would be vital that they cement the Agreement establishing the CFTA before any further move is made to finalize the Economic Partnership Agreements (EPAs) with the EU, which fragment Africa into regional groupings that do not coincide with the Regional Economic Communities (RECs) recognized by the AU. In effect, the coming into force of the CFTA would enable African countries to negotiate as a trading bloc with the EU on the EPAs (if that is the structure that is chosen going forward).
Where some African countries’ trade is stronger with the UK (under the EPAs), they will be impacted by the UK’s exit. The fact that services may not make it into a future UK-EU trade deal may also be a complicating factor. That said, with the advent of the CFTA, Africa should only appear stronger vis-à-vis third parties whether it is the EU, China, India, the UK or the US.
Endnotes
[1] The Regional Economic Communities (RECs) are eight regional groupings of African states that facilitate regional economic integration between members of the individual regions and through the broader African Economic Community (AEC). The RECS are increasingly expected to coordinate African Union interests in other areas including peace and security, development and governance.
[2] McKinsey (2010) What’s driving Africa’s growth
[3] Deloitte argues that the vast geography, nascent markets, lack of connectivity, shallow regional integration and lack of trained people and knowledge networks make a more nuanced view of a multi-speed Africa more appropriate. Deloitte (2017) African trends going into 2017 | Adjusting to Africa’s new normal.
[4] IMF Regional Economic Outlook: Sub-Saharan Africa, October 2016