Is the AfCFTA a path to industrialization or industrialization should come first?

A common topic among academics is that Preferential Trade Agreements (PTAs) spur industrialization because of the increasing trade flows that are generated in the preferential trade areas as a consequence of tariff liberalization, that foster competition and efficiency of economic operators, promoting industrial development[1]. But if we look at what happened in other Regional contexts, this is not exactly the path that others followed. 

The European Union integration process, for instance, started in 1951 with the creation of the European Coal and Steel Community (ECSC), which aimed at integrating the coal and steel resources of six European countries (France, Germany, Italy, Belgium, the Netherlands, and Luxembourg), laying the foundation for deeper European integration projects, that ultimately have manifested in the construction of the European Union[2]

Although the coal and steel production in Europe was strongly hit by the 2nd world war devastations (1939 – 1945), at the time of the establishment of the ECSC, all its member countries (with the only exception of Italy, where about 45 per cent of employees were still employed in the agriculture sector), were industrialised countries, with a coal and steel industry already well developed and constituting an important part of their economies. 

The North American Free Trade Agreement (NAFTA) has a more recent history. Signed in 1992 by Canada, Mexico, and the United States with effect from 1th January 1994, it was inspired by the success of the European Economic Community in eliminating tariffs in order to stimulate trade among its members. Similarly to the AfCFTA, the NAFTA was a “deep agreement”, as it in addition to liberalizing trade, contained provisions aimed at securing intellectual-property rights and with rules for resolving disputes between investors and participating countries.

The less industrialized nation in the NAFTA Agreement, Mexico, experienced during the period 1994-2013  a dramatic increase in its exports, from about $60 to nearly $400, resulting in a significant reduction of the development gap with US and Canada[3]. However, the Mexican miracle, i.e. the period of economic expansion when the country started to record rates of real growth superior to 6 percent per year, began in the 1940s, i.e. much before the NAFTA was established. At the time of conclusion of the NAFTA, Mexico had already developed a consistent industrial base which after the end of the 2nd World War further expanded[4].  

Asia is not different. Kawai and Wignaraja (2010)[5] highlight how this region, despite is at the forefront of global FTA activity, with 61 FTAs concluded so far, is a relative latecomer in the use of Preferential Trade Agreeements as a trade policy instruments, as most of such agreements started to spread since 2000, after that most of Asian countries already experimented rapid industrialization.

In Africa, on the other hand, the situation is completely different. Although the continent hosts countries such as South Africa, Kenya and Ghana, that have a consistent industrial base and a good level of business sophistication[6], the reality is that in the other African nations levels of industrialization are low, with manufacturing sectors fragile and uncompetitive, with a low export-orientation, and that contribute to the national GDP only marginally.

Moreover, over the past three decades, the share of manufacturing in GDP has been falling in all sub-Saharan Africa. In Kenya, for instance, the manufacturing sector contribution to the GDP was 8,4% in 2017, with a progressive declining trend in the previous years[7]. In Ethiopia, in the same year it was only 6.4%[8].

In an article titled “Africa should focus on industrialization. Free trade will follow”, Michael E. Odijie proposes a different reading of the axiom according to which free trade leads to industrialisation and structural change. In his view it’s exactly the opposite: it’s industrialisation that leads to free trade. It is known that one of the reasons why the AfCFTA was established is to increase the low continental level of intra-regional trade, which is estimated at around 15%, the lowest on the entire planet. According to the author, low intra-Africa trade means that African countries consume very little of what is produced by other African countries (it is said, with some kind of extremization, that Africa produces what does not consume and that consumes what it does not produces).

Another explanation is that Africa does not consume what it produces because what it produces is more costly than what imports. Is it really like that? Is it only a matter of cost? Some examples are cited in the article of products imported in African countries from Europe that are less expensive of similar products imported by other African countries.

We all know that transporting goods from an African country to another is hard (because of the poor transport infrastructure) and expensive. Moreover, Non-Tariff Barriers significantly increase prices of goods to final consumers. But these cannot be the only reasons. Odijie’s provocation is that the low level of intra-regional trade in Africa, rather than being a problem of trade, could be a problem of production. Production bases in most African countries are not adequate to satisfy the demand of African population, at least in those sectors that make more intensive and extensive use of Research & Development. The fact that South Africa, the most industrialized country in the continent, is the first star of the African intraregional trade seems to confirm the Odijie’s theory.  The author concludes by stating that African countries should concentrate on industrialising first, before attempting the African free trade area[9]

On the same line, as the Senegalese economist Ndongo Samba Sylla points out, in order to start trading, you first need something to trade. But most African countries are exporters of raw materials and agricultural commodities. The first are little needed by Africans, while for what concerns the second ones, although the volume of agricultural products exchanged at intra-regional level is progressively growing (as indicated by the IFPRI Africa agriculture trade monitor 2020, that also points out, however, as a high share of these products are traded informally at borders, mentioning the example of West Africa, where it is estimated that informal cross-border trade in staple foods accounts for about 30 percent of total trade in the Region), they are traded with no or little value addiction, so they do not generate consistent revenues to traders. According to a World Bank 2014 report, for instance, Ethiopia despite being among the top producers and exporters of coffee in the world, does not take the full advantage of the export of this product, as the country mainly exports unprocessed coffee beans for around 2 USD per kg., while a kilo of roasted Ethiopian coffee can reach the retail shelves for as much as 40 USD per kg. in international markets.

So what African countries need first is to develop industrial farming, automating production, and diversify their exports by adding value and making greater use of technology and skills.

Even if we do not share these conclusions, we can all agree that AfCFTA can only support industrialisation only if properly implemented. In this regard, as observed by Woolfrey and Byiers (2019)[10], the experience of Regional Economic communities (RECs) in Africa – most of which have established functioning free trade areas or customs unions – is not encouraging. 

Today are still many the cases where the member states of RECs, after the ratification of such agreements, do not participate, violate them or fail to honour specific commitments. In other words, there is gap between agreement and implementation that has hampered trade growth in Africa so far and undermined the transformative potential of intra-regional trade. In order to avoid the same error, it is necessary to avoid this implementation gap in the AfCFTA operalization. Both African States and RECs should play a proactive role both in implementing the AfCFTA provisions and should strive to complement the efforts conducted at continental level with interventions aimed to improve trade-related infrastructure and address non-tariff barriers, including inefficient customs practices, as observed by the International Monetary Fund, that in the Regional Economic Outlook Sub-Saharan Africa Recovery Amid Elevated Uncertainty (April 2019), suggests that addressing infrastructure needs and non-tariff barriers could have a much bigger impact on intra-African trade than tariff liberalisation under the AfCFTA.


[1] Baena-Rojas, J.J., Herrero-Olarte S., From Preferential Trade Arrangements to Free Trade Agreements: One of the Downturns of Cooperation in International Relations?, MDPI, Social Science, May 2020

[2] Hudson N., The European Coal and Steel Community: the Path Towards European IntegrationPortland State University, 2016

[3] From Encyclopaedia Britannica: North American Free Trade Agreement.

[4] Salvucci, R. The Economic History of Mexico, Economic History Association. 

[5] Kawai M., Wignaraja, G.,  Asian FTAs: Trends, Prospects, and Challenges, Asian Development Bank (ADB), Economics Working Paper Series No. 226, October 2010.

[6] The business sophistication is measured by the Global Competitiveness Report published by the World Economic Forum and is accessible from the World Bank’s World Development Indicators platform: https://tcdata360.worldbank.org/indicators/biz.soph?country=BRA&indicator=744&viz=line_chart&years=2007,2017

[7] Kenya Association of Manufacturers (KAM), Manufacturing in Kenya Under the ‘Big 4 Agenda’, A Sector Deep-dive Report, 2018.

[8] Oqubay, A., The Structure and Performance of the Ethiopian Manufacturing Sector, African Development Bank, Working Paper n. 299, June 2018.  

[9] https://theconversation.com/africa-should-focus-on-industrialisation-free-trade-will-follow-127142

[10] Woolfrey S., Byiers B., The African Continental Free Trade Area and the politics of industrialisation, ECDPM blog, 18 November 2019: https://ecdpm.org/talking-points/african-continental-free-trade-area-afcfta-politics-industrialisation/

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