Africa’s Free Trade Agreement, The 4IR, Their Economic Link And A Vital Question About Preparedness

By  |  March 12, 2020

By now, the AfCFTA and the 4IR are strong characters in Africa’s economic playbook. While the African Continental Free Trade Agreement is en route to boost trade ties between nearly all countries in Africa, the Fourth Industrial Revolution is knocking at the continent’s rather big door.

With the need to grow now more than ever, how do these two upcomings lead up to each other, and is Africa ready to play this game?

The AfCFTA As Of Now

All hands are on deck to implement the AfCFTA, a company in which Eritrea is the only exclusion. The biggest boys on the economic block already have their possible winnings should the agreement become official come July 2020. Nigeria—now Africa’s largest economy—stands the chance of generating USD 537 Bn in annual exports from the trade deal. 

Eastern African countries reap USD 1.8 Bn and revive the region’s intra trade, a report from the UN Economic Commission for Africa (ECA) indicates. Being that the economies in the region remain fragmented, the success of the AfCFTA has the potential to revive both regional and intra-African  trade.

These numbers, among many others, form the reason African countries are hurrying their feet and pullings funds to meet up with the trademark policy. Kenya, for instance, will pay a small price of USD 100 Mn in customs taxes once the agreement sees the light of day. Ghana, on another hand, is spending USD 300 Mn to take part in the development. 

The need for the implementation of the AfCTA is so much that even the novel COVID-19 is not stopping it dead in its tracks. Despite the cancellation of many forums and conferences in Africa—chief of which is the now-postponed Africa CEO Forum—the July 1 schedule remains unchanged. 

The 4IR Revolution 

The Fourth Industrial Revolution is characterized by the amalgamation of the digital, biological and physical spheres of an economy. It is also the growing utilization of new technologies, like AI, 3D printing, machine learning, the Internet of Things, advanced wireless technology and cloud computing.

The initial industrial revolutions did more to free people from animal power, encouraged mass production and offered billions across the world digital capabilities. This fourth issue in the industrial family is different in that it even challenges ideas about what it means to be human. More and more people are being connected through digital means and innovative solutions are on the move. 

Well, Africa was left behind in the first, second and third industrial revolutions. The question now is: will the 4IR be a different case? Although it does not seem like the continent has actually claimed the 21st century, ICT developments in the region are developing faster than ever. 

The youths in Africa are being called upon to be mindful of and contribute to ushering in the 4IR into the continent. Inasmuch as digital financial services like mobile money has spread across, the failure to recognize and capitalize more on 4IR opportunities puts the continent at risk of missing out once again. 

Do The AfCFTA And The 4IR Interact? 

Nicholas Williams is the Division Manager of ICT Operations at the African Development Bank (AfDB). The first thing he told WeeTracker when the question of interrelationship was put forth was that the AfCFTA and the 4IR revolution are complementary to one another. 

“Both these movements have been buoyed by renewed political will and enthusiasm, on the part of the private sector and the continent’s leadership. The Bank (AfDB) has wholeheartedly supported efforts to get the AfCFTA off the ground, given the enormous potential that the free trade area holds to launch Africa into a new era of prosperity,” he said introductively. 

Williams makes us understand that the AfDB has already seen promising signs of regional integration driving technological innovation on the continent. Example given, the Nigerian Customs Service (NCS) is working on a cross-border trade platform,  and in South Africa, Transnet Port Terminals is moving to create an intelligent port terminal. 

On whether the 4IR will develop “trade” in Africa, Williams cited that the revolution has the potential to boost inefficiencies and productivity, “and thereby, trade”. There has been a noteworthy fast uptake of digital technologies in many African countries, as evidenced in a report by the AfDB—which shows that the 4IR is taking off despite the sufficiency of infrastrastructure. 

Some Things In Place

The lowness of trade among African countries is proven by the fact Intra-African exports were 16.6 percent of total exports in 2017, compared with 68 percent in Europe and 59 percent in Asia, pointing to untapped potential. 

But if these numbers are successfully reversed, trade within the continent would lead to an emergence of digital infrastructures, most of which would enable businesses explore collaborating and growth opportunities. This would be more possible when the AfCFTA and the 4IR marry.

There is a lack of a coherent industrial strategy to be actively pursued and implemented by African Member States within a continental framework. But the African Union’s Agenda 2063 aims to generate a 10 percent growth increase of the manufacturing by 2050. 

In the same way, the Action Plan for Accelerating Industrial Development in Africa (AIDA) has been designed to promote industrial development, including by facilitating the means for supporting Small and Medium-sized Enterprises (SMEs) to integrate in regional and global value chains. 

On the Member State level, countries such as Djibouti, Egypt, Eritrea, Ethiopia, Gabon, Kenya, Lesotho, Liberia, Mauritius, Nigeria, Rwanda, Tanzania, Uganda and Zimbabwe have adopted industrialisation strategies or policy frameworks. 

Heavy Digital Investments

The highlight of AfDB’s The Potential Of The Fourth Industrial Revolution In Africa is that over USD 100 Mn of venture capital was put into African Internet of Things startups in 2019. The report forecasts that the market will reach a value of USD 12.6 Bn by 2021 in Africa as well as the Middle East. 

Another interesting find from the outlook was that some USD 47 Mn was invested in additive manufacturing in Africa in 2019, another market projected to reach USD 1.2 Bn by 2022. While blockchain startups in Africa attracted USD 14.9 Mn in 2019, the Artificial Intelligence counterparts landed a cumulative USD 17.5 Mn in the same year. 

Major headway has also been made in sectors such as agriculture, manufacturing, health, education, and energy, where governments and the private sector are investing heavily to ensure that they seize the opportunities offered by 4IR.

The study identified 86 African companies located in 17 countries that are making use of IoT, Big Data and Artificial Intelligence (AI) applications already exist on some farms, to name just one example of how 4IR is taking root on the continent. 

These statistics show that African countries are gearing up for a revolution, thanks in part to the awareness created by the AfCFTA and the 4IR. All the ingredients are there for a new era of innovation, greater productivity and economic prosperity.

In 2019, approximately 6,500 technology startups were identified on the continent, among which about 10 percent develop applications that characterize the fourth industrial revolution.

So Which Is Africa More Ready For?

With the willingness and vehemence to put the necessary in place, the AfCFTA which will be unfailingly implemented on July 1, 2020, is no doubt the answer. The 4IR can come later, probably as a result of the intra-continental trade. Nevertheless, Williams opines that both these initiatives puts Africa in a highly positive trajectory. 

“Rarely has there been more momentum around catapulting Africa’s economy to an accelerated growth path. The AfCFTA is a powerful symbol of the continent’s readiness for a shift in a historic direction.  Africa has also experienced around two decades of impressive GDP growth, and has consistently been one of the fastest-growing regions in the world”, he added. 

These factors have laid the foundation for both the AfCFTA and 4IR to flourish.  In order for this potential to be realized, there are a few areas that require attention. These include  human capital (producing the required skills in science, technology, engineering and maths, aka STEM) providing  support for entrepreneurial and innovation ecosystems.

Developing financial instruments to take risks with startups alongside strong and stable capital markets is also important. Infrastructure development (access to stable  electricity, quality of internet access etc), a unified approach to data protection, and cyber and information security strategies are needed.

There’s also the harmonisation for online payment systems,  cross-border trade facilitation and standardised cross-border taxation and duties. 

Image Courtesy: The Conversation

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