A year ago, free trading began under the auspices of the African Continental Free Trade Area (AfCFTA). In this interview with Africa Renewal’s Kingsley Ighobor, the Secretary-General of the AfCFTA Secretariat Mr. Wamkele Mene discusses, among other issues, the crucial role of women and young people in free trade, a finance facility for Small and Medium-sized Enterprises (SMEs) and a compensation mechanism to help cushion the fiscal impact of a loss of tariff revenues. These are excerpts.
You are always harping on the participation of African women and the youth in free trading. Why is that and are they hearing you?
The reason I put a strong emphasis on young Africans and SMEs led by women is that, first, they are the drivers of the African economy. SMEs run by women account for close to 60 per cent of Africa's GDP, creating about 450 million jobs. Also, young Africans are at the cutting edge of technological advancements, whether it is in Lagos or Kigali. They are developing the latest software to drive e-commerce and so on. We will be making a catastrophic mistake if we don't include these important segments of our society in the implementation of this agreement.
I believe that if we want to move away from the old models of trade agreements, trade agreements that were criticized as benefiting only the big corporations, we need to focus on young people and women-run SMEs.
Let me also say that given the character of Africa's economy and demographics, it would be ill-advised to have a traditional trade agreement, which focuses on trade in goods, trade in services, intellectual property rights, and so on. Therefore, we have a mandate from our Heads of State to negotiate a protocol on women and young traders. The trade agreement will not have credibility if you exclude important segments of society; it will be perceived to benefit only the elites.
Many African young entrepreneurs lack access to financing. Is there anything you are doing about that?
We are right now in conversations with commercial banks in Africa to expedite the establishment of a Trade Finance Facility to support young people, for Small and Medium-scale Enterprises (SMEs). That conversation, I must say, is going slower than I would have hoped because there are several technical issues that we have to iron out. We want to make sure that young Africans have access to financing. We want to make sure that the criteria for qualification for financing don’t exclude young entrepreneurs.
About 70 percent of informal trade in Africa is carried out by women. What does AfCFTA offer these women?
We offer scale. You [women] will now be able to expand your market as an SME. From, let's say, Togo, you will now have access to new markets in East Africa, in Southern Africa, in Central Africa. We offer an opportunity to expand into a market of 1.3 billion people with a combined GDP of $3.4 trillion.
It is a significant opportunity if we have the right mechanisms to support our SMEs. That's why we are launching the Trade Finance Facility. That's why we are also launching the African Trade Gateway, along with Afreximbank. The African Trade Gateway will be a digital platform that will provide market and due diligence information about your counterparts, including the rules of origin, customs procedures, as well as payments transfers platform.
In the medium to long term, the benefits of AfCFTA are clear-cut. But in the short term, some countries may experience revenue loss, which may affect their budgets. What assurances do you give these countries that long-term gains would be worth short-term pain?
Some countries will indeed be immediate beneficiaries because they have the export capacity already. It is also true that there will be countries that will experience short-term revenue loss. To mitigate that, along with Afreximbank we are mobilizing funds for what we call an AfCFTA Adjustment Facility.
This fund is not going to be for budget support; it will be to support specific value chains in specific productive sectors of the economy, for example, textiles and agro-processing.
In collaboration with Afreximbank, we have mobilized $1 billion, and there is an opportunity to increase that sum. We project a need of between $7 billion and $10 billion.
We also need to change our mindset. And that is to look at tariffs not as a revenue-generating tool but as a tool for industrial development, to foster the development of the productive sectors, and, when necessary, to protect infant industries and prevent dumping.
So that's the long-term strategy that we should be thinking of in the short term. In February the Heads of State are expected to approve the adjustment facility so that countries can access it.
You recently participated in a Special Economic Zones (SEZs) consultative conference in Gabon. What impact will SEZs have on free trade in Africa?
We have an interesting situation on the continent where many countries have invested hundreds of millions of dollars in creating SEZs to boost competitiveness and industrial capacity. The SEZs contribute to innovation and job creation. For example, in Gabon, the SEZ has been successful in carrying out valuations on timber. Gabon no longer exports unprocessed timber; their timber is now processed locally, and value addition is done in the SEZ.
Senegal has an SEZ on pharmaceuticals. And so, we are thinking very innovatively about how goods or services from the SEZs can be integrated into the AfCFTA value chain.
A few countries are concerned that these goods receive an unfair advantage because they are produced in an SEZ where there are tax breaks and other incentives, and as a result creating unfair competition in the general market. On the other hand, we cannot ignore that SEZs create jobs for young people, particularly, and contribute to innovation and industrialization. So, we have to find mechanisms for ensuring that the goods produced in those zones are a part of the AfCFTA value chain.
Also, if we are happy to import goods produced in SEZs outside of the African continent, I don't think it makes sense for us to discriminate against goods that are produced in SEZs in Africa.
Carlos Lopez, a former Executive Secretary of the Economic Commission for Africa, recently said that the AfCFTA Secretariat needs to be better resourced. Is he right?
Of course, he is right, considering that the trade agreement is very wide in scope: trade in goods, trade in services, investment protection, trade remedies, etc. We need expertise in every area where we have a protocol. We need to develop the expertise internally; we don't need to go outside the continent to get consultants to work for us. So, I agree with him.
There are [currently] 39 State Parties to the agreement. We need to provide technical and capacity-building support to State Parties across all the protocols. At the same time, I'm very happy that in February when the Heads of State meet, they will consider a request from us as a Secretariat to improve our capacity to match with our very significant mandate.
What should Africans expect from the AfCFTA in 2022?
I hope that when you and I meet again by this time next year [December 2022], I will be able to say, ‘We have a Trade Finance Facility to support AfCFTA trading,’ that ‘This is X amount of dollars available for young entrepreneurs and SMEs.’
From the very beginning of 2022, I am putting all my efforts into making sure that the Trade Finance Facility becomes a reality. The African Trade Gateway is within our control. We can roll that out relatively quickly, but the Trade Finance Facility, which will rely on others coming on board, may take a bit longer.
What should traders expect, in practical terms?
The objective for us will be to conclude negotiations on the rules of origin, and what is outstanding are automobiles, textiles, clothing and sugar. These account for about 12 per cent to 15 per cent of what we call the tariff book. We want to conclude negotiations on these so that we can reach a hundred percent rules of origin convergence.
Immediate priorities include finalising negotiations on rules of origin, providing a finance facility for SMEs and launching the African Trade Gateway digital platform.
This article was first published in Africa Renewal.