FORESIGHT AFRICA BOLSTERING AFRICA’S ROLE IN THE GLOBAL ECONOMY The importance of regional integration 74 Bolstering Africa’s role in the global economy A continental strategy for economic diversification through the AfCFTA and intellectual property rights Vera Songwe, Executive Secretary, U.N. Economic Commission for Africa & Nonresident Senior Fellow, Africa Growth Initiative, Brookings Institution @ECA_Official @songwevera With all Africa now signed on to the African trade in existing commodities to benefit Continental Free Trade Agreement (AfCFTA) fully from the AfCFTA, hence the importance and 29 countries having ratified it (as of January of beginning Phase II of negotiations 2020), the region is now implementing a single on investment, competition policy, and continental market for goods and services and intellectual property rights.1 In particular, with laying the foundations for the establishment an increasingly digitized economy and a store of a continental customs union. Many on the of innovative youth, working on IP registration continent look to the AfCFTA as an investment, and protection will be key to harnessing the economic diversification, and job creation full potential of the AfCFTA and securing blueprint that will shape the future of Africa in Africa’s future. the years to come, help meet the SDG targets by 2030, and consolidate progress toward the Still-low intra-regional trade highlights the African Union’s Agenda 2063. Indeed, with potential gains from the AfCFTA a combined GDP of over $2.3 trillion and a population of 1.2 billion—of which most are Though intra-African trade has been increasing below the age of 30—African countries stand slightly, it remains substantially below optimal to gain substantially from intra-regional trade. levels, and intracontinental trade is still very low compared to the rest of the world. The Progress on the finalization of AfCFTA Phase I share of intra-African exports as a percentage negotiations, namely, the establishment of the of total African exports has increased from schedules of concession for trade in goods, about 10 percent in 1995 to around 17 percent rules of origin, and specific commitments for in 2017, but it remains low compared to levels trade in services, is encouraging. However, in Europe (69 percent), Asia (59 percent), and Africa will need to do more than just increase North America (31 percent).2 1 See Vera Songwe, “Africa must take a lead role in the data economy,” Financial Times, October 14, 2019. 2 United Nations Economic Commission for Africa, Assessing Regional Integration in Africa IX: Next steps for the African Continental Free Trade Area (Addis Ababa: United Nations Economic Commission for Africa, 2019). 75 FORESIGHT AFRICA Figure 6.1 Figure 6.2 Gains from the African Continental Free Trade Area Regional integration among selected regional economic communities Africa's current regional trade agreements only cover a limited number of policy areas, and have had limited impact on regional integration, infrastructure, Implementation of the AfCFTA is expected to boost African welfare, GDP, and intra-African trade. The below figures show the continent's potential gains under and the free movement of people. The AfCFTA is far more ambitious, and will cover as many as 20 policy areas, eight more areas than the most comprehensive a scenario in which there is 100 percent liberalization of tariffs on trade in goods. UNCTAD states that the gains will arise from increased employment, current regional agreement, the EAC. improved use of domestic resources to increase the productivity of the manufacturing and agriculture sectors, and access to cheaper products. These gains will not accrue evenly among all countries, but, on the whole, Africa will benefit from the AfCFTA. Common Market for Economic Community Southern African Eastern and Southern East African of West African States Development AfCFTA Africa (COMESA) Community (EAC) (ECOWAS) Community (SADC) $16.1 billion increase Tariffs on manufacturing goods in welfare Tariffs on agricultural goods Export taxes Current Projected market market size size by 2030 Customs 1% to 3% 33% increase increase in intra-African in GDP Competition policy exports $2.1 trillion $3 trillion State aid TBN GDP GDP Antidumping Countervailing measures 1.26 billion 1.68 billion Agreement on Trade-Related Aspects people people of Intellectual Property Rights (TRIPS) State trading enterprise (STE) 1.2% 50% increase decrease in employment in trade deficit Technical barrier to trade (TBT) General Agreement on Trade in Services (GATS) Source: UNCTAD, "The Africa Continental Free Trade Area: The Day After the Kigali Summit," UNCTAD Policy Brief 67 (2018). Sanitary and phytosanitary (SPS) Projected GDP of Africa with and without the AfCFTA Billions of USD Movement of capital 1,200 Public procurement 1,000 TBN 800 Investment 600 Intellectual property rights (IPRs) 400 Environmental laws TBN 200 Labor market regulation TBN 0 Agreement on Trade-Related Investment Measures (TRIMs) TBN Nigeria Egypt South Africa East Africa Rest of Africa 2015 2030 2030 (with AfCFTA) Covered under trade agreement TBN To be negotiated Source: Brookings Africa Growth Initiative, using data from Jacques Bughin et al., Lions on the Move II: Realizing the Potential of Africa's Economies (Brussels: McKinsey & Company, 2016). Source: World Bank, World Development Report 2020: Trading for Development in the Age of Global Value Chains (Washington, D.C.: World Bank, 2019). 76 Bolstering Africa’s role in the global economy Figure 6.1 Figure 6.2 Gains from the African Continental Free Trade Area Regional integration among selected regional economic communities Africa's current regional trade agreements only cover a limited number of policy areas, and have had limited impact on regional integration, infrastructure, Implementation of the AfCFTA is expected to boost African welfare, GDP, and intra-African trade. The below figures show the continent's potential gains under and the free movement of people. The AfCFTA is far more ambitious, and will cover as many as 20 policy areas, eight more areas than the most comprehensive a scenario in which there is 100 percent liberalization of tariffs on trade in goods. UNCTAD states that the gains will arise from increased employment, current regional agreement, the EAC. improved use of domestic resources to increase the productivity of the manufacturing and agriculture sectors, and access to cheaper products. These gains will not accrue evenly among all countries, but, on the whole, Africa will benefit from the AfCFTA. Common Market for Economic Community Southern African Eastern and Southern East African of West African States Development AfCFTA Africa (COMESA) Community (EAC) (ECOWAS) Community (SADC) $16.1 billion increase Tariffs on manufacturing goods in welfare Tariffs on agricultural goods Export taxes Current Projected market market size size by 2030 Customs 1% to 3% 33% increase increase in intra-African in GDP Competition policy exports $2.1 trillion $3 trillion State aid TBN GDP GDP Antidumping Countervailing measures 1.26 billion 1.68 billion Agreement on Trade-Related Aspects people people of Intellectual Property Rights (TRIPS) State trading enterprise (STE) 1.2% 50% increase decrease in employment in trade deficit Technical barrier to trade (TBT) General Agreement on Trade in Services (GATS) Source: UNCTAD, "The Africa Continental Free Trade Area: The Day After the Kigali Summit," UNCTAD Policy Brief 67 (2018). Sanitary and phytosanitary (SPS) Projected GDP of Africa with and without the AfCFTA Billions of USD Movement of capital 1,200 Public procurement 1,000 TBN 800 Investment 600 Intellectual property rights (IPRs) 400 Environmental laws TBN 200 Labor market regulation TBN 0 Agreement on Trade-Related Investment Measures (TRIMs) TBN Nigeria Egypt South Africa East Africa Rest of Africa 2015 2030 2030 (with AfCFTA) Covered under trade agreement TBN To be negotiated Source: Brookings Africa Growth Initiative, using data from Jacques Bughin et al., Lions on the Move II: Realizing the Potential of Africa's Economies (Brussels: McKinsey & Company, 2016). Source: World Bank, World Development Report 2020: Trading for Development in the Age of Global Value Chains (Washington, D.C.: World Bank, 2019). 77 FORESIGHT AFRICA Figure 6.3 Progress on various dimensions of regional integration The African regional economic communities continue to make progress towards integration, but progress has been uneven across the communities. Notably, the ECOWAS and EAC regions are leading on financial and macroeconomic integration, and the EAC and COMESA have made the most progress on trade integration. Most glaringly, for all regions, is the insufficient progress around regional infrastructure. Trade integration 1.0 0.78 0.57 0.51 0.44 Free Regional movement 1.0 infrastructure of people 0.61 0.5 1.0 0.4 0.34 0.43 0.5 0.16 0.44 0 0.27 0.35 0.27 0.45 0.53 0.55 0.72 0.8 1.0 Financial and 1.0 Productive macroeconomic integration integration COMESA EAC ECOWAS SADC Note: Progress in each dimension of regional integration is scaled from a minimum of 0 to a maximum of 1, where 1 is the best score attainable. Scores in each dimension are calculated by weighting and standardizing selected indicators for each dimension. Productive integration refers to the ability to take part in regional and global value chains in order to unlock productive potential and make sectors more globally competitive and considers items such as shares of intra-regional intermediate goods exports and imports. Source: "Regional Economic Communities," Africa Regional Integration Index, accessed December 11, 2019. Figure 6.4 Figure 6.5 Export trade of the African regional economic communities by partner, 2010-2017 average Number of registered patents by region The challenge of the AfCFTA will be to increase regional trade beyond the immediate regional economic communities. Though intra-African trade has been Patents are important tools for encouraging and protecting domestic innovation. As such, an important indicator of innovation is the number of patent registrations increasing slightly, it still remains substantially below optimal levels.