World Bank: Weak manufacturing sector will affect gains in AfCFTA

The new World Bank report says the continent must go beyond trade in raw materials and link its production and trade to the global economy

A new World Bank report has revealed that Ghana will not be among the largest gainers from the African Continental Free Trade Area (AfCFTA) due to its smaller manufacturing base and underdeveloped transportation infrastructure, especially, railways.

According to the report titled ‘Africa in the New Trade Environment’, countries such as South Africa, Nigeria, Kenya, Senegal and Angola with robust manufacturing sectors and developed transportation infrastructure will rake in more benefits than other nations.

For example, South Africa is estimated to benefit more than US$5.7billion; Nigeria – US$2billion; Kenya – US$1.3billion; Senegal – US$1.2billion, and Angola – US$1.1billion.

Ghana’s industrial sector, according to data from the Ghana Statistical Service (GSS), has seen its growth contract consecutively in five quarters after the nation was hit by the pandemic in 2020; making it susceptible to trade imbalances from economies with a stronger industrial base.

With regard to transportation networks, especially railways, the country has among the poorest infrastructure on the continent. It is among nations which have most of their transportation networks, including rail lines, run from the location of a mine or agricultural production hot-spot to a port – with a focus on exports to the rest of the world.

To reduce losses on the AfCFTA market, the World Bank is urging countries such as Ghana – which are projected to be lesser gainers – to deepen integration with the top gainers, as these can facilitate the movement of people and goods.

“However, the long-term solution to address possible divergence in the gains is to further deepen the integration of economies within and across countries.

“Countries and regional entities need to implement policies which ease the constraints that inhibit the poor and poorer economies from accessing market infrastructure, and facilitate better integration of leading and lagging regions and movement of people across space and skill levels.

“Deepening integration would better address the divergence than individually targetted compensatory mechanisms, which would help only in coping with the transitions in the short-term,” the report stated.

Ease tensions between local industrial policies and AfCFTA ambitions

Another challenge the World Bank has observed among member-countries of the AfCFTA agreement is the brewing tensions between local trade unions and the overall ambition of AfCFTA, where the former feel the continental market will create unfair competition for them – citing Nigeria’s initial unwillingness to sign the agreement as an example of such cases.

Such concerns, the banks said, must be addressed by building local consensus and making such groups appreciate the agreement’s long-term benefits to the local economy.

“The AfCFTA’s success hinges on the member-countries’ effort to make the regional strategy part of their national policy and address the tensions that arise between the two…Political tensions, both between interest groups within a country and across member countries, will always be part of the process because countries often adopt divergent economic strategies.

“For example, Nigeria’s early hesitation to join the AfCFTA signalled the concerns of local trade unions in manufacturing over fear of competition from cheap imports. Nigerian President Muhammadu Buhari said in 2018 that his administration was in no hurry to enter any agreement that could make Nigeria a “dumping ground” for cheap imports from outside the free trade area. Nigeria’s concerns speak to the risks that all countries in the region face as they ease restrictions on the movement of goods, services, and people.

“To address these concerns, governments should find the sweet-spot that reinforces national economic goals and ensures maximum gains from increased integration. Reaching this difficult balance requires countries to look beyond a static assessment of their priorities and policies. In addition, countries need to build local consensus around the long-term benefits of integration.”

“This is particularly important in the larger countries, which may have relatively more influence on regional decisions. National and regional initiatives to reconcile these interests would elicit a broad base of citizen support if they were preceded by an inclusive process of local consultations to evaluate the impacts of such initiatives,” the report stated.

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