The African Continental Free Trade Area (AfCFTA) agreement is a project deemed to make Africa the largest free trade area in the world, create a single market with a total GDP of $3 trillion and lift millions of Africans out of poverty. However, given the economic and political diversity of African nations and the lack of implementation of pre-existing trade agreements, it is safe to predict that applying AfCFTA will be challenging. One of the potential hurdles to the AfCFTA project is protectionism, a theory that at its core is at odds with free trade principles and has been a policy reflex for many African countries. Until African policymakers and the public realize that protectionism is detrimental to African economies in the long-term, it will be hard to implement the trade agreements under AfCFTA, especially on a continent where similar multilateral agreements have failed.
The illusion of protectionism
Tariffs that aim to bolster local consumption eventually create higher costs that decrease consumption in the long run
The argument for protectionism is that trade measures such as high tariffs and import quotas protect domestic industries and catalyze their growth. Protectionism advocates also argue that raising trade barriers protects local jobs. While in the short-term protected domestic industries might experience growth thanks to higher tariffs and quotas, the long-term economic repercussions of these measures largely surpass the brief spur domestic industries might experience. Two common long-term outcomes of protectionism are higher customer costs for both imported and local products and a decrease in quality of products available on the market. An additional effect of protectionism in Africa is the rapid emergence of secondary informal markets that crop up to assuage high customer costs.
Higher customer costs are exceptionally hard for lower income economies. While they might benefit a few industries, three common consequences of these costs perpetuate poverty. First, high customer costs reduce household savings. A decrease in savings limits individuals’ capacity to consume and invest in their local economies. In other words, the tariffs that aim to bolster local consumption eventually create higher costs that decrease consumption in the long run. Secondly, as national savings tumble and private sector capacity to invest is impaired by these higher costs, governments turn to external debt to bridge the financing gap. In a nutshell, high customer costs tend to increase a country’s debt burden. Finally, high customer costs limit the growth of local enterprises and job creation. A high tag price for cotton, for example, will simultaneously affect job creation in the textile, fashion and retail industries. This is especially true in Africa where protectionism tends to increase the cost of raw materials that multiple industries rely on.
The underlying issue
African nations have been competing against each other on the global market, rather than leveraging regional trade to elevate domestic industries.
Historically, one of the main characteristics of protectionism in Africa is how it has disproportionally targeted and impacted intra-continental trade. While African countries continue to trade with western countries, especially with their former colonizers, intra-continental trade has remained low and sometimes restricted. For example, the Gambia and its only neighboring country, Senegal, have experienced six trade-related border closures since the year 2000 . The two countries’ latest trade-related border closure was in 2016 after the Gambia imposed a new tax on all Senegalese registered trucks. The border closure not only impacted trade between the two countries, but prolonged travels between the northern and southern areas of Senegal by 10 hours for a period of over 3 months. Meanwhile, the two countries maintained good trade relations with their respective western partners. As of 2019, African intra-continental trade accounted for only 17% of the continent’s export, far lower than in Asia (59%), Europe (69%) and North America (31%). Low levels of intra-continental trade paired with protectionist tendencies reveal that African nations have been competing against each other on the global market, rather than leveraging regional trade to elevate domestic industries.
Possible AfCFTA redemption?
AfCFTA is an opportunity to correct this course. Through this agreement, lifting trade barriers would create new opportunities for local entrepreneurs and expand their customer base. Free trade measures would be particularly beneficial to smaller African countries where local businesses can expand their addressable market by sharing their expertise beyond their country’s frontier.
But for AfCFTA to actually benefit the continent’s economy, countries need to move past their protectionist reflex. Additionally, it will be important for public opinion in Africa to understand the detrimental effects of protectionism. Although protectionism is harmful entrepreneurship in Africa, it is a popular concept in some business communities. And as long as it remains popular, the political commitment to comply to AfCFTA measures will always lag.
Lévi Kedowide - TUKA Institute