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AfCFTA to turbo charge growth

6th September 2019

By: Creamer Media Reporter

     

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Dimitri Papaefstratiou contends that major new opportunities for cross-border collaboration will arise from the signing of the African Continental Free Trade Area (AfCFTA) agreement.

The African Continental Free Trade Area (AfCFTA) agreement, which has now been signed by 54 of the 55 African Union (AU) member countries, envisages the establishment of a massive free-trade zone with the potential to generate an estimated $3.2-trillion worth of intercountry trade across Africa. The AU says the AfCFTA will create the world’s largest free-trade area, estimating that its implementation will lead to a boost of 60% in intra-African trade by 2022.

Set to come into operation in July next year, the AfCFTA agreement is aimed at raising the historically low levels of trade in Africa by reducing barriers to trade. Only 16% of international trade by African countries currently takes place between African countries, according to research by the African Development Bank.

Yet there is widespread consensus that, to realise the envisaged benefits of the AfCFTA, there needs to be significant improvement in regional infrastructure to accommodate such trade. As Empower New Energy founder Terje Osmundsen suggested recently, the agreement cannot be implemented without massive investments in roads, ports, electricity, digitalisation and other infrastructure. It is critical that the problems concerning the reliability of energy supply are addressed quickly and comprehensively.

Following the official ceremony in Niger in July launching the AfCFTA, much has been written in the press about the difficulties of reaching agreement on ‘rules of origin’ or the timelines for tariff reductions. Yet the practical difficulties of trading across African borders can only be resolved with the creation and expansion of enabling infrastructure. It is in the arena of regional infrastructure development and investment that the implementation of the AfCFTA will succeed or fail.

It should be noted that enabling infrastructure in this context is certainly physical, but also digital and legal, among others. As the Brookings Institute recently noted in its ‘Africa Economic Outlook 2019’ report, there is evidence of increasing regional collaboration towards what it describes as regional public goods in Africa. This has taken place in several areas: peace and security, hard infrastructure (roads, ports, railways and corridors), soft infrastructure (logistics markets, including regulatory policies for mining and energy).

Surely, the opportunity now presents itself for the countries of the African continent to create the impetus to effect transformation in their economies. With respect to energy, it is notable that Africa still suffers from large-scale energy poverty. As Osmundsen notes, “the estimated average of 22 hours without electricity per month means lost sales revenues of up to 10% or more for a large proportion of Africa’s businesses”.

While acknowledging these challenges, it is also notable that the prospects for the African continent have rarely been more auspicious. Africa’s changing demographics are yielding a middle class with purchasing power and a large number of new consumers. Global capital is available in substantial supply, including substantial capital for development projects from development finance institutions (DFIs) and multilateral organisations, as well as funding from China. Chinese trade with African countries alone now amounts to $150-million to $200-billion a year.

In terms of energy resources, the African continent boasts near-limitless supplies of renewable-energy resources, including solar irradiation, hydropower potential, geothermal power potential and wind resources. In addition, there have been a series of major new gas discoveries across Africa in recent years. These include a significant find off South Africa’s southern coastline earlier this year, as well as new discoveries in Ghana, Nigeria and Senegal, among others. In Eastern Africa, Mozambique and Tanzania are well advanced towards exploiting their natural gas reserves. In North Africa, it would appear that the latest gas discoveries in Egypt and the Eastern Mediterranean will soon be used to feed domestic growth or to be liquefied and exported using existing liquefied natural gas infrastructure.

One of the fundamental problems in the region is not about the availability of fuel, but rather the African continent’s ability – or inability – to use that fuel in a way that meaningfully contributes to regional socioeconomic development. Following on from this, questions are now emerging concerning the future and governance structures of regional energy infrastructure – such as the West African Gas Pipeline – and how such infrastructure may be used more effectively in future.

As we look into how we can best use these energy resources – both locally and regionally – to fuel growth, further questions loom: Is it possible to accelerate growth and fuel economic development while simultaneously preserving Africa’s unique environment? Will it continue to be possible to use locally produced oil and gas resources to power growth, particularly in light of the terms of the Paris Agreement on climate change? It is especially noteworthy that, with a rapidly growing population in sub-Saharan Africa and changing patterns of consumption, there is a real risk for Africa’s environment and a real opportunity to develop infrastructure for the future and forge a new pathway for development that respects natural limits. A significant new initiative for regional governance and trade, such as the AfCFTA, offers unique opportunities to realise the United Nations’ Sustainable Development Goals in a new development model for the future.

This is an area where the ‘regional public goods’ championed by the Brookings Institute may find their greatest relevance. There are certainly good grounds for optimism, given the ongoing development mechanisms of regional governance and the concerted efforts of DFIs, multilateral organisations and the private sector to generate real results.

Certainly, one can see regional cooperation in supporting renewable generation in the context of a broader energy transition. These underlying trends and themes have a significant role to play in shaping the African energy market in the years to come. The AfCFTA is a tremendous opportunity to not only ‘turbocharge’ growth but also create regional public goods, especially infrastructure, that will enable a prosperous and sustainable future for Africa.

 

Papaefstratiou, a partner at DLA Piper, has significant international experience in renewable-energy projects - dimitri.papaefstratiou@dlapiper.com

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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