Madagascar and the African Continental Free Trade Area (AfCFTA): An Opportunity to Awaken the Giant Within.

A year ago today, I was getting ready for my six months leave that included visits to Madagascar, my country of birth. The above was the title of my talk at the island’s first Chevening Alumni Madagascar Forum held in September 2018. The Forum was organized by a group of amazing young Malagasy Cheveners. They brought back skills and qualifications they acquired in leading universities in the UK to the country to initiate innovative development solutions in the public sector, in large multinationals, startups, small and medium sized enterprises, and in the non-profit sector. 

The Forum was held six months after the signature of the Agreement on establishing the African Continental Free Trade Area (AfCFTA) by African Heads of State in Kigali. Madagascar was among the signing countries. I shared with the audience the optimism, the sense of common African destiny that I felt in the negotiation meetings convened by the African Union Commission in Addis Ababa and in the historic weeks that led to Kigali. A historical event of that nature requires time and widespread consultations to be understood by all stakeholders I argued.

I spoke of the hopes of what the AfCFTA would mean : a market of 1.2 billion people.to conquer on preferential terms and the acceleration of the upward trajectory of intra-African trade, estimated at about 15.2 percent of total trade at continental level, four times less than in Europe or Asia. More trade within the continent means more opportunities to retain investments, higher chances to have thriving industries across Africa, hence higher chances to have a job rich growth path. And we all know that with millions of youth joining the job market every year, more jobs is a must for stability across the continent.

And yet amid the excitement, there was no quietening of the concerned voices from some parts of the room: what about other urgent matters that the government has to tackle? What about the country’s environmental crisis? Will benefits from the opportunities exceed losses from increased competition from abroad? And more. Will the AfCFTA mean greater chances for demographic dividend or will it turn out to be a trap? Such concerns are fully legitimate, I said. Plus, let’s face it: the combination of widespread Non-Tariff barriers and the reality of variable geometry, uneven development trajectories and fears of being flooded by products from more advanced countries is likely to make the AfCFTA journey an eventful one.

The Forum’s audience was composed of leaders from the private and public sectors thanks to the Chevening team’s inclusive approach. The high level of engagement from the room, including from a representative of a women’s group made me hopeful that the conversation could continue and would perhaps lead to more consultation efforts on the nuts and bolts of the AfCFTA and related Protocols.

A year later, I read in the Malagasy press that FIVIMPAMA, the island’s lead entrepreneurs’ organization advocates for a “protectionisme intelligent”: a “smart” protectionism that would help protect the local industry against any unregulated flood of imported goods. Although the article made no mention of the AfCFTA, one could not help thinking about previous pieces conveying the skepticism of many actors of the private sector, a feeling of not being ready to compete. Not just yet.

Not just yet is fine. When then? That is the question.

With about 26 million people, most of whom with an average income among the lowest in the world, Madagascar’s market is bound to be limited. Economies of scale must be part of the story for Madagascar’s businesses to compete, thrive and generate much needed wealth to invest in the country’s present and future. Madagascar’s trading with neighboring Southern African countries remains low, though on an upwards trend thanks to improved market access, namely within the Southern African Development Community (SADC). More than 50 percent of Madagascar’s trade is with the European Union, United States and China: all far away destination markets. High transport costs and vulnerability to increasing shipping times to Europe or Asia are likely to hinder the potential for greater competitiveness for firms based on the island. Addressing these limiting factors implies having the right policies and institutions in place. Successive governments have strived to establish these but it remains work in progress.

 I write this post some weeks after the launch of the operational phase of the AfCFTA by African Heads of State in Niamey in July 2019. It was another historical moment as the number of countries that ratified the AfCFTA exceeded what was required for the Agreement to be effective. I was honored to be once again part of the UNCTAD delegation led by UNCTAD’s Secretary General Dr Mukhisa Kituyi. As in Kigali last year, a spirit of optimism and solidarity prevailed. And as in Kigali, a Business Forum preceded the Summit. It was an opportunity for us to continue the dissemination of the 2019 edition of the UNCTAD Economic Development in Africa Report.

The report is entitled “Made in Africa”: Rules of Origin for Enhanced Intra-African trade.

 This report offers the first ever in depth look at the different regimes of rules of origin across Africa’s Regional Economic Communities. It makes it clear that it is Rules of Origin that will make or break the AfCFTA. They are at the cornerstone of what it means for goods to be labelled “Made in Africa” and to qualify for zero tariff on imports. Although not a policy tool, rules of origin are at the nexus of trade and industrial policy: if too soft, they will not allow for the creation of local value. And if too strong, they could lead to excessive protectionism and make the procurement of much needed intermediate goods for industrial development too costly. What is at stake? What characteristics should such rules have for the AfCFTA to be a success? These are some of the questions that the report addresses. The report argues that for the AfCFTA to achieve its ambition to the main trading regulatory framework in Africa, rules of origin, at this stage of the continent’s development, need to be simple, transparent, business friendly, predictable and accessible by all private sector stakeholders, from large to small and medium sized firms.

I urge participants of the Forum to read our UNCTAD report. It is a valuable supplement to my talk back in September 2018. We included case studies of six value chains to make it speak to reality: tea, cocoa to chocolate, cotton to apparel, beverages, cement and the automotive industry.

Take cocoa for example. African smallholders produce 75 per cent of cocoa beans worldwide but Africa accounts for only 20 per cent of the world’s total grinding. Chocolate sales amounted to about $112 billion worldwide and are set to continue to grow. Shouldn’t African producing countries aspire to earn a higher part of this pie? Should countries want to do so, there are many challenges along the way: market concentration in the downstream stages of the cocoa value chain, insufficient economies of scale, infrastructure and logistical challenges. There is also a lesser known problem: the development of cocoa to chocolate value chain on the African market is hindered by high level of tariff protection. From a technical point of view, with no rules of origin cumulation across African Regional Economic Communities, there is no competitive edge for African inputs going into the making of chocolate on the continent. Hence the need for business-friendly rules of origin at the cross-continental level.

With lesser than four percent of global trade, the African continent is traditionally viewed as a small player on the world scene. That is changing thanks to the leadership of African Heads of State and the African Union Commission on the AfCFTA project, a central element of the Africa We Want 2063 Agenda. As part of UNCTAD’s contribution to the AfCFTA process, reports like ours also play a role in changing the perception of Africa. In the weeks preceding the Niamey Summit, I was part of the disseminating team of the report’s key messages. I held interviews with local and regional press in Senegal, a hub in French speaking West Africa, and with Jeune Afrique, Les Échos Le Temps, Libération, Le Figaro Économie and on RFI and Africa 1 radio.

All interviewers asked: Will Africa really do it? 

The next milestone set for July 2020 when the AfCFTA opens for trading will contribute to answering that question.

Until then, much more remains to be done on consultations with all stakeholders. As I told the Chevening Forum audience a year ago, managing expectations remains key. Nigeria signed the AfCFTA in Niamey in July 2019. It took the country more than a year to hold internal consultations with stakeholders. Ending speculations on whether the continent’s largest economy will join the AfCFTA, Nigerians delivered their own answer to the “if not now, then when?” question.

I hope that Madagascar will define its own way through ratification of the AfCFTA and beyond. A way that is inclusive of all partners, including all stakeholders of the private sector, from employers organisations to sector based professional associations, trade unions, including women’s and youth groups and other concerned parties. For all to feel that they have participated in finalising the definitions of continental level rules of origin, the tariff liberalisation schedules and in defining the small prints of the AfCFTA’s Phase 2 negotiations on Investment, Competition and Intellectual Property Rights.

The stimulating effect of peer influence

Yesterday, I met a colleague on my walk to work. We talked about politics and economics. And about the striking geographic and demographic differences between Ethiopia and Madagascar. Before we parted, he said: “In Ethiopia, there are about 100 million of us. We have had wars. Many wars. What are the excuses for Madagascar?”

 Touché. I thought.

 This brought me back to my Chevening Alumni Madagascar Forum talk. I ended my presentation with a slide showing the following:

 Crises on the global scene + Momentum in Africa + Geopolitical developments in emerging economies = An opportunity for Madagascar to awaken the giant within.

Paraphrasing Tony Robbins, the personal development expert I said: We must believe that massive action leads to massive results. 2030 is almost 10 years away. Massive action is required. It means implementing much needed capacity building actions, and legal, policy and regulatory framework for enterprises to thrive and investing in key sectors for achieving the sustainable development goals. In its original meaning, this affirmation holds for individuals. Madagascar’s Cheveners, I thank you for the opportunity and I salute you as Men and Women Leaders. All giants in the making.

Special thanks to Andihasina Nirina Rakoto, Harinirina Rakouth, Rija Rakotoson and Arielle Zafera (also a University of Sussex graduate).

For more on #AfCFTA and rules of origin, see here:

and @UNCTAD institutional posts on Twitter as well as my personal account posts at @milasoa.

For more information on the Chevening Scholarships and Fellowships see chevening.org. Applications for the 2020-2021 selection are open until 05 November 2019.