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The African Continental Free Trade Area (AfCFTA) is a flagship project of the African Union’s Agenda 2063, which is a blueprint for attaining inclusive and sustainable development across the continent over the next 50 years.
The AfCFTA aims to boost Intra-African trade by providing a comprehensive and mutually beneficial trade agreement among the member states, covering trade in goods and services, investment, intellectual property rights and competition policy.
The outcome of the AfCFTA will depend on whether its member states can embrace industrialization and focus on increasing their respective productive capabilities.
It has been suggested that larger economies stand to benefit more from the AfCFTA in comparison to smaller economies because of their developed industrial bases and a more diversified export base to meet the import needs of smaller economies.
Although this does not mean that smaller economies will not benefit from the Agreement (for example, smaller member states could provide inputs for the products and services produced by the larger member states and thus become a part of a regional value chain), there certainly is a strong case to be made for improving industrial capacity in order to significantly benefit from the Agreement.
Industrial development will be essential if African countries are to increase their production of value-added products, expand exports of such products and reduce their trade imbalances.
At present, the primary industry remains the most important one for many African countries, Zambia included.
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This is because of the significant contribution to GDP that the agricultural and mining sectors make Ofa et al. (2012) suggest that the implication of this dependence on the primary industry is a similarity in export structures across countries with a focus on low value-added, poorly differentiated exports.
The implication of a small manufacturing sector for the AfCFTA is then that there will be low trade in finished goods which will limit the scope for intra-regional trade.
The key question then becomes how to improve the industrial base. In the case of Zambia, processing plants, multi-facility economic zones (MFEZs) and industrial yards will be critical.
These all play a key role in growing the manufacturing sector and industrial base because they provide both backward and forward linkages between different sectors of the economy and produce finished goods.
Moreover, they play a key role in the development and strengthening of value chains which aid industrialisation.
Furthermore, Zambia should improve business regulations and enhance access to credit for export-oriented manufacturing firms or those with the potential to do so.
Such supportive policies, along with the effective implementation of the AfCFTA, could boost the industrialisation and development of the country’s economy.
Another key strategy which can be implemented is that of import substitution, which involves replacing imports with domestic production.
This should especially be applied to goods coming from outside the continent. Companies such as United Capital Fertilizer Zambia Company Limited, which produces fertilizer, serve to illustrate that Zambia has the potential to pursue this strategy.
Although import substitution is associated with protectionist trade policies, the strategy can be adapted to serve regional needs in addition to domestic ones.
It is also worth noting that while embracing industrialization will affect the outcome of the AfCFTA, the AfCFTA will also promote industrialization.
Firstly, the Agreement will help attract foreign direct investment, especially in the manufacturing sector, as the large market can increase profit margins for external investors.
Additionally, as alluded to earlier, the AfCFTA can help promote industrial development through the development of regional value chains.
The development of these value chains will be aided by factors such as tariff liberalization and simplified rules of origin, and the removal of non-tariff barriers, issues which the AfCFTA seeks to address.
The potential the AfCFTA holds for the continent cannot be understated.
The United Nations Economic Commission for Africa has previously estimated that the AfCFTA has the potential both to boost intra-African trade by 52.3% by eliminating import duties, and to double this trade if non-tariff barriers are also reduced.
If intra-African trade is to increase, special attention must be paid to industrialization.
Recommended actions to fully benefit from the AfCFTA: The Zambian Government should identify the companies involved in the manufacturing sector (for example, African Milling, Zambeef and Tradekings) and provide support for them because they will play an important role in boosting intra-regional trade in the AfCFTA as trade begins.
These firms deal in exportable finished goods and stand to benefit from the larger market that the AfCFTA offers.
PMRC further urges the Government to expedite the implementation of the National AfCFTA Strategy and Implementation Plan for Zambia.
One notable goal for trade in goods, as found in the strategy, is to improve domestic supply capability by stimulating production for export, especially among MSMEs (Micro, Small and Medium Enterprises) and cooperatives.
To this end, each year, for ten years of implementation of the strategy, 11 SMEs will be identified, “nurtured”, and supported to produce exportable products.
Through Government support, these MSMEs will be introduced into an export market and will be supported in establishing a foothold and product diversity.
This could serve to grow Zambia’s manufacturing sector by increasing the number of finished goods being produced and thereby increasing the scope for intra-regional trade.
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