AfCFTA: How will it affect Mauritius and Africa?
AfCFTA: How will it affect Mauritius and Africa?
The Africa CEO Forum held in Kigali recently was an opportunity to reflect on the progress of the African Continental Free Trade Area (AfCFTA), an integration initiative that will establish the largest free-trade area in the world. One year on from its initiation, the pact recently reached the ratification threshold needed for it to be implemented on 30 May 2019. In this feature, Richard Arlove, Regional CEO of Ocorian for Africa, Middle East and Asia (AMEA), shares his views with Mauritius newspaper, L'Express about how AfCFTA can boost economic integration, intra-Africa trade and level disparities.
What was a rather vague and frivolous idea some years back is now part of the future development plan of Africa. I’m referring to the establishment of the African Continental Free Trade Area. How does the Mauritius Africa Strategy fit into this new set-up of exchange of goods and services?
Firstly, it is important to stress the promise that the ratification of AfCFTA presents. As nothing could now stop the AfCTA from becoming a reality, analysts and policy makers have been pondering on the virtuous circle of the removal of trade barriers. With the economic integration of the continent’s 54 countries, this would mean a market of over 1.3 billion people and a combined GDP of US$6.36 trillion (PPP).It certainly holds a great deal of potential that could catalyse growth across the continent. In relation to Mauritius' Africa Strategy, in many respects it has given the country a head-start on capitalising on the AfCFTA.
Mauritius has long been an advocate for developing economic bridges between itself and other African states, leveraging its position as Africa's best place to conduct business as recognised by The World Bank. In many ways, the strategy will catalyse the effects of AfCFTA. This is because through its Global Business sector, Mauritius has already established and promoted itself as a regional hub for facilitating investments on the continent. It is undeniable that AfCFTA will add further to the attractiveness of Africa as a place to do business. Mauritius can contribute significantly to the new African impetus by making available to investors and businessmen an ecosystem that not only makes it easier for them to do business with Africa, but also enhances and safeguards their Enterprise Value and their Investor Value.
Adding value to the continent is no doubt a field where substantial development can be achieved. How best Mauritius can make a break-through in this specific area?
To do so, Mauritius must develop a clear Africa strategy. We should define a vision about how to create a win-win scenario for Mauritius and the rest of the continent; agree on an action plan; and give ourselves the means to execute the plan. The co-operation agreements and development of special economic zones with specific counties is a step in the right direction.
We need however, a clear strategic direction rather than having an opportunistic approach. We should identify approximately 10 business hubs on the continent with whom we open negotiations for establishing strong partnerships with a view to facilitate the flow of investment and trade. Through our Global Business sector, we have the ability to act as a bridge between investors and projects and between buyers and sellers to foster intra-Africa business. We also need to strengthen our economic diplomacy with these business hubs.
More importantly, what are the chances that Mauritius will remain the most preferred platform for channelling foreign investment in Africa given that it is not the only country that is doing well economically speaking on the African continent?
Mauritius is already a signatory to two of the continent’s most extensive trade blocs, namely the Southern African Development Community (SADC, 16 African states) and the Common Market for Eastern and Southern Africa (COMESA, 21 member states). Through these memberships, many foreign entrepreneurs have set up in Mauritius to avail of the trade advantages offered. For example, the development of the Mauritius Freeport facilities has been largely built on the benefits of our membership to SADC and COMESA. It can be expected that the advantages of a much larger and unified free trade area covering the whole of Africa will be more readily accessible in jurisdictions like Mauritius that present a higher degree of ease-of-doing business.
One of the main obstacles for the advent of a flexible trade system on the African continent relates to the issue of connectivity, be it by sea, by air or by road. What would be the minimum requirements needed in terms of investment in the field of connectivity, on a national as well as a continental level, for the free trade concept to become operational?
Improving trade facilitation will be essential to improving trade outcomes for the continent. One can expect AfCFTA to boost investments in trade-related infrastructure, an area where Mauritius stands to gain with an ecosystem that favours the set-up of private equity funds in various verticals including infrastructure. Large trading multinationals will also find it beneficial to set up regional headquarters in Mauritius for trading activities, either under the existing headquarter regime or to facilitate their procurement and treasury management. However, the lack of appropriate infrastructure on the continent remains one of the biggest constraints for the success of the free trade agreement in practice.
The infrastructure gap runs in billions of dollars and is a major barrier to trade. In my view, the lack of appropriate infrastructure such as roads, railways, seaports and airports, the cost of moving containers, the unavailability of efficient air routes, the road traffic congestion and other infrastructure issues will continue to be a major barrier to the development of trade within Africa. We must not also forget the big energy deficit that we have in many African countries - the absence of electricity has a major adverse effect on the capacity to develop manufacturing and hence trade.
Should the difficulties standing ahead invite for no further interest in the AfCFTA?
On the contrary, I believe that this free trade agreement will act as a catalyst for the realisation of infrastructure projects that now stand a greater chance of becoming viable through a higher volume of trade that will finance these infrastructure investments. In my view, the AfCFTA will boost public-private partnership initiatives to finance important infrastructure projects on the continent.
Another awaiting hurdle is the possibility that non-tariff barriers are practised at the expense of a free trade area supported by a majority of African countries. What are the mechanisms that should be put in place to prevent African trade from being hampered by non-tariff barriers?
The removal of tariffs from 90% of goods within the prescribed period of five years would boost intra-continental trade by 52% annually, according to the United Nations Economic Commission for Africa. In addition to goods, AfCFTA also covers services as well as investments, intellectual property rights, competition policy and dispute settlement. Trade in goods and in services will be negotiated in Phase 1, while Phase 2 of negotiations will cover investment, competition and intellectual property.
Besides spurring economic integration and boosting the continent’s industrialisation, AfCFTA will mean a giant leap in fostering unity across Africa by levelling out, to some degree, existing disparities between the well-to-do nations and the less fortunate ones. Trade has the power to accelerate productivity and economic growth and reduce the cost of living. In practice, I am certain that there will be many difficulties in the implementation of the Agreement, with countries having a tendency to protect their own interests. Let's hope that the arguments for the common interest of the continent as a whole will prevail in the end.
The Africa CEO Forum was recently held in Kigali. Was the choice of Rwanda accidental or is there any specific reason why after having experienced intense ethnic turbulences in the past, this landlocked African country has gained so much in terms of visibility on a global level?
The choice of Rwanda to host the Africa CEO Forum is not at all accidental. In many respects, Rwanda is an example. It has shown enormous resilience after a period of major adversity characterised by the genocide against the Tutsi 25 years ago. Since then, the country has admirably prospered and established itself as an attractive investment location that continues to reform investment and business laws. The country has a stable government with a clear and coherent vision, backed by commitment and determination. As a result, there are now great opportunities in high-end ecotourism, conference tourism, information and communication technologies, power generation, agricultural processing and logistics. However, the emerging position of Rwanda as a stable business is still evolving and nobody knows what will happen once President Kagame relinquishes control.
Rwanda is not an unknown destination to you. What aspect of that country’s development process is the most striking to you?
In the World Bank 2019 'Ease of Doing Business' rankings, Rwanda ranks second behind Mauritius in Africa and 29th globally. This dramatic change is what stands out most to me. Rwanda government has been progression driven, with a clear strategy targeting specific sectors such as information and communication technology and tourism, enabling them to attract investments that have spurred growth and employment within the country.
One of the areas where progress is the most noticeable is namely that of environmental protection. Why is Mauritius lagging behind in an area that has seen Rwanda succeed?
We have to learn from Rwanda in relation to a number of things, including the respect of the environment. In my view, Mauritius is far behind in this field mainly because we are not firm enough in the enforcement of our laws and we do not invest sufficiently in educating our youth about the environment. In Rwanda, they have a system called Umuganda, whereby members of the community clean up the streets and common areas of their community. I understand that when this was introduced, those who did not comply were sanctioned in some way.
Over time, the strict application of laws has helped Rwandans to develop a sense of self-discipline. Kigali is recognised by the United Nations as the most beautiful African city. In Mauritius, we could establish a social action program whereby each Mauritian could engage in some form of action for the benefit of the community, say for one day per annum for a start. It would not be easy to implement. We may not be successful that very first year. Even if half of the active population is involved, this will have a tremendous effect on our society. In addition, we should make such social and environmental action mandatory in our school curriculum, with possibly one week of engagement per year. Then, we would stand a chance that Port Louis could be a challenger to Kigali!
Originally published: L'Express
Journalist: Lindsay Prosper