Africa’s free trade and FDI – a case of the good, the bad and the ugly?

Addis Ababa, 14 May 2018 (ECA) – A passionate debate on the place of the private sector in the arrangements of the African continental Free Trade Area (AfCFTA) has shored up tensions in thinking around foreign dominance of big business in Africa, especially in terms of investments. “Private sector and the implementation of the African continental free trade area” was the theme of the round table that spun the said debate at the 51at session of the UN Economic Commission for Africa.

 “What private sector are we talking about, when we know that in most of our countries, whole shares of the economy are escaping the nationals?” quizzed a delegate, in reaction to the discussions chaired by the Minister of Economy and Finance of Mauritania – Mr. Moctar Ould Djay. The argument raised was that foreign companies dominate the big business sectors in Africa and reap the most of accruing benefits or the dividends of growth.

But in the view of panelist – Mr.  Admassu Tadesse who heads the Trade and Development Bank (TDB), Africa should welcome foreign direct investment but create the environment for locals to benefit from it by mapping out forward and backward linkages to the concerned ventures.

“We live in an era where global value chains dominate, hence Africa cannot do it on its own,” argued Mr. Tadesse. He added that “we have to embrace international capital but make sure it creates these linkages. It is all about the in-betweens.”

A somewhat middle ground in the tension was obtained in the position of the Chief Economist of the African Export-Import Bank (Afreximbank) – Dr. Hippolyte Fofack who underscored the need to consider raising financing for the private sector on the continent as key. He said credit to Africa’s private sector is only 46 per cent as against 100 per cent for the sector in the Euro Zone and 150 per cent for the sector in China.

In his opinion, general support to Africa’s private sector would be a very important and rational choice especially in this era of increasing reliance on private-sector-led growth across the world. Aside from supporting businesses with credit, states need to create special economic zones to quicken the development of industrialization and improve regional value chains, he said.

When the private sector gets such support, it would need efficient distribution systems to make use of the openings to be ushered in by the AfCFTA, posited the Chairman of Rail Working Group, Mr. Howard Rosen. “The cost of trade is something to be tacked urgently,” Mr. Rosen mooted, while adding that there is need to support building of infrastructure in this area.

In a play of ‘first-things-first,’ Rwanda’s Ambassador to Ethiopia – H.E. Hope Tumukunde Gasatura said it was important for governments to first ratify the AfCFTA and the protocol on free movement in Africa, without which their private-sector actors would have no inroads into the Area. She noted that good reforms on ease of doing business was essential for all kinds of players to thrive – the large companies, medium-sized ones and small ventures.

The smaller operators in the game were of concern to UN Under-Secretary-General and Special Adviser to the Secretary General on African Affairs – Ms. Bience Gawanas. She urged governments to pay attention to the very small players especially those of the informal sector, small-holder farmers and women.  “When Government is trying to involve the private sector, it must tailor support packages for each group; not a one-size-fits-all,” she reasoned.

In all of these, leadership, governance and synergy between government departments will be key in making support to the private sector meaningful in the context of the AfCFTA, concluded Ms. Gawanas.

 

Issued by:

Communications Section
Economic Commission for Africa
PO Box 3001
Addis Ababa
Ethiopia
Tel: +251 11 551 5826
E-mail: eca-info@un.org