24 November, 2021
November 20th: Africa Industrialization Day
November 20th is the date that the United Nations marked for the celebration of Africa’s Industrialization Day. This date leads us to reflect on the African continent: which is the situation of the continent, what its future prospects are and what tools are being used to promote its industrialization and economic growth.
Since much of the income of African countries comes from agriculture, special agro-processing areas need to be created to help promote agro-industrial development and employment. It is therefore important to promote diversification of the economy, as external factors may lead to greater volatility in the prices of these products. For instance, the main source of income of one of Africa’s most promising economies, Nigeria, is oil, which accounts for almost all export earnings.
Therefore, to increase economic growth, investment in the services and industry sectors is needed. The COVID-19 pandemic has had a devastating effect at the global level, and has deeply affected many African countries, as it has caused the slowdown in trade and the paralysis of many economic sectors.
In any case, Africa has great potential for the coming decades, characterized by a favorable demographic profile, due to the growing youth population that will enter the labor market and will generate greater productivity. In addition, increased job opportunities in large cities will lead to high rates of urbanization and there is also a highly educated diaspora.
However, there are other challenges that the continent will continue to face, such as the terrorist threat, climate change, political instability and corruption, which will undermine its economic potential. The effects of climate change are already causing major droughts and desertification in some cases, and this will lead to a greater struggle to obtain essential resources such as water and will become a breeding ground for the presence of armed groups. In fact, factors such as political instability will drive away foreign capital investments in the country. That is why the presence of transparent governments that are accountable to citizens and that are committed to economic development is essential to boost industrialization.
Africa Industrialization Day was adopted by the Assembly of Heads of State and Government of the Organization of African Unity in July 1989 in Addis Ababa, Ethiopia. This date is seen as an opportunity for key stakeholders to reflect on Africa’s industrialization and on how a transformation can take place on the continent.
One of the greatest achievements so far of the African Union is related to the Creation of the African Continental Free Trade Area (AfCFTA), which came into force in 2019 after obtaining the number of ratifications required. Trade under the African Continental Free Trade Area Agreement (AfCFTA) began on 1 January 2021. Once fully operational, the AFCFTA will create an African single market for goods and services, covering some 1.2 billion people, with a combined GDP of more than USD 2.5 trillion in 55 Member States.
The African Continental Free Trade Area, which will include the 55 member states of the African Union, will be the largest free trade area in number of participating countries since the formation of the World Trade Organization. “The agreement will mean a 52% increase in intra-African trade by 2022, according to the United Nations Economic Commission for Africa. It has the potential to lift 30 million people out of extreme poverty, and will contribute to the rising incomes of 68 million people, who live on less than $5.50 a day“. (World Bank, The African Continental Free Trade Area).
This initiative, however, also has some weaknesses. The success of the African Continental Free Trade Area, among other initiatives that have been promoted in Africa in economic terms, is limited. Intra-African trade is characterized by specialization in few products and the production of raw materials for export, but in turn there is a lack of transport infrastructure that facilitates trade. That is why a series of policies must be put in place to strengthen African economies in order to boost trade subsequently.
Since the African Continental Free Trade Area Agreement involves the removal of barriers to trade between the countries of the African continent, the major economies of the continent that export goods to other countries will benefit the most. These include Morocco or South Africa, which have greater technical and administrative capacity to effectively implement and take advantage of new tariffs and customs procedures.
In this regard, African leaders must ensure that emerging industries and goods exported by smaller economies also benefit from the opening up of markets and thereby increase African trade. One aspect in which states must invest to increase the commercialization of goods in this new Free Trade Area is related to the infrastructure for the transport of goods by road or through the railway system. This investment should be especially large in landlocked countries and those with a lower degree of economic development.
A hopeful element is that, in addition to the great economic push that a free trade system will entail, increased intra-African trade can foster the creation of peace or stability on the continent. This is interpreted through the common interest. When two states have the potential to make profits through the exchange of goods, both parties are interested in producing this, and will not conflict. On the other hand, there may also be the following scenario: the absence of conflict between countries must be a sine qua non for it to produce trade.
The hopes for this new trade agreement in Africa are very high, even though the challenges at the infrastructure level or in terms of the right conditions to facilitate the exchange of goods are inevitable. However, if the political and economic scenario is favorable, the continent’s growth in the coming decades will be remarkable, since further industrialization and diversification of the economy will mean being in a better position to market higher value goods with Europe, Asia or the Middle East. However, these issues will be progressively resolved as the African Continental Free Trade Area becomes operational and economies grow.
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Author: Noelia Gómez Bosqued, intern at ANUE