The advent of the African Continental Free Trade Area represents an historic opportunity for the continent to boost intra-African trade and accelerate structural transformation.
The idea of a continental trading bloc was first mooted by Ghana’s founding president Kwame Nkrumah more than six decades ago but a number of reasons, mainly mistrust, among Africa’s leaders of that era meant the idea remained just that – an idea.
The political will demonstrated by the current crop of African leaders – Rwanda’s President Paul Kagame in particular – to transform the idea into reality is most commendable. This, however, is just one building block put in place.
Africa has long been a producer and exporter of primary goods, of which we have little or no say over the price. One factor underlying the region’s slow economic progress is the fluctuations in the world market prices for our primary commodity exports.
Again, Ghana’s founding president Nkrumah attempted to tackle this by threatening to withhold cocoa exports (Ghana was at the time the world’s leading producer), but was soon overthrown before he could carry out that threat.
But history was made again this month when Ghana and Cote d’Ivoire, which together account for 65 percent of global cocoa production, secured concessions from stakeholders in the cocoa industry, including acceptance of a $2,600 floor price for a tonne of cocoa.
The two nations had threatened to stop selling their production to buyers unwilling to meet a minimum price, and have suspended the sale of the 2020/2021 crop until further notice for preparation of the implementation of the floor price.
The move is historic because it is the first time the producers have called consumers and the first time suppliers have called buyers to come and engage on price.
It also bolsters the two nations’ strength as a sub-region and the production, distribution and marketing of cocoa would have an input from them, which will be very good for farmers and our economies.
It is a game-changer which will bring about a rethinking of the whole industry and in the end help the countries in the long term to have control over pricing and the volumes to be sent to the market.
Over the years it has been the buyers who have determined the price for the suppliers. Considering that the world’s chocolate market is worth around $100bn, of which only $6bn go to cocoa producers, this development ensures that my poor uncles and cousins toiling daily on the cocoa farms in Ghana will soon get a fair reward for their labour; that the government gets more revenue to provide adequate social care like hospitals and schools; that additional revenue will be available to provide potable water and good roads for these farmers to cart their produce from the villages to the urban centres.
The recent collapse of the global commodities boom has only intensified the challenges that dwindling government revenues and fading economic prospects pose to African leaders.
As a result, the region’s governments are, one by one, taking steps to reclaim control of their coveted resources.
A recently produced mining-tax regime in copper-rich Zambia has yielded some promising results. The reform includes a 1.5 per cent increase in royalties and an additional 10 per cent windfall tax when copper prices exceed $7,500 per metric tonne, as well as a five percent import duty for copper concentrates, among new royalties and taxes for other non-copper minerals.
Industry leaders and lobby groups responded as one would expect – with exaggerated criticism. Citing divestment and job cuts, affected multinationals invoked their tired story that the reforms would hurt their margins and, in turn, derail the Zambian economy.
But there’s evidence to the contrary. According to the Economist Intelligence Unit, the sentiment amongst the reform’s critics is unduly negative, if not outright irrational.
In fact, some firms even recorded bumper profits at their Zambian copper mines last year, a period in which the sector managed to attract at least $1bn in new investment.
Despite their outrage, the numbers suggest that confidence in the profitability and governance of Zambia’s mining sector remains steadfast among investors.
It’s not so much the content of the legislation itself, rather it is the process through which it was designed, implemented and made open to adjustments.
The procedure is rooted in the government’s commitment to engage and consult with the multinationals impacted by the reform, a practice not unprecedented in Zambia’s previous mining tax overhauls.
And it seems the Zambian approach has been well received. Both Barrick Gold and First Quantum, two of the largest foreign miners in Zambia, are negotiating with the government, mapping constructive avenues toward continued investment in the country’s copper industry.
Though there are foot-draggers. By the time the regulations were enacted earlier this year, many firms had failed to show government authorities how higher taxes and royalties would damage their businesses.
To combat this, Zambian authorities have begun working with international organisations to strengthen Lusaka’s data collection and financial modelling capacities to better inform public debate and design regulatory policy.
This practice is similar to those of Sierra Leone and Côte d’Ivoire, two African countries that, like Zambia, have made incredible strides in developing responsible regulatory policy.
This effort is complemented by the Zambian Ministry of Finance’s recent strengthening of transfer pricing rules, which empowers tax auditors with the information needed to be more responsive with tax adjustments.
The imperative to protect a nation’s resources for the benefit of its proprietors is well understood across Africa. The same political will that pushed Africa’s leaders to turn the dream of a single market for Africa into a reality, and the resolve that pushed Ghana and Cote d’Ivoire to finally determine the cocoa price, must be leveraged across the board to ensure Africa gets fair returns on its resources!