The AfCTA is Key Instrument in Africa’s Quest to Thrive “If we build it, they will come” – Donald Kaberuka

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On April 29, 2019, the Chairperson of the African Union Commission Moussa Faki Mahamat announced that the African Continental Free Trade Zone (AfCTA) initiative had secured the minimum threshold of 22 ratifications needed to enter into force on May 30, 2019. Thereafter it was operationalized as the One African Market, the world’s largest trading block.

At the time, Pan African Review (PAR) met up with Africa’s son of the soil and prominent economist, Dr. Donald Kaberuka, to put into perspective for our readers what this development meant in the context of shifting global economic and political dynamics. He has revisited and underscored some of the ideas in this interview with particular focus on the effects of the covid pandemic on African economies and how he predicts the recovery to play itself out. This interview will appear in our next issue of the Pan African Review Magazine whose main theme is the Covid-19 pandemic.

As President of the African Development Bank Group (AfDB) from 2005 to 2015, Dr Kaberuka was at the centre of initiatives to contain the fallout of the 2008 global financial crisis – that suddenly exploded across the world’s interconnected financial markets – on African economies.

Before his election to the AfDB presidency, Dr Kaberuka was Rwanda’s Minister of Finance and Economic Planning from 1997 to 2005. He was recently appointed Chair of The Global Fund (to Fight AIDS, Tuberculosis and Malaria), serves as the AU Special Envoy for Sustainable Financing, High Representative of AU Peace Facility, and is a member of the AU reform initiative led by Rwanda’s President Paul Kagame.

PAR: You say the neoliberal model has crushed, how so?

DK: In 1945, the global powers created instruments of ‘stability’ that constitute the neoliberal model. This liberal order established institutions and rules – ownership of technology, the IMF, the World Bank, and the WTO, for example – that ruled the roost for the period of 1945 and well into 2016.

However, the global multilateral-structured model appears to have run its course as, for the first time since 1945, it is being challenged on a sustainable basis at its American core and abroad. Another example is that China is giving more loans than the IMF and World Bank.

Now, about the crush itself. The beginning of the crush was the 2008 banking crisis. However, inside the G-20 (mainly consisting of a group of 20 strongest economies in the world) former rivals and current rivals came together and agreed on the need to save the global banking system and, most importantly, how to collaborate in dealing with the issues that had led to the crisis. We had Chinese, Russians, Americans, and others, cooperating and it worked. So, what was the reason the banking crisis never became a fully-fledged financial crisis, which would have resulted in an economic crisis, unemployment predicament, and a social catastrophe.

Similar cooperation carried forward in 2015 when the world made even bigger commitments. The conception of the SDGs (Sustainable Development Goals) was an attempt to say “We share the planet, we have shared problems, let us work together to achieve them, whether you are rich or poor.” However, a year later in 2016 we were back to the 1930s – the Trump Effect and the global consequences of his unapologetic pursuit of America First [MAGA].

PAR: Is this a temporary phenomenon?

DK: I don’t think this is a temporary phenomenon. The neoliberals in the West are back after Trump; it will certainty return. In Britain, Brexit will not change anything substantively. We will not go back to square one. There will be other things happening.

This phenomenon has collapsed the WTO (World Trade Organisation) and have ensured that it will not work as a framework for global trade. So, where do those who have destroyed it go for cooperating on trade? Nowhere. They negotiate bilaterally. We saw Trump and Xi (Jinping) sit and agree or disagree bilaterally. So, we will have those kinds of imperfect arrangements as replacements until something sustainable happens.

The point I’m making is that there is now no willingness to go back to the arrangement we had in 2008 that saved the global banking system; a system that could be relied upon for global stability. That’s my point. The tools are now limited. The fiscal tool is limited by sovereign debt and the monetary tool is exhausted. Most importantly, if there is a major crisis similar to that of 2008, it would be difficult for the world to contain.

As Henry Kissinger the former US secretary of State famously said, “We have a retiring power that does not know it’s retiring and a rising power that is very reluctant because it’s not ready.”

PAR: What can Africa do?

DK: We have to deal with Africa’s own vulnerabilities; its own reactive capabilities or responses. The AfCTA is one of the instruments in Africa’s arsenal. It’s not the only one. For me the AfCTA is not simply about politics. It’s all about investments. For instance, investors coming to the continent are looking for a bigger space to invest. So there will be an investment component. If you have read a recent issue of The Economist that has a cover story, “The New Scramble for Africa” you will realize three important points. One, Africans don’t have to make choices like in the Cold War Era. Two, and related, we can choose who to partner with and make hard bargains because they need us. Three, we have to be organized. Nothing can happen if we are not organized. I must emphasize, we have to be organized!

PAR: How does the AfCTA counter these threats?

DK: The first thing we have to do is to deal with something called the “spaghetti ball.” Currently, different African countries are in different economic communities that are in different stages of evolution. Some are PTAs (Preferential Trade Area), others are FTAs (Free Trade Area), others are customs unions, etc. Those in “French West Africa” are actually economic unions. So, we have to figure out a way to bring all these together in one system of a truly One Africa Market. It means we must allow those developments that remove tariffs internally amongst African countries while keeping them against foreign (non-African) goods. For that reason alone, harmonization of existing arrangements is important.

Secondly, I actually think investment is more important at this moment than trade. Those like the Chinese have been setting up large firms in Ethiopia and count on Djibouti as their main logistics centre. They are counting on markets in East Africa and the whole COMESA region. I think countries will be competing for investment location depending upon the comparative advantages that we have. For instance, despite its long distance from the sea, investors are coming to Rwanda for one huge comparative advantage: The state functions, guarantees security, and it delivers, with minimal to no corruption; it is now increasingly more accessible by air or via fibre optics. A long time ago we would not have called things like lack of corruption a comparative advantage. Now it is a huge comparative advantage; a very huge one at that.

PAR: Does the AfCTA help Africa to survive or to thrive?

DK: Before we thrive, we must survive! Investment is the best path to survival in this Trumpian era and beyond. The AfCTA is expected to remove tariffs on a significant portion of goods, eventually boosting intra-Africa trade from less than the current 20 to 52 per cent within the next half decade. Remember intra-EU trade stands at 62 per cent. This is why they are not worried about whatever else is going on around them, whether it is Brexit, what is happening in France, or across the Atlantic. The Europeans understand that with solid intra-Bloc trade and a huge integrated market, they know everybody will need them.

PAR: Any parting thoughts?

DK: If we have a larger integrated market arrangement people will come to us. But we must also recognise that the African story has an external version that hasn’t accurately reflected what’s actually taking place inside Africa. Yet, it has dominated how the world views the continent and people don’t appreciate the economic dimensions of such perceptions. We must change this. So, the Pan African Review is a timely initiative.

Source: Donald Kaberuka, March 2018

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