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CFTA to strengthen intraregional value chains in Africa

The aim of the African Continental Free Trade Agreement (CFTA), which was launch recently, is to create a single market for goods and services, free movement of people and enhance intra-African trade. The CFTA also has the capacity to promote regional value chains. Current inter-linkages between African economies are not sufficient to speed up economic growth within regional economic communities including the Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC) and the Southern African Development Community (SADC).

Extra-regional trade has outpaced intra-regional trade, often up to 90 per cent. Africa struggles behind much of the world in intra-regional integration. It’s share of trade with countries within regional economic communities in Africa are much below that of regional economic communities in Europe or Asia.

The European Competitiveness Report records the EU12 (Bulgaria, Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Romania, Slovenia and Slovakia) are more vertically integrated than the EU15 (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and the UK).

European governments have responded to decreased employment with a wave of labour market reforms and investment toward returning estranged workers to the labour force. While some of the regulations implemented by European governments are noteworthy such as unemployment insurance, other reforms have been criticised as being protectionist such as subsidies, quotas and non-tariff barriers. While social safety nets were not implemented to work as a panacea for the loss of jobs created by increased international value chain integration, they have been able to mitigate the negative effect of outsourcing employment.

Policymakers need to look at broader issues such as: Would the CFTA lead to “headquarter” and “factory” economies? Who would be the likely winners and losers? How would distributional impacts of trade and integration be addressed? And what social safety nets and skills policies need to be implemented to manage the winners and losers situation?