The Secretary General of African Continental Free Trade Area (AfCFTA) Secretariat, Wamkele Mene has extolled how the continent is blessed with talented people whom when given the needed capital and training, can revolutionize Africa’s economy.
“African entrepreneurs, with their energy, expertise, initiative and sense of responsibility, are creating products, opening new markets, and utilising innovation creating opportunities, markets and solutions to social and environmental challenges.”
Speaking during a public lecture at University of Dar Es Salaam on Monday, Wamkele Mene asserted, “Africa’s problems are best addressed with African solutions, driven by Africans. It is Africans and African entrepreneurs that will grow the African economy, creating an integrated, prosperous, and peaceful continent.”
Read his full address below
UNIVERSITY OF DAR ES SALAAM
THEME: CREATING THE NEXT GENERATION OF ENTREPRENEURS THROUGH AFCFTA
28 JUNE 2021
SPEAKER: H.E. WAMKELE MENE
TOPIC: THE AfCFTA AND THE NEW AGE OF AFRICAN ENTERPRISE
In my intervention, I argue that industrialization is crucial for African countries to transform their economies, create jobs, add value and promote trade through greater integration into regional/global value chains.
Despite failing to industrialize in the past, there may be a new window of opportunity. This is due to the convergence of three factors:
- new technologies associated with the Fourth Industrial Revolution (4IR);
- a resurgence of start-up entrepreneurship in Africa; and
- the launch and commencement of the AfCFTA.
My presentation will accordingly highlight:
- the importance of industrialisation for African economies;
- the new age of enterprise in Africa – the resurgence of technological start-up entrepreneurship in Africa; and
- the vision of the AfCFTA and its impact on entrepreneurship and industrialization in Africa.
- Importance of industrialisation for African economies
- Until the economic fallout of the Covid-19 global pandemic pushed Africa into its first recession in over 25 years in 2020, the continent had experienced a steady and unprecedented economic growth since the early 2000s. Unemployment and inequality however, remained high even during this period of growth. The rural population and the urban poor, women and youth, have not benefited from the economic growth of the early 2000s. For the benefits of growth to be shared by all, there needs to be a structural transformation of the economy. In this regard, industrialization is crucial for African countries to transform their economies, add value and promote trade through greater integration into regional/global value chains.
- Africa has to rapidly industrialize to create jobs. The population is young and growing fast, and with a population of about 1.3 billion, it is the second highest of any region after Asia. It is estimated that the African labour force is set to swell by more than 170 million people between 2010 and 2020. If there are no productive jobs for these young people, the fight against poverty will be lost given that the most important determinant of whether someone in Africa is in poverty, or not, is whether they have a job.
- Indications are that 10 to 12 million young Africans join the labour force each year, yet the continent creates only 3.7 million jobs annually. By 2035, more young people will be entering Africa’s workforce each year than in the rest of the globe combined, according to the IMF. Many countries, businesses and organisations have begun to address this problem, using tools from progressive policy-making to innovative finance. However, over 60 percent of young people across Africa still remain unemployed.
- When countries in North America, Western Europe and Asia experienced similar demographic pressures in their past, industrialization enabled them to create jobs and welfare simultaneously. Indeed, the African Union (AU)’s Agenda 2063 recognizes industrialisation as essential for the realization of the goal of “A Prosperous Africa Based on Inclusive Growth and Sustainable Development.” Thus, industrialisation features prominently in the AU’s First Ten-Year Implementation Plan (2014-2023) and earlier in the AU’s “Action Plan for Accelerated Industrial Development of Africa.”
- Africa’s industrialisation policies rest on manufacturing, due to its multiplier effect on other sectors of the economy. Manufacturing is the “engine of growth” that enhances higher levels of productivity and greater technical change, thus creating more jobs with higher wages for both women and men.
- However, industrialisation in 21st century Africa calls for innovative strategies that go beyond sectoral approaches that target only manufacturing. Africa can industrialise by promoting all economic sectors that have potential for high growth and employment creation. Certain tradable services and farming activities such as the agro-industry, have become comparable to those of conventional manufacturing. These activities produce higher quantities of goods (at lower marginal costs) which can then be exported, increasing competition and productivity.
- The potential of non-manufacturing sectors for industrialisation becomes more important in the context of the Fourth Industrial Revolution, where robotics and additive manufacturing tend to replace low-skilled workers in manufacturing activities. The challenge for Africa is how to embrace the Fourth Industrial Revolution with its disruptive character, whislt at the same time, leveraging it to accelerate industrialisation. Start-ups and small and medium-sized firms with high-potential can complement the growth of large companies in driving Africa’s industrialisation.
- The new age of entrepreneurship in Africa – the resurgence of technological start-up entrepreneurship in Africa
- Industrialization in Africa can therefore not happen without its entrepreneurs and also continental economic integration. Entrepreneurship and small and medium enterprises (SMEs) are critical to every economy by creating innovative goods and jobs, promoting a competitive environment and economic growth, and facilitating income distribution.
- SMEs have a critical role to play in accelerating economic development, serving the unmet needs of African markets, and especially creating jobs. The World Bank, for example, estimates that SMEs are responsible for 77 percent of all jobs in Africa and as much as half of GDP in some countries. Surveys have revealed that in Ghana, for instance, micro, small and medium enterprises account for 92% of businesses and contribute about 70% of Gross Domestic Product (GDP). In Nigeria, SMEs account for 96% of businesses, 48% of GDP and 84% of employment, while in South Africa, the second largest economy in Africa, account for 91% of businesses, 34% of GDP, and 60% of employment.
- SMEs are involved in all sectors of industrial development, from mining, manufacturing, service industry to agriculture, fishing to climate change. However, most are involved in the service industry sector where they account for two-thirds of employment levels. The presence of SMEs in all sectors of the economy signifies their critical role in steering development. They are, indeed, the engine that drives African economies and the stepping stone to industrialisation.
- And entrepreneurship is a key driver of economic growth as it allows young people to participate in the labour market and stimulates job creation. Research shows that new businesses that entrepreneurs create have the potential to drive and shape innovation, speed up structural changes in the economy and introduce new competition – thereby contributing to productivity.
- Africa’s entrepreneurial potential is considerable, tapping into the growing pool of Africa’s youth, who are increasingly skilled and competitive. Africa is the world’s most entrepreneurial continent with 22 percent of the working-age population starting businesses, according to the AfDB. This is the highest entrepreneurship rate in the world; higher than the equivalent for Latin American countries (19%) and for developing countries in Asia (13%).
- Africa’s female entrepreneurship rate is also the highest in the world; 27 percent of the female adult population is engaged in early-stage entrepreneurial activity. This means African women are twice as likely to start a business as women elsewhere in the world. In Nigeria and Zambia, 40% of women start businesses, compared with 10% or less in industrial countries. We know that starting businesses enabless women to engage in income generating activities and diversify their households’ sources of income. It also allows for the flexibility in working hours that they need to assume other responsibilities.
- Entrepreneurs in Africa are younger than in other developing regions. The median age of Africa’s entrepreneurs is 31, much younger than their counterparts in East Asia (36 years old) and Latin America (35 years old). In particular, the 25-34 age bracket accounts for 38% of entrepreneurs in Africa, followed by the 18-24 and 35-44 age groups that each account for 23% of the working-age population. This reflects Africa’s demography with its young population.
- In Africa today, there are encouraging signs that start-up entrepreneurship on the continent is blooming. Take just two indicators: the growth in venture capital (VC) to African tech start-ups, and the growth in the tech start-up ecosystem, as reflected in the number of start-up accelerators and incubators spreading across the continent.
- Firstly, VC: between 2012 and 2018 there was a ten-fold increase in the amount of VC flowing into African tech start-ups, from a low of US$ 40 million in 2012 to US$ 608 million in 2018. Second, the tech start-up ecosystem in Africa has been developing rapidly since 2007, when M-Pesa was launched in Kenya. Moreover, an increasing number of global tech giants are joining this local resurgence of entrepreneurship by investing in Africa’s tech entrepreneurs and tech talent: in July 2018 Google announced that it will establish an Artificial Intelligence Lab in Ghana and in August 2018 it was announced that Google and Facebook will be funding a new master’s program in Machine Intelligence with Rwanda’s African Institute for Mathematical Sciences.
- Indeed, there is space for many other start-ups to build scale in Africa – whether in retail, technology, manufacturing, agriculture, mining, or a host of other sectors. Africa’s vast unmet needs and unfulfilled demand make it a continent ripe for entrepreneurship and innovation at scale. Several policy areas may, however, impact enterprise performance and their contributions to industrialisation. These include improving general economic conditions through sound fiscal and monetary policies and appropriate exchange rates, boosting the business environment, enforcing stable regulatory frameworks and ensuring fair trade relations. Reducing trade barriers will increase the size of markets that African entrepreneurs can tap. It is in this context that the AfCFTA becomes relevant.
- Vision of AfCFTA and its importance in development of Africa’s new age of enterprise
- The AfCFTA creates a three-trillion-dollar market opportunity with a population of more than one billion people, largely youthful and very talented. It is designed to create a duty-free, quota-free continent that can boost intra-African trade and investment, grow local businesses, stimulate industrialization and create jobs for the continent’s teeming, youthful population.
- As we may well know, industrialisation thrives on economies of large-scale production which requires a market considerably larger than that of most of the countries in Africa, individually. The limited individual country market size makes it imperative to explore exporting to regional, continental and global markets.
- Despite lower import duty within the continent’s various regional economic communities, a range of non-tariff and regulatory barriers continues to raise transaction costs and limit the movement of goods, services, labor, and capital across borders. These barriers include border delays, burdensome customs procedures, multiple licensing requirements, and increasingly, the requirement that importers secure national transit bonds along key routes. Trading across borders in Africa is more costly and time-consuming than in any other region of the world – and African countries trade more with the rest of the world than with one another.
- The AfCFTA therefore provides an institutional mechanism to address these trade barriers across the continent and move to a closer integration of all members. Phase I of the AfCFTA aims to reduce significantly, tariffs and non-tariff barriers to goods and advance in the liberalization of trade in services. Phase II, includes protocols on investment, competition policy and intellectual property (IP) rights and digital trade. The Assembly expects that these negotiations shall be concluded by the end of 2021.
- Consolidating Africa into a single market provides great opportunities for entrepreneurs, businesses and consumers across the continent, unlocking trade and manufacturing potential and further enhancing industrialization in Africa. The introduction of an AfCFTA simplified trade regime should provide small and informal businesses with greater protection, and support their participation in the new export opportunities created by the AfCFTA. By providing a large and attractive market, with reduced cross border barriers, entrepreneurs can undertake larger revenue projects on a regional rather than national scale. The AfCFTA also enhances the value proposition for entrepreneurs by reducing risk as it includes a protocol for the resolution of disputes. This protocol, should make investment in Africa less risky for the investors and for African countries.
- Furthermore, the negotiation and effective implementation of the phase II protocol on intellectual property rights (IPRs), under the AfCFTA, will create a strong enabling environment for IP creation, protection, administration and enforcement which will stimulate innovation and competitiveness of the business sector. IPRs provide incentives to inventors to develop new knowledge and the right to obtain a patent for an invention, for example, encourages the investment of money and effort in research and development. Therefore, an effective IP regime across the continent will facilitate the growth of SMEs and will lead to increased job creation especially for women and the youth.
- The AfCFTA Secretariat is rolling out several initiatives to ensure that women, young Africans and SMEs, are at the heart of implementation of the AfCFTA. In this regard, the Secretariat has launched a digitally-enabled platform, the AfCFTA app, to make sure that there is interconnectivity on the African continent for business expansion and reaching new customers. With the AfCFTA app, a trader will be able to access a new market in a different part of the continent which can accelerate interconnectivity particularly of SMEs across Africa. Thus, the goals of reducing trade and investment barriers in Africa can be attained in accordance with the objectives of the agreement.
- One of the mechanisms that the Secretariat is also working on is the development of a Pan-African payments and settlement platform, in collaboration with the Afreximbank. The PAPSS would allow African businesses to make cross border payments for intra-Africa trade in national currencies, thereby saving the continent an estimated $5billion in transfer charges that flow out of the continent annually. Thus, when a trader in Ghana, trading under the AfCFTA, has to transact with a counterpart in Kenya, that Ghanaian importer will be able to transfer funds in Ghana cedis to the other counterpart who will receive the funds in Kenyan shillings.
- While AfCFTA promises real prospects for growth-oriented businesses, a major concern in its implementation is the estimated 335 million businesses across Africa which are the direct beneficiaries but which remain informal. Remaining informal diminishes their ability to take advantage of opportunities offered under the agreement.
- Leveraging on the AfCFTA, we must accelerate Africa’s industrialisation with renewed impetus and vigour. Implementation of the AfCFTA will result in 97% of Africa’s products being traded at zero duty in less than 15 years, thereby increasing trade and investment and significantly boosting the continent’s efforts at industrialization. The implementation of the AfCFTA will also facilitate the establishment of essential regional value chains, where two or more regional member states are jointly involved in producing for some other country or for themselves, which could accelerate Africa’s integration into the global economy.
- The AfCFTA is creating a new narrative that should inspire talented African youth, living in any part of the continent, from Algeria to Zimbabwe, to imagine opportunities across the value chain and to pursue entrepreneurship in the various sectors. More equitable access to the opportunities arising from the implementation of AfCFTA will create shared prosperity and reduce vulnerability to future shocks. This includes ensuring the effective participation of SMEs, women and youth-led enterprises in the AfCFTA.
- The AfCFTA, as an important integration initiative for Africa, stands to address some of the most harmful barriers to regional integration, and also contribute to supporting post-Covid-19 reconstruction and economic transformation, embracing all the potentials of its 55 countries. Indeed, the Covid-19 crisis has accelerated the business innovations underway across Africa. The continent’s long-term growth trends and large unmet needs present entrepreneurs and investors with exciting opportunities for business building.
- Africa is full of talented people who,with capital and training, can deliver enormous returns and drive the economic change that is needed. African entrepreneurs, with their energy, expertise, initiative and sense of responsibility, are creating products, opening new markets, and utilising innovation creating opportunities, markets and solutions to social and environmental challenges. Africa’s problems are best addressed with African solutions, driven by Africans. It is Africans and African entrepreneurs that will grow the African economy, creating an integrated, prosperous, and peaceful continent.