The COVID-19 pandemic has further exacerbated Africa’s slow growth and high debt dilemma, pushing it into its first recession in 25 years. Given Africa’s economic vulnerability and over-reliance on the external environment, the economic fallout of COVID-19 will be much worse than that of the 2008 global financial crisis and the plunge in commodity prices in 2014.
Trading under the African Continental Free Trade Area started on Jan 1, a big step toward boosting economic recovery and structural transformation in Africa. In this context, its service and agri-processing industries enjoy great development opportunities, boding well for China-Africa cooperation.
Over the years, Africa has witnessed appreciable growth in the services sector, with record growth of 9.4 percent in services exports in 2018. Its imports in the services sector reached US$180 billion in 2019 while exports reached US$122 billion. Although Africa’s share in global services trade remains low, many African countries are witnessing a notable rise in the proportion of services exports in their total exports.
With the first-phase negotiations on the services trade under the AfCFTA completed, commercial services, tourism, banking and insurance are set to become key areas for opening-up. Moreover, promoting services such as accounting, financial services, telecommunication and transportation, will facilitate trade and support a thriving manufacturing sector.
To support private business development, African countries should prioritize the development of financial services to let the sector better serve the real economy. In Nigeria, one of Africa’s largest economies, funding provided by domestic commercial banks and other financial institutions to the private sector only accounts for 15.6 percent of the country’s GDP, much lower than in developed countries.
With the AfCFTA, financial services are expected to thrive, and the development of regional financial infrastructure will boost trans-border trade and investment.
This is an important area for China-Africa cooperation, listed as one of the 10 plans pledged at the 2015 Forum on China-Africa Cooperation. According to the plan, China will expand its renminbi settlement and currency swap operations with African countries, encourage Chinese financial institutions to set up more branches in Africa, and increase investment and financing cooperation with Africa in multiple ways.
The AfCFTA has highlighted the imbalance between financial supply and demand. Africa will expand its renminbi settlement and currency swap operations across the continent. As the next step, China could provide support to the Pan-African Payment and Settlement System which will enable each African country to use its own currency in transactions and release Africa from reliance on the US dollar in trade payments. Additionally, China should encourage African countries and financial institutions with relatively high credit ratings to issue renminbi-denominated bonds in China and encourage eligible Chinese financial institutions to issue renminbi-denominated or foreign currency-denominated bonds in Africa.
Concurrently, the agri-processing industry has huge potential in Africa. Statistics show that agriculture contributes 17.23 percent to Africa’s GDP and accounts for 38.5 percent of the jobs on the continent. However, due to lack of development funds and the low level of modernization, agriculture remains a backward sector of Africa’s economy with an average output per farmer 50-80 percent lower than anywhere else in the world.
Implementation of the AfCFTA will create new growth opportunities for Africa’s agribusinesses. Arancha Gonzalez, executive director of the International Trade Centre from 2013 to 2020, said the AfCFTA will boost Africa’s agri-processing industry by turning the continent’s plentiful agricultural raw materials into processed products.
For instance, the AfCFTA will increase the added value of Africa’s traditional exports including cocoa, coffee and tea by helping local agri-processing businesses move up the value chain. A unified, single market will also create new opportunities for exporting non-traditional agricultural products.
COVID-19 and the related economic challenges have coalesced into a food crisis, pushing Africa to reduce reliance on external suppliers and turn to closer local suppliers. This is helpful for developing intra-African value chains. A report released by the Southern African Development Community said 45 million people across southern Africa faced severe food shortages in 2020.
Josefa Leonel Correia Sacko, commissioner for rural economy and agriculture of the African Union Commission, said Africa should fully exploit its agricultural resources — the continent has around 600 million hectares of uncultivated arable land, roughly 60 percent of the global total — and enhance intra-African trade within the AfCFTA framework.
Supporting Africa’s agricultural modernization is a significant part of China-Africa cooperation. Against the backdrop of COVID-19 and the implementation of the AfCFTA, China will strengthen agricultural cooperation with Africa and boost its capabilities to ensure food security. Chinese businesses will double investment in Africa’s agricultural sector and improve the regional and global competitiveness of African agricultural products.
The author is an assistant researcher with the Institute of Developing Countries at the China Institute of International Studies. The author contributed this article to China Watch, a think tank powered by China Daily.
The views do not necessarily reflect those of China Daily.