This is an extract from Africa Agriculture Trade Monitor 2021 edited by Antoine Bouët, Getaw Tadesse and Chahir Zaki

In Africa, trade and development depend heavily on progress in the agriculture sector. While African countries have diversified both their exports and trade partners over the last decade, African agricultural trade still suffers from structural and cyclical problems. Critical structural issues, which include low-quality goods, poor infrastructure, low productivity, costly nontariff measures, and water stress, must be addressed to improve Africa’s competitiveness and increase African trade. Cyclical problems related to exogenous shocks, such as the decline in oil prices and the pandemic, also affect trade in general and agriculture in particular. Against this backdrop, the 2021 Africa Agriculture Trade Monitor (AATM) analyzes continental and regional trends in African agricultural trade flows and policies, with a focus on the impact of the pandemic at both the macroeconomic and microeconomic levels. The major findings from the report’s six chapters are summarized below.

The pandemic and the implementation of the African Continental Free Trade Area (AfCFTA) were the key events affecting African trade in 2020 and 2021. These two important developments have presented a critical challenge and an unprecedented opportunity. While the recessionary impact of the pandemic has led to lower growth rates, rising poverty, and reduced trade flows, the AfCFTA represents an opportunity for significant gains at both the regional and continental levels. To fully seize this opportunity, the tariff liberalization accomplished in this first stage is a necessary step, but not sufficient. There is broad agreement on the need to improve Africa’s infrastructure and address nontariff measures that continue to erode Africa’s external competitiveness.

While Africa has long been an important exporter of cash crops and niche products, most African economies have not diversified; they continue to export either exclusive or standard products. Chapter 2 of the 2021 AATM characterizes African trade using three different approaches. First, it examines the comparative advantages of the African continent in agriculture and finds that Africa has enjoyed most success with cash crops (coffee, cocoa, tea, and cotton) and niche products (cashew nuts, kola nuts, vanilla, sesamum seeds, locust beans, etc.) in recent years. Second, this chapter identifies four groups of countries globally, based on a two-part classification of countries (diversified or nondiversified) and of export products (standard or exclusive). Only two African countries, South Africa (in 2003– 2005) and Egypt (in 2017–2019), have come close to those with a high diversification index globally. All other African economies are classified as nondiversified countries producing either standard or exclusive products. Third, the chapter investigates trade as measured in calories and in terms of resources embedded in traded products. Trade in calories (kcal/person/day) is a key variable used for measuring and evaluating the global food situation. Only five African countries have a positive trade balance in calories: Mauritius, Côte d’Ivoire, Zambia, Malawi, and Uganda. The other 47 countries must import calories, and of these, Djibouti has the largest calorie deficit per person. In terms of the embedded water content (virtual water) of traded products, many African countries that were chiefly net exporters of water in 1986 had become net water importers by 2010.

At the intra-African level, several products continue to be traded largely among clusters of countries, with a trivial share sold outside the cluster. Chapter 3 focuses on 10 products important to the continent’s food system: four cereals and pulses (rice, maize, wheat, and beans), three vegetables (potatoes, onions, and tomatoes), and three fruits (bananas and plantains, citrus fruit, and apples). At the continental level, the share

  of intra-African imports in total African imports is low for cereals, but high for tomatoes and citrus fruit. A network analysis presented in this chapter is used to examine the extent of trade regionalization in Africa. It shows that intra-African trade networks for the 10 products evolved significantly over the 2003–2019 period, with the average number of countries active in trade for each product ranging from 44 to 54. The network analysis also shows that the number of trade links between African countries increased significantly during the period, implying that African countries are becoming more connected for the studied commodities. However, there is a huge number of potential but unexploited trade relationships, as measured by the density of the networks (the number of actual trade links over the number of potential links) for the selected commodities. A further analysis of the centrality (assortativity) of the links in the networks indicates that intra-African trade for the selected commodities is not yet decentralized.

Despite its important role in Africa, the livestock sector is concentrated in low value-added products that are informally traded. Every year, Chapter 4 of the AATM focuses on specific value chains. This year, it examines the defensive interest of Africa in three value chains that are critical for food security and nutrition: meat and animals, dairy, and poultry. The chapter shows that, first, greater effort is needed to collect data on informal trade, given that significant intra-African trade in livestock is conducted in informal markets. Second, intracontinental livestock trade occurs primarily among southern and eastern African countries, plus Libya and Egypt. Third, although African countries benefit from preferential trade access in the United States and European Union through the African Growth and Opportunity Act (AGOA) and Everything But Arms (EBA) schemes, respectively, they face cumbersome nontariff measures, especially sanitary and phytosanitary measures and technical barriers to trade. African livestock sectors are also relatively less productive than other global producers, limited in part by low investment in livestock infrastructure and coordination. When the trade-inhibiting effects of domestic support to OECD-country agriculture are added to NTMs and Africa’s low investment in the livestock sector, it seems unlikely that African farmers could be competitive in world markets for meat, dairy, or poultry.

Quantifying the effect of COVID-19 in Africa shows that the health impacts have been relatively small, and the economic impacts more pronounced. Chapter 5 uses a computable general equilibrium (CGE) model to quantify the pandemic’s impact on African economies. The simulation shows that the economic impact has been smaller than initially expected, primarily because the health impact has been less severe than originally estimated. Furthermore, agricultural production has remained relatively stable and costs are down, reflecting the drop in prices for manufacturing and services. This suggests that there is room for the agrifood sector to expand. The number of people in poverty is estimated to have increased by 50.5 million in 2020. Finally, by using household surveys and making informed assumptions about the impact of the shock on job and income losses, an assessment was made of the pandemic’s socioeconomic impact in Ghana, Uganda, and Senegal. These simulations estimate that poverty incidence increased from 20.5 to 33.9 percent in Ghana, from 39.0 to 72.3 percent in Senegal, and from 18.9 to 26.8 percent in Uganda. To offset the negative effect of the pandemic, expansionary fiscal policies are needed. In Uganda, the shock could have been easily managed at a relatively low cost, but appropriate policies are expected to be more costly in Ghana and Senegal, given their limited fiscal space.

The Arab Maghreb Union (AMU) has implemented some trade liberalization, but its countries remain poorly integrated. Chapter 6, as in prior years, focuses on intraregional trade integration within one regional economic community (REC), in this case the AMU. The five AMU countries — Algeria, Libya, Mauritania, Morocco, and Tunisia — trade mainly with the European Union. Only Morocco and Tunisia are net exporters of agricultural products within the AMU, while Libya and Mauritania are the only significant net importers. Despite the AMU trade liberalization agreement, AMU integration remains superficial due to several trade- related factors, most notably tariffs, nontariff measures, poor transport infrastructure, weak domestic institutions, and cumbersome customs procedures. Clearly, these issues must be addressed to deepen integration of this REC.

To move forward with expanding African trade, deeper and wider cooperation is needed for both data and policies. The pandemic highlighted the need to improve trade data at the continental level in two ways: first, by generating real-time data, and second, by increasing initiatives to measure informal trade (especially for the livestock sector). In terms of policy advances, three priorities must be considered by the AfCFTA: digitalization of the agriculture and agrifood sector; facilitating intra-African trade through infrastructure improvements and addressing nontariff measures to complement the tariff liberalization that took place in early 2021; and increasing cooperative trade policies in times of crisis.

IMPLEMENTATION OF THE AFCFTA

Among the important recent developments in Africa is the implementation of the African Continental Free Trade Area (AfCFTA). This is considered a critical landmark of the Abuja Treaty (1994), which included six integration phases as follows: phase 1 (5 years) strengthening existing RECs and creating new RECs in other African regions; phase 2 (8 years) ensuring coordination within each REC by eliminating tariffs and NTMs; phase 3 (10 years) creating a free trade area or customs union in each REC; phase 4 (2 years) harmonizing tariff and nontariff systems among the RECs with the aim of creating a continental customs union; phase 5 (4 years) creating an African common market; and phase 6 (5 years) establishing an African economic community with a monetary union and an African parliament.

For the AfCFTA itself, negotiations have three major phases: a first phase consisting of the liberalization of trade in goods and services and the rules and procedures for settling disputes; a second phase dealing with the protocol on intellectual property, investment, and competition rights; and a third phase concerning electronic commerce. After five years of negotiations, 54 countries have now signed and 36 have ratified the AfCFTA agreement (as of April 2021), concluding the first AfCTA phase and creating the world’s largest free trade area. Free trade officially began on January 1, 2021. With the implementation of the AfCFTA, ratifying countries must remove tariffs on 90 percent of imported products, with least developed countries (LDCs) liberalizing their trade over a 10-year period and non-LDCs over a 5-year period. In addition, 7 percent of tariff lines that are related to sensitive products will be liberalized over 13 years for LDCs and 10 years for non-LDCs, and 3 percent of tariff lines will be excluded from tariff liberalization.

Several studies have provided an ex ante analysis of the potential impact of the AfCFTA, most using computable general equilibrium (CGE) models. These studies converge on the finding that decreasing or ultimately removing tariffs is necessary but not sufficient to achieve significant gains. However, the final result of reducing tariffs plus addressing NTMs and reducing time-in-transit costs is likely to generate important gains for Africa by reducing market distortions. Jensen and Sandrey (2015) argue that reducing tariffs alone will increase Africa’s GDP by 0.6 percent; when NTMs are also reduced, GDP increases by 1.5 percent. In the same vein, Chauvin et al. (2016) confirm these findings but with greater gains: a 1.3 percent increase in GDP when tariffs are reduced, and 5 percent when both tariffs and NTMs decrease. Moreover, Abrego et al. (2019) show that with a 35 percent reduction in NTMs, welfare (real income) increases by 2.6 percent for sub-Saharan Africa and 2.1 percent for the whole continent. More recently, the World Bank (2020), using a multinational CGE model combined with a global microsimulation framework (Global Income Distribution Dynamics [GIDD]), shows that real income gains from full implementation of the AfCFTA could reach 7 percent by 2035 (US$450 billion in 2014 prices). Like the other estimates, the World Bank study finds that tariff liberalization would lead to real income gains of about 0.2 percent at the continental level. However, when NTMs are reduced, real income gains reach 2.4 percent in 2035. At the microeconomic level, the study argues that the AfCFTA can help 30 million people escape extreme poverty and 68 million people escape moderate poverty.

Based on these studies, it is clear that tariff liberalization alone will yield positive outcomes, but additional measures are needed for a greater impact. While the tariff negotiations in the AfCTA’s first phase have been fairly successful, more efforts are needed in the short term to address infrastructure needs and NTMs. First, improvements are needed in African ports and roads to facilitate the transport of goods and speed the clearance processes for traded goods. Second, reducing the burden of NTMs (especially sanitary and phytosanitary measures, rules of origin, technical barriers to trade, and other para-tariff measures) is indispensable to improving the competitiveness of African exports.

These ex ante studies of the AfCFTA’s impact provide some important projections. However, two issues must be highlighted. First, an ex post analysis of the first year of free trade implementation is crucial to evaluate the short-term effect of the agreement. Second, as is shown in this report, formal trade data do not accurately reflect exports and imports in several sectors (especially the livestock sector). Incorporating informal cross-border trade into both trade statistics and modeling would provide a more accurate assessment of the AfCFTA. Indeed, removing tariffs may reduce consumer prices and thus discourage some of the informal trade that is primarily undertaken by the poorest segments of the population.

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Antoine Bouët is the Senior Research Fellow at the International Food Policy Research Institute (IFPRI); Getaw Tadesse is the Director of Operational Support at AKADEMIYA2063 and Chahir Zaki is the Associate Professor of Economics at the Faculty of Economics and Political Science, Cairo University.