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Combating Corruption Will Bring AfCFTA Success in Africa

The African Continental Free Trade Agreement (AfCFTA) aims to provide a single continental market for goods and services, as well as a customs union with free movement of capital and business travelers. The current version of the treaty, however, does not address corruption directly. It should.

African leaders in a group photo after signing the historic African Continental Free Trade Area agreement in March 2018 in Kigali. The agreement is expected to boost the level of intra-Africa trade/Photo: Paul Kagame Flickr

Although growth in Africa is forecasted at an average of 3.6 per cent for 2019–2020, with the world’s fastest growing economies being on the continent, there is still much to be done. Africa is still heavily reliant on commodity and agricultural exports while importing capital goods or food products predominantly from outside the continent. With a global trade share of less than 3 per cent, export diversification has yet to be achieved, as many African countries still rely on rents from extractive exports, whilst falling behind on industrialisation efforts.Against this backdrop, intra-African trade remains below its potential, accounting for about 17 per cent of the total African trade volume in 2017.

In contrast, North American intracontinental trade accounts for 51 per cent of exports, 49 per cent in Asia, and 22 per cent in Latin America, while among Western European countries this number reaches 69 per cent. Although some Regional Economic Communities (RECs) have achieved improvements in trade integration through tariff reductions, the African market remains fragmented. Non-tariff barriers such as uncoordinated bureaucratic procedures, long waiting times at the border or lengthy and cumbersome export requirements raise trade costs on the continent. As a result, Africa has integrated with the rest of the world faster than with itself.

With the Treaty of Abuja in 1991, the Member States of the Organisation for African Unity (OAU) agreed on a road map for the creation of a common African market. To accelerate the implementation of the Treaty and strengthen regional integration, the AU Trade Ministers agreed to establish an arc ft a. The AfCFTA has since been a flagship programme of the AU and AfCFTA negotiations were launched in June 2015.

Post-Covid-19: AFCFTA to Stimulate Economic Growth and Industrial Development in Africa

The AfCFTA will bring together all 55 member states of the African Union covering a market of more than 1.2 billion people and combined GDP of more than $3.4 trillion. The African Continental Free Trade Area presents a major opportunity for African countries to bring 30 million people out of extreme poverty and to raise the incomes of 68 million others who live on less than $5.50 per day.

Trade expert says AfCFTA could help Africa bounce back from Covid-19 impacts

Amid the COVID-19 pandemic, the African continent has seen challenges like other parts of the world that are affecting trade. This includes a moving effective date for the AfCFTA, which slid from July 1 to possibly January 1, 2021, to avoid distracting African leaders as they respond to the pandemic.

President Nana Addo Dankwa Akufo-Addo (right) and some of other dignitaries in front of the new Secretariat of the African Continental Free Trade Area, Accra, Ghana, August 2020/Photo: TPRG

Africa can use its comparative advantage in its rich agricultural resources by improving basic infrastructure and efficiency, and agro-processing capacity. Resources will also be needed to strengthen the public health sectors, with the support of development partners and investors. States should thus re-balance their over-reliance on overseas suppliers in favour of more proximate suppliers within the African region.

By increasing regional trade, lowering trade costs and streamlining border procedures, full implementation of AfCFTA would help African countries increase their resiliency in the face of future economic shocks and help usher in the kinds of deep reforms that are necessary to enhance long-term growth.

The commercial opportunities and competitive pressures unleashed by the AfCFTA should also stimulate increased domestic and foreign direct investment, which in turn should foster technological upgrading an important driver of industrialisation.

In accordance with the Pan African Vision of “An integrated, prosperous and peaceful Africa” enshrined in Agenda 2063, AfCFTA also hopes to create a liberalized market for goods and services, the movement of capital and people to facilitate investments building on the initiatives and developments, laying the foundation for the establishment of a Continental Customs Union to enhance the competitiveness of the economies of African countries within the continent and the global market.

Indeed, the U.N. Economic Commission on Africa predicts that the AfCFTA could increase intra-African trade by as much as 52.3%, and that this percentage will double when tariff barriers are eliminated. The AfCFTA promises to provide substantial opportunities for industrialization, diversification, and high-skilled employment. And the AU’s larger goal is to utilize the AfCFTA to create a single common African market.

Yet there are a number of challenges that could thwart the effectiveness of this new treaty in promoting free trade and economic development. Corruption is one of those challenges. International indexes indicate that Sub-Saharan Africa is perceived as the most corrupt region in the world, with North Africa not much better.

The current version of the AfCFTA addresses concerns about corruption in trade only obliquely and insufficiently. According to the TI CPI (2018) and World Bank on Control of Corruption (2017), 48 out of 54 African countries score below 50 percent and 14 out of 52 score below 50 percent respectively.

These rankings confirm the depth and scale of Africa’s problem with corruption. So, as African companies find themselves trying to compete in deeply corrupt national and regional markets, it’s understandable why many would be reluctant to establish anti-corruption measures.

Moreover, regional efforts to combat corruption have lagged. The African Union Advisory Board On Corruption is mandated to promote and encourage the adoption of measures and actions by countries to prevent, detect, punish, and eradicate corruption in Africa.

Corruption is a major barrier to economic growth, good governance and basic freedoms, such as freedom of speech or citizens’ right to hold governments to account. The corruption problem in Africa reflects the more general, and now legendary, climate of unethical leadership and bad governance found throughout most of the continent. More than this, corruption affects the wellbeing of individuals, families and communities.

Global governance indices suggest that the public sector in sub-Saharan Africa is the most corrupt of any region in the world. Many citizens believe that levels of corruption have increased in recent years and are not satisfied with their governments’ anti-corruption efforts.

  • Corrupt practices are deeply intertwined with ongoing conflict and state fragility in some African countries, notably in the Horn of Africa, the Sahel region and the Democratic Republic of the Congo.
  • Political corruption is common, and it takes many forms, such as state capture, patronage networks, opaque political party financing, vote buying and unresolved conflicts of interests.
  • Land-based corruption is especially prevalent in the region, and studies have shown that women are particularly vulnerable.
  • Various regional legal instruments have been introduced in the last two decades, with mixed results, while there is a growing number of regional organisations, civil society and media groups involved in anti-corruption work.
  • Across Africa, a lack of transparency in tender processes has driven up corruption, not only discouraging much-needed investment, but creating unequal, pot-holed playing fields that prevent local small businesses from growing.
  • Data protection and privacy regulations are vitally important for safeguarding people’s personal information. But the obligation of law enforcement agencies to enforce data protection rules is often at loggerheads with the needs of forensic investigators.

Trade experts propose that African governments should:

  • Ratify, implement and report on the African Union Convention to Prevent and Combat Corruption (AUCPCC) investigate, prosecute and sanction all reported cases of corruption, with no exception
    develop minimum standards and guidelines for ethical procurement.
  • Enable media and civil society to hold governments accountable. Establish public registers with information on the actual owners of private companies and trusts. Enforce international bribery laws, implement anti-money laundering standards. Business leaders around the world should implement international anti-corruption and anti-money laundering standards.
  • Adopt open contracting practices, which make data clearer and easier to analyse collect citizen complaints and strengthen whistleblower protections.
  • In the area of taxation, for example, electronic processing of tax submissions, refund payments, and customs declarations saves time and lowers costs as well as reducing corruption opportunities. Data analytics make risk-based auditing possible, allowing for faster processing of tax claims.
  • Digitalization can also improve spending efficiency. Biometric technologies and electronic payment systems are helping cut bureaucratic inefficiencies, better target people in need, produce fiscal savings, and facilitate the delivery of benefits. People are using digital payments for example, for school fees to reduce the scope for fraud and corruption by bypassing public officials. Anti-money laundering technology, too, can help by separating the person adjudicating the tender from the tender process, reducing the risk of corruption.
  • A dedicated digital evidence office, with officials trained in understanding the complexities of digital evidence-gathering, would be a valuable tool in helping to fast-track forensic investigations and help investigators trace the web of corrupt officials linked to fraudulent activity. This would recognize that in specific and controlled circumstances, a process of legally facilitated access to information is necessary to secure evidence and improve the possibility of timely investigation and prosecution of corruption cases.
  • Business, government and civil society must recognize the important role that access to information and evidence plays in preventing corruption and crime. By collaborating, both the public and private sectors could work together to set up the necessary infrastructure/database to provide a single repository or access portal for information that would provide confidence to potential investors as well as governments, ultimately showing that transparency and better governance are possible.

The new wave in suppressing corruption in Africa

A new wave of leaders in sub-Saharan Africa has expressed renewed commitment to fighting corruption. This trend reflects a recognition that good governance is key to fostering growth and economic development. The link between growth and governance is especially strong on this resource-rich continent, where people stand to gain more economically from reducing corruption than anywhere else in the world.

Low corruption and good governance are not the sole drivers of growth, of course. Some countries perceived as having weak governance have experienced episodes of strong growth driven by other factors for example, natural resource wealth. In other cases, countries with good governance have not necessarily enjoyed strong growth. But we find that corruption tends to undermine economic growth, behaving more like sand than oil in the economic engine.

Tackling Illicit Financial Flows for Sustainable Development in Africa

The governance landscape varies significantly around the world, with most developing regions performing poorly. Sub-Saharan Africa is a case in point: only 2 of the 30 countries from the region included in the International Country Risk Guide’s 2017 governance index scored above the average for the rest of the world.

Authorities on the continent are already showing a clear commitment to fighting corruption and strengthening governance. For instance, various segments of the South African government apparatus and institutions were made subservient to a select group of people during the so-called state capture episode. Since 2018, the government has been engaged in a bold fight to reverse the damage by improving procurement, fighting smuggling, and rebuilding the capacity of critical institutions such as the revenue authority and the anti-corruption agency.

In addition, Angola had lost control over billions of dollars from its sovereign wealth fund. The money was siphoned off by a rogue fund manager, with others complicit, through complex financial transactions moving through offshore financial centers and invested in ventures of personal interest. The new Angolan government elected in 2017 changed the management and placed the previous management under investigation. The fund’s assets have since been recovered and are now being reinvested for the benefit of the Angolan people.

Moreover, retrograde processes such as kickbacks in the allocation of uncompetitive oil and gas contracts and the expropriation of private assets are still in place, undermining the sanctity of property rights and the rule of law, with damaging effects on investment and growth. In a few cases, the independence of central banks is under attack from politicians seeking expedient solutions to finance the budget or boost growth through monetary easing instead of reforms.

Improving governance is difficult, as the beneficiaries of corruption often fight back. It is a complex, drawn-out battle among the various players government, institutions, civil society, media, and the private sector. Strong political commitment is thus an absolute requirement for success.

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