04/11/2023, 06:19 Coordinating investment promotion under the AfCFTA - Africa Policy Research Institute (APRI)

Coordinating investment promotion under the AfCFTA

BY TENIOLA T. TAYO
MAY 26, 2023

A regional value chain approach may help with efforts to promote the African single market for investment.

Photo by Mike Bird via pexels.com

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Table of Contents
Summary

Introduction

Introducing the Pan-African Trade and

Investment Agency

Investment will power the single

market

The case for regional value chains

Why we need to coordinate investment

promotion

How to coordinate investment

promotion

What to do next

About the Author

DOI: https://doi.org/10.59184/sa.024

Summary
The African Continental Free Trade Area (AfCFTA) agreement is in progress, and the Investment Protocol is aimed at
promoting and facilitating investment within Africa. The Protocol can enhance Africa's business climate and attract foreign
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direct investment.
The protocol calls for the establishment of a Pan-African Trade and Investment Agency. The agency will mobilise resources,
encourage business growth, and offer technical assistance for investment promotion. It will also facilitate coordination and
dialogue among key stakeholders.
A coordinated investment promotion effort will be crucial for the successful implementation of the AfCFTA. It is necessary to
scale up the production of complex goods, requiring foreign and domestic investment in African economies
Regional value chains are key to a successful AfCFTA. Countries with complementary production structures can form supply
and demand markets for specific inputs and outputs. Efforts have been made to identify potential value chains and the
countries with a competitive advantage for different segments.
Coordinated investment promotion is crucial, especially in sectors like the automotive industry. It can strengthen the
investment case for foreign and domestic investors, create agglomeration economies, and lead to a concentration of skilled
specialist labour in a particular region. This approach is more feasible for the AfCFTA Secretariat and aligns with the national
interests of participating agencies.

Introduction
The process of fully launching the African Continental Free Trade Area (AfCFTA) agreement is still underway. However, efforts to
prepare Africa for this new trading era are progressing rapidly. One of the successfully negotiated protocols focuses on supporting,
promoting and facilitating investment within Africa. If implemented correctly, the Investment Protocol can also enhance Africa's
business climate and make the free trade area more appealing to foreign direct investment.

Introducing the Pan-African Trade and Investment Agency

The Protocol includes a coordination role and calls for the creation of a Pan-African Trade and Investment Agency. As stated in
Article 42 of the January 2023 version of the draft protocol, the Agency will support countries, their investment promotion agencies
and the private sector by mobilising financial resources, encouraging business growth and offering technical assistance for
investment promotion and facilitation in line with the Protocol's provisions. The agency will also help countries enhance their
ability to create and implement investment policies that boost intra-African investments, particularly policies that increase exports.
In addition, it will facilitate coordination and dialogue among key stakeholders, enabling the exchange of information related to
trade, export promotion, investment opportunities, peer learning and best practices.
The agency is envisioned as a technical institution of the AfCFTA Secretariat. It will therefore be faced with a similar task of
carefully navigating the diverse political, economic and social environments of the AfCFTA’s 54 member states. From the Algerian
Investment Promotion Agency (AAPI) to the Zimbabwe Investment and Development Agency (ZIDA), all 54 state parties have
national investment promotion agencies that have been tasked with attracting domestic and foreign direct investment into their
economies.

Investment will power the single market

There is, however, no doubt that a coordinated investment promotion effort will contribute to successfully implementing the
AfCFTA. The reasons are simple. The AfCFTA seeks to increase intra-African trade, drive industrial growth and grow prosperity on
the continent. Eliminating a majority of the tariffs on goods and services on its own is not enough to significantly increase intra-
African trade. Reducing the infamous non-tariff barriers will have a greater impact, but even that will be limited if there are not
enough made-in-Africa goods to trade. Most African countries produce and export commodities such as peanuts, copper or crude
oil. Scaling up production of more complex goods will require both foreign and domestic investment in African economies. Those
investments will not only bring in much needed capital but can also help improve knowledge and capabilities.

Several global businesses are operating in Africa and thriving, but many more are still wary of betting on the continent. News
of volatile regulatory environments, insecurity, fragmented markets and low effective demand causes the eyes of some global
business leaders to glaze over when they hear speeches about investing in Africa. It’s difficult to deny that some individual African
markets struggle with competitiveness, but the AfCFTA seeks to create a single market that could address this issue.

The case for regional value chains

A successful AfCFTA will require African countries to work together much more than they ever have. Most countries have
struggled to reach the minimum levels of manufacturing capacity and output that can drive industrialisation and structural
transformation, but perhaps this can change if they go at it together. This potential is partly the rationale behind developing regional
value chains on the continent: countries with complementary production structures can come together as supply and demand
markets for specific inputs and outputs, towards a final finished product that has a minimum level of complexity.
There have been some efforts to figure out what these value chains might look like. In 2021, the United Nations Development
Programme worked with the AfCFTA Secretariat to produce a comprehensive report titled “Value Chains for a Made-in-Africa
Revolution”. In 2022, the International Trade Centre worked with the African Union and the European Union to produce a report
titled “Made by Africa: Creating Value Through Integration”. The former report identified nine priority value chains under the
AfCFTA. The latter selected four pilot value chains from a pool of 94 promising options. Both lists had three value chains in
common - pharmaceuticals, automotives and textiles and apparel. Some work has also been put into identifying which countries
have a competitive advantage for different segments of these value chains. Once priority sectors and their possible locations have
been sorted, the next step will be attracting and facilitating investment into these value chains. This step will, however, require a
collective effort from value chain members, justifying coordinated investment promotion.

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Why we need to coordinate investment promotion

One potential sector for coordinated investment promotion in Africa is the automotive industry. It was valued at $30.44 billion in
2021 and is expected to reach $42.06 billion by 2027. Some African countries that have an advantage in the automotive value chain
are South Africa, Morocco, Tunisia, Botswana, Kenya and Ghana. If a selection of these countries with regional proximity decided
to synergise their production structures towards a complete automotive value chain, they would need to similarly cooperate in
promoting the value chain for investment.
Knowledge of the existence of suppliers and buyers for the various inputs and outputs of potential factories strengthens the
investment case for foreign and domestic investors. There are a number of other important spillover effects that can create
agglomeration economies, especially if locations along a value chain are close to each other. Agglomeration economies allow firm
networks to be created and can also lead to a concentration of skilled specialist labour in a particular region. All of these factors can
make African economies more attractive for investment and help increase economies of scale, grow productivity and drive
industrialisation. They can also enable a more targeted deployment of infrastructure investment to improve transportation networks
and facilities.

How to coordinate investment promotion

As mentioned earlier, the 54 member states of the AfCFTA have 54 investment promotion agencies with distinct priorities, diverse
governance structures and varying capacities and resources. A broad attempt at coordinating the activities of these agencies may be
daunting for the proposed Pan-African Trade and Investment Agency. It will also be highly demanding of the limited resources
available for implementing the AfCFTA.
This article has, however, attempted to build a case for targeted coordinated investment promotion guided by sector priorities and
regional value chains. Coordinating investment promotion in this way gives participating agencies a common mission that may be
more closely aligned to their national interests. This mission would help prevent the perennial clashes between continental
aspirations and national policies that challenge most regional integration projects. These clashes are already slowing down the
implementation of the AfCFTA, with the still-pending Rules of Origin negotiations.

This approach may also be a more feasible pilot project for the AfCFTA Secretariat, given that it is to perform these responsibilities
prior to the establishment of the Pan-African Trade and Investment Agency.

What to do next
Possible next steps may include substantiating and validating existing knowledge on regional value chains in Africa with relevant
investment promotion agencies. The implementation of a pilot project will need to be adaptive and should be able to work with
private sector bodies or other government agencies where investment promotion agencies are found to have little capacity or
influence. The process will kickstart efforts to properly synergise the production and regulatory structures of value chain members
and increase their complementarity. Progress on these fronts will support investor targeting and proactive investment promotion.

About the Author

Teniola Tayo
Teniola Tayo is a Policy Advisor with a focus on regional integration issues in Africa including the African
Continental Free Trade Area and wider trade, security and development policies on the continent. She is currently the
Trade Policy Fellow at the Africa Policy Research Institute. She has previously worked as a consultant with the
Institute for Security Studies, Supply Chain Africa, United Nations Development Programme, and the West African
think tank. She has also worked as a senior legislative aide with the Nigerian Senate and a consultant with the Office
of the Vice President. She has a Masters degree from the London School of Economics, a Bachelors degree from the
University of Ghana, and recently completed a fellowship at the European University Institute's School of
Transnational Governance.

APRI does not take institutional positions on public policy issues. The views expressed in publications are those of the author(s) and do not necessarily reflect the views of
APRI, its staff, or its board.

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