Stolzenburg: AfCFTA, Fantastic Tool to Address High Cost of Intra-African Trade

Victor Stolzenburg is a Research Economist at the World Trade Organisation. In this interview, he gives an overview of the recently launch World Trade Report as well as speaks about the benefits of the African Continental Free Trade Area agreement. Obinna Chima provides the excerpts:

Can you give an overview of the recently launched global trade report?

The report is essentially about answering the question about the role of trade in tackling the three biggest challenges that global policymakers are facing today. These are maintaining peace and stability, reducing poverty and inequality and addressing climate change. At a very high level, the report has two key messages: Firstly, trade right now is at the cross roads. We see more and more signs of fragmentation in the global trading system because trade seems to be flowing more within politically aligned countries.  The second key message is that the fragmentation would be a key problem and ultimately the most important part of it is that it would create a lot of economic cost in terms of growth and also it would set us back on the three areas that I mentioned before. That is, it would set us back on security, poverty reduction and inclusiveness as well as the fight against climate change. So, what we are saying is that we should not see a trade-off between efficiency and these other policy goals, but in fact, we should see everything falling in same direction, and trade can be an important part of the solution to these issues. Essentially by getting us back in terms of growth and also getting us back on track in terms of security, inclusiveness and all the rest.

You talked about fragmentation. What are the broader risks to the international trading system that were identified in the report?

What we see is that there has been three step process. It started off with the changing narratives around trade. For close to seven decades, there has been a shared understanding between nations, which is the founding principle of the WTO, that trade and economic interdependence leads to shared prosperity and peace. But this narrative has been changing due to a number of crisis. Firstly, there was the financial crisis, we also had the COVID-19 pandemic and geopolitical tensions such as the war in Ukraine and rising conflicts in Africa. All of these have led to the changing narratives around trade. For good reasons there are legitimate concerns, but policymakers seem to argue more that economic independence is the right way to increase security. And this narrative has obviously started affecting policymaking around trade. So, we are seeing that more fragmentation is happening in trade policy and we see that here at the WTO because countries raise trade concerns. That is, if a country or a WTO member implements a measure related to trade, then another country can raise a trade concern if they consider this measure to be an issue for their trade flows. The trade concerns have surged over the last few years, which is a clear signal that countries react more and more unilaterally to the problems we are seeing in the world and less in cooperation with other countries. Ultimately, this is now affecting trade flows. Just as I said earlier, already, trade is re-shifting and not flowing multilaterally as freely as it was before and has been shifting more towards politically aligned regions and this is not optimal from an economic, security or climate change perspective.

What were the findings about e-Commerce and what is the future of e-Commerce in global trade?

We warned about fragmentation and there are a lot of headline news that are somewhat negative about trade. But beyond this headline news and maybe less visible, we see all sorts of positive trends; and e-Commerce and digital trade is one of such areas. Digital trade has been growing strongly over the past few years. It is one of the areas not hit by the pandemic and even increased faster when the rest of trade slumped. That is one of the reasons why trade as a whole has been resilient. The most important benefit of course is that digitally delivered services are not resilient in themselves, but they help economies as a whole to become resilient, because they facilitate work from home and remote work, which became more prominent during the pandemic. But what stressed in the report was that digitally-enabled services can also help in terms of inclusiveness because trade cost tend to be much higher for remote countries, for landlocked countries and for countries that have weak physical infrastructure. Obviously, it is one of the reasons why we see trade cost being linked to infrastructure problems. And there is a support gap between advanced and developing economies, but there is less gap when it comes to innovations in things such as mobile payments as they have taken off much faster in Africa compared to Europe; and all of these essentially facilitate e-Commerce, which is why we think e-Commerce and digital trade are huge opportunities for global trade. Obviously, digital trade tends to be much greener across the world.

What is your advice African countries on the AfCFTA and how best can they go about it to derive the expected benefits?

AfCFTA is another sign that a lot of WTO members are still pushing in the right direction of re-globalisation and away from fragmentation; instead cooperating and integrating more. We really think this is a great opportunity for Africa and as I mentioned before, we have trade cost indices, in which we calculate trade cost within economies and all of these show consistently that trade costs within Africa are much higher than in other regions of the world. So, the AfCFTA is a fantastic tool to address much of these. In line with the trade cost we see also that intra-African trade is much lower than it could be, which obviously means that the AfCFTA is a great opportunity to increase trade and employment opportunities, particularly for informal and formal jobs in Africa. Secondly, there are still a lot of work to be done, but if the protocol comes together, it is going to be a great opportunity to essentially boost the future of trade. So, we really think that the AfCFTA is a great opportunity for Africa. Like I said, we are at crossroads, so it not all negatives, there are some positives and the AfCFTA is one of such. So, there is a lot of hope out there and the AfCFTA is one of those that provides us with that hope. So, the sooner the better to make it work. But obviously, we all understand that policymakers need to do the due diligence and making sure that there is no one left behind is important.