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Greening intra-African trade is key to sustainable industrialisation

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African countries will have to industrialise mostly by means of renewable energy. Image credit: African Energy Portal

By Dr Henok Asmelash – lecturer at Birmingham Law School, the University of Birmingham

19 November 2020 – Ensuring the sustainability of their industrialisation is not just a matter of choice but of necessity for African countries.

Three decades have passed since the UN General Assembly proclaimed 20 November ‘Africa Industrialisation Day’, but Africa’s quest for industrialisation remains elusive. The limited progress in industrial development has kept the participation of African countries in international trade to the importation of manufacturing goods and exportation of primary products. The relatively high share of manufacturing goods in intra-African trade, however, suggests that enhanced intraregional trade holds key to unlocking the industrial potential of the continent. African countries have recently taken a major step in this direction by establishing the African Continental Free Trade Area (AfCFTA). This short contribution considers whether and how the AfCFTA promotes sustainable industrialisation.

The challenge facing African countries is not just to industrialise but to industrialise in an inclusive and sustainable manner. Past industrialisations were fuelled by cheap fossil fuels with virtually no legal constraints on the use of industrial policy instruments. We now know that fossil fuels account for the majority of global greenhouse gas emissions. African countries hardly contributed to the greenhouse gas emissions that brought the world to the edge of irreversible climate change – but they are one of the most vulnerable countries to climate change. The traditional path to industrialisation will expose the continent to further environmental risk and degradation. Ensuring the sustainability of their industrialisation is, therefore, not just a matter of choice but of necessity for African countries.

Powering African industrialisation

Sustainable industrial development entails the use of cleaner technologies and production techniques to reduce industrial emissions and waste. Since energy is the main source of industrial emissions, improving industrial energy efficiency and the use of renewable energy sources are central to industrial sustainability. The use of renewable energy technologies is currently limited in most African countries despite the abundance of solar, wind, geothermal and hydropower resources. The AfCFTA – the operationalisation of which has been derailed by the global pandemic – offers a great opportunity to overcome some of the barriers to the development and deployment of such technologies across the continent.

The AfCFTA negotiations are taking place in two phases covering trade in goods and services, dispute settlement, investment, intellectual property, and competition policy. The first phase negotiations on trade in goods and services are yet to be finalised. The agreed modalities for tariff negotiations enjoins the AfCFTA parties to liberalise 90% of their total tariff lines and reserve the remaining 10% for sensitive and excluded products. The AfCFTA parties are yet to submit their sensitive and exclusion lists and what goes into these lists will determine the extent to which the AfCFTA promotes intraregional trade in sustainable energy technologies. There is currently nothing in the AfCFTA Agreement or the protocol on trade in goods that requires the parties not to place energy efficiency and renewable energy products in their exclusion or sensitive lists. It is therefore imperative that the AfCFTA parties prioritise such products for early liberalisation on their own.

The first phase negotiations are also set to open-up the African market for trade in services. The AfCFTA parties have identified five services sectors (i.e. transport, communication, tourism, financial and business services) for early liberalisation. Most of these priority services sectors are relevant to sustainable industrial development. The liberalisation of business services, for example, will cover renewable energy services such as solar panel installation, repair and maintenance. Market access commitments in these services sectors will enable African renewable energy companies to provide services across the continent and thereby promote the widespread deployment of renewable energy technologies.

The second phase negotiations will further expand the scope of the AfCFTA beyond trade in goods and services to cover investment, intellectual property rights and competition policy. African countries should use this opportunity to incorporate sustainability into their regional investment, competition, and intellectual property regimes to promote much-needed investment and innovation (and adaptation) in sustainable energy technologies.

Securing Industrial Policy Space

Besides creating a regional market for sustainable energy products and services, the AfCFTA should also play a role in securing green industrial policy space for African economies. Industrial policies such as subsidies and infant industry protection were key to past industrialisations. However, the ‘kicking the ladder away’ approach of industrial economies and the ascendancy of neoliberal views forced these industrial policies out of fashion (and also out of law) over the past few decades. Industrial policies are now back in fashion, but many constraints against their adoption are ingrained into and reinforced by international economic agreements of the last few decades. Most African countries are parties to international agreements that tie their hands against the adoption of industrial policy instruments. Multilateral agreements such as the Agreement on Subsidies and Countervailing Measures, for example, restrict the subsidisation of renewable energy sources. African countries should cooperate under the umbrella of the AfCFTA to demand for more green policy space in international economic agreements. One of the key promises of the AfCFTA is to enable African countries ‘speak with one voice and act collectively’ to promote the common interests and positions of African countries in the international arena. If there is one area where such voice is of vital importance is industrial policy space. While it lacks a common external trade policy, nothing prevents the AfCFTA from serving as a forum for coordinating African external trade policy at least in areas where there is an apparent common interest such as industrial policy space.

Advancing Africa’s sustainable industrialisation

The AfCFTA offers African countries the opportunity to advance their sustainable industrialisation by creating a single and integrated continental market. But seizing this opportunity requires removing barriers to intraregional trade and investment in sustainable energy technologies. It also requires a concerted effort to secure green industrial policy space for developing a competitive African industry that produces sustainable energy technologies such as solar panels and cells, wind turbines and wind towers. Sustainability has not featured explicitly in the AfCFTA negotiations so far, but much of the negotiations on market access commitments are still ongoing and they are vital to greening the AfCFTA.

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