11.07.2019 Africa

CEMAC leaders urged to mainstream economic diversification, regional value chain development in community economic programme

By uneca
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Yaounde, 10 July 2019 (ECA) – The UN Economic Commission for Africa (ECA) has once more urged leaders across the Central African subregion, especially those of CEMAC member States, to urgently pursue economic diversification and trade-induced industrialisation as pillars of their sustainable development trajectory, while taking advantage of the opportunities offered by digital transformation and regional integration – a case made stronger with the advent of the African Continental Free Trade Area (AfCFTA).

The Director of the Central Africa Subregional Office of ECA, Mr. Antonio Pedro, underlined these points at a consultation on accelerating the physical and commercial integration in the CEMAC zone, convened recently in Douala, Cameroon, by Prof Daniel Ona Ondo, President of the CEMAC Commission.

Chaired by the Congo’s Minister of State in Charge of the Economy, Industry and State Projects, Mr. Gilbert Ondongo, and attended by the President of BDEAC, the Governor of BEAC, Ministers of Finance and other representatives of all CEMAC member States as well as by development partners, the meeting focused on identifying realistic integrative projects for the second phase of the CEMAC Regional Economic Programme (PER, in French), through which countries of the subregion expect to rise to the middle-income bracket, be better integrated and secure as well as improve governance standards and human development ratings.

Aligning CEMAC's PER with Agendas 2030, 2063 and national programmes

Justifiable so, the majority of PER projects under review focused on infrastructure including the construction of roads, bridges, railways, fibre optic lines, hydro-power dams, energy transmission lines, and dry ports – a clear manifestation of the need to address the infrastructure bottlenecks which make Central Africa a very expensive and uncompetitive investment destination, if compared with other African sub-regions.

During the meeting, ECA’s Pedro recognised the importance of the focus of PER on infrastructure development but indicated that it was equally important to include projects aimed at promoting economic diversification and industrialisation in the regional programme, if the region was ever going to break the vicious cycle of booms and busts which characterizes most economies in Central Africa.

“We need a second generation PER with economic diversification and industrialisation as a priority pillar”, he said.

“To foster the emergence of regional value chains and enhance the compatibility of local economies, we would like to see national development plans and strategies which are fully aligned with the new PER,” he continued.

Pedro gave insights on how to align the PER with the goals of the UN’s Agenda 2030 and the African Union’s Agenda 2063, and identified the opportunities that Central Africa could harness to play a leading role in the key and most strategic transitions and transformations which would enable the realization of the SDGs and Agenda 2063 in Africa and globally.

To that effect, he presented the six key transformations for achieving the UN Sustainable Development Goals (SDGs), as enumerated by the Sustainable Development Solutions Network (SDSN), namely i) education, inclusion, jobs and growth; ii) health and well-being; iii) clean energy and industry; iv) sustainable food, land use and oceans; V) smart cities and transport systems; and VI) digital technologies and e-governance; and mapped them against sectors in which Central Africa has comparative advantages.

Citing the IMF assessment which indicates that Least Developed Countries (LDCs) would require about US$ 500 billion to achieve the SDGs, he underscored that to finance the Goals, governments in the region would have to improve macroeconomic management, enhance domestic resource mobilization through better tax administration, boost expenditure efficiency, address corruption and improve the business environment for private sector development.

“Governments and Overseas Development Assistance (ODA) alone is not sufficient to close the financing gap” he mooted.

“The private sector has an important role to play and, crucially, given Central Africa’s current macroeconomic instability, we need to invest in those sectors that would bring the most returns for each dollar invested,” he added.

Changing paradigms towards greater horizontal and vertical economic diversification

This point brought the Director of the Central Africa Sub-regional Office for ECA to making the case once more for economic diversification and trade-induced industrialisation as the most viable formula to stop the vicious cycle of booms and bursts in economic growth, due to the shocks that come with overdependence on the export of raw/untransformed products.

Central Africa cannot make considerable progress with national and intraregional projects with its current state of low economic diversification, he said, noting that the share of manufacturing value-added in tradeable products within the subregion was less than 18% in the best case (the DR Congo) and less than 3% in the worst cases (Chad and Gabon).

He noted that in Central Africa, five countries depend on just one or two products for 75% of their export revenue. In the case of Angola, Chad and Congo Brazzaville, just one product – oil, accounts for over 75% of exports.

The advent of the African Continental Free Trade Area (AfCFTA) calls for a change of paradigm towards greater horizontal and vertical diversification of export products. “The AfCFTA has immense potential to contribute to the diversification of our economies and to deepen the sophistication of our export products because Intra-African trade is already more sophisticated than trade between Africa and the rest of the world,” Pedro maintained. “But to sell in Africa or elsewhere, you have to be productive and competitive.”

He questioned why food represented 27% and 29% of the total imports of Gabon and Equatorial Guinea, respectively, which both have enough arable land. He considered food production, a low hanging fruit from where production and value addition should start in the CEMAC zone.

“Why can’t we locally produce the fertilizers and other chemicals needed for agricultural production, especially when we have comparative advantages in this sector?” he quizzed. He recalled, for instance, that the in-situ value of Congo’s potash resources (used for fertilizer production) is above US$2 trillion and that the global potash market would be worth about US$50 billion/year by 2050.

ECA’s Pedro laid bare the potential of the subregion in several other niches including the production of: construction and house hold equipment due to rapid urbanization; pharmaceuticals, given the huge medicinal resources of the subregion’s forests; and electric cars and lithium-ion battery manufacturing thanks to the unrivalled capacity of the DR Congo in terms of cobalt production (it contributes 60 per cent of the world’s cobalt supply).

Productivity in all of these sectors, he said, would be greatly enhanced by harnessing the digital economy which presently accounts for 15.5% of global GDP, expected to rise to 25% in less than a decade.

Financing agendas 2030, 2063: need for bankable projects, tackling binding constraints

Pedro submitted that for the CEMAC member States to effectively implement Agendas 2030 and 2063 as well as their integrative development targets, they need to deal with binding constraints, including financing hurdles, the issue of corruption and challenges in infrastructure, energy and the necessary skilled labour. He challenged Central Africa to double its share of intra-regional trade (less than 3% currently) in the next 5 years. “To measure economic performance, the CEMAC Regional Economic Programme needs clear metrics and targets,” he observed.

“The subregion should grow its pipeline of bankable projects through adequate growth diagnostic studies, better value chain analysis, product space analysis, and competitiveness profiling and project design”, he noted.

Such an approach was also conveyed by the Islamic Development Bank (ISD) which informed the meeting of its current strategy based on global value chains, value addition, the development of competitive sectors, and improved bankability of projects to mobilize private financing.

The African Development Bank, equally present in the meeting, presented its Central Africa Regional Integration Strategy for the period 2019-2025, which seeks to stimulate economic diversification and structural transformation by increasing intra-regional trade in the sub-region. Among other objectives, the Bank will strengthen the capacities of Regional Economic Communities to manage and implement regional projects.

To conclude, Pedro advised leaders of the subregion to consider including the surveillance and monitoring of the state of implementation of the Douala Consensus (a multi-stakeholder call for economic diversification in the subregion made during ECA’s statutory subregional conference of 2017) in the ongoing CEMAC Economic and Financial Reform Program of the CEMAC (PREF – CEMAC).

The recommendations proposed by ECA and other participants were adopted by the meeting as captured by the Final Communiqué signed by the President of CEMAC.

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