African perspectives Global insightsLeveraging the AfCFTA Under a Unified Industrial Policy for Africa JOSEPH UPILE MATOLAPolicy Insights128May 2022 2Policy Insights 128 | LEVERAGING THE AFCFTA UNDER A UNIFIED INDUSTRIAL POLICY FOR AFRICA Executive summary The African Continental Free Trade Area will, once fully operational, create many new opportunities for accelerated industrialisation on the continent through increased intra-African trade. However, many longstanding supply-side constraints, which have hindered the growth of industrial sectors in most African countries, remain. These need to be addressed through the implementation of sound industrial policies and/or strategies if the benefits of the free trade area are to be maximised. Africa’s current policy landscape is complicated by the multiple overlapping industrial policies at the continental, regional and national levels. At the continental level, the African Union introduced the Plan of Action for the Accelerated Industrial Development of Africa with a view to strengthening Africa’s industrial capacity and global competitiveness. Several regional economic communities, in turn, have their own industrial policies/strategies, as do individual countries at a national level. This setup means that many countries are subject to three or more industrial policies/strategies – including multiple regional policies/strategies in the event of their belonging to several regional economic communities. These overlapping commitments have created significant implementation challenges for governments. The Plan of Action for the Accelerated Industrial Development of Africa represents an attempt by the African Union to harmonise all industrial policies being implemented on the continent. This has been done by encouraging regional economic communities to harmonise the national policies of their members in line with the regional policies and, in turn, to harmonise the regional policies under one continental framework. However, this has done little to achieve a meaningful consolidation of all the industrialisation efforts that are under way on the continent as it is merely a reconfiguration of existing institutional arrangements that support the current plethora of policies. What Africa needs (and what this paper proposes) is a unified industrial policy that pools the collective resources at the continental, regional and national levels, and focuses on collective solutions to shared challenges.Among the elements that the paper proposes for the unified industrial policy for Africa are: 1) continental or regional infrastructure programmes run as joint projects using pooled resources; 2) regional (product) specialisation aimed at enhancing value chains on the continent; 3) SME-led manufacturing growth; 4) clean energy-based industrialisation; 5) the promotion and development of African innovation and technologies. It is envisaged that the proposed changes to the industrialisation modus operandi on the continent will minimise some of the coordination challenges associated with the current policy setup as well as project-related delays caused by a lack of commitment and/or capacity on the part of individual countries. 3Policy Insights 128 | LEVERAGING THE AFCFTA UNDER A UNIFIED INDUSTRIAL POLICY FOR AFRICA Introduction Africa remains the least industrialised continent. The industrial sector in Sub-Saharan Africa (SSA) contributes less than 28% of the region’s gross domestic product (GDP), which is lower than other low-income regions in the world. Data from the World Bank’s World Development Indicators shows that in 2019 SSA’s industrial output stood at $194 billion – much less than other low-income regions, such as South Asia ($491.6 billion) and Latin America and the Caribbean ($762 billion). Small and stagnant manufacturing sectors have been the main cause of the low level of industrialisation in the region. The data shows that annual manufacturing growth in SSA averaged 1.78% between 1990 and 2020, which is marginal for an economy that is yet to undergo industrialisation. Furthermore, the sector is heavily concentrated in low-technology and low-value-added products, such as processed food and clothing and textiles, with most countries having yet to graduate to the medium- and high-technology segments of global manufacturing which are characterised by dynamism and rapid growth.Regional economic integration has long been a favoured approach to facilitating the growth and development of Africa’s industries. Consequently, a series of initiatives, such as the New Partnership for Africa’s Development (NEPAD), have been implemented with the aim of putting in place soft and hard infrastructure that would drive regional development. The African Continental Free Trade Area (AfCFTA) is another major initiative designed to facilitate regional growth through increased intraregional trade. Once fully operational, it is expected to pave the way for the creation of African value c