December 2018 | FINANCE & DEVELOPMENT 49
Economic integration could make the continent a global player
frica ranks near the bottom when
it comes to competing in the global
economy, held back by fragmented
markets that inhibit eciency and
constrain economic growt h.
Now a new player is emerging with the potential
to defragment Africa a nd boost the productivity of its
economies: the Africa n Continental Free Trade Area
(AfCFTA). In March 2018, 44 African hea ds of state
signed a framework to establi sh a single continental
market for goods and ser vices, with free movement
of capital and business travelers. Five additiona l coun-
tries, including South Africa, joined in July. e
AfCFTA still needs ratication by the parliaments
of at least 22 countries; seven have done so thus fa r.
In addition to increasing market e ciency and
reducing the cost of doing business by oering
opportunities for economies of scale, t he AfCFTA
could ease trade and investment ows and shift
the composition and direction of foreign direct
investment ows into Africa.
e big question is whether this eort w ill also
elevate the competitiveness of Afr ican economies.
Competitiveness—the set of institutions, policies,
and factors driving productivity—is a key deter-
minant of sustain able growth and provides a path
for eective integration into the global economy.
e Global Competitiveness Index, a performa nce
indicator generated every year by the World Economic
Forum to benchmark countries, s hows large variations
in national competitiveness ra nkings. ese have to
do with the stage of economic development, the gap
in physical and technologica l infrastruct ure between
developed and many developing economies, and
the inability of a number of developing economies
to undertake the critic al economic and institutional
reforms needed to raise their ma rket eciency.
e few African countries that have emerged as
the fastest-growing economies in t he past decade
have also been on an upward tr ajectory on the global
competitiveness ladder. Increasingly, these countries
(most notably Côte d’Ivoire, Ethiopia, and Rwanda)
are drawing on their i mproving competitiveness and
macroeconomic environment to diversify their s ources
of growth and trade and, in the process, expand
their share of the global ma rket pie. However, most
African countries are probably latecomers in the
race to boost competitiveness. Lately, the global eco -
nomic environment has been dominated by the rise
of beggar-thy-neighbor nationalism and creeping
protectionism. Leading ec onomies are moving away
from the rules-based s ystem that has governed global
trading arra ngements for decades toward a new mer-
cantilist sy stem that measures a country’s economic
performance by its trade sur plus.
In this new reality, competitiveness is per-
haps even more important for emerging market
and developing economies. In Africa, the push
to deepen economic integration and boost intra-
African trade under the AfCFTA is also likely to
mitigate the costs of adverse globa l shocks. A larger
eective domestic market acts as insurance against
disruptions to global trade associated either with
global volatility or with c ontraction in global demand.