Brookings Report: A continental strategy for economic diversification through the AfCFTA and intellectual property rights
With all Africa now signed on to the African Continental Free Trade Agreement (AfCFTA) and 29 countries having ratified it (as of January 2020), the region is now implementing a single continental market for goods and services and laying the foundations for the establishment of a continental customs union. Many on the continent look to the AfCFTA as an investment, economic diversification, and job creation blueprint that will shape the future of Africa in the years to come, help meet the SDG targets by 2030, and consolidate progress toward the African Union’s Agenda 2063. Indeed, with a combined GDP of over $2.3 trillion and a population of 1.2 billion—of which most are below the age of 30—African countries stand to gain substantially from intra-regional trade.
Progress on the finalization of AfCFTA Phase I negotiations, namely, the establishment of the schedules of concession for trade in goods, rules of origin, and specific commitments for trade in services, is encouraging. However, Africa will need to do more than just increase trade in existing commodities to benefit fully from the AfCFTA, hence the importance of beginning Phase II of negotiations on investment, competition policy, and intellectual property rights. In particular, with an increasingly digitized economy and a store of innovative youth, working on IP registration and protection will be key to harnessing the full potential of the AfCFTA and securing Africa’s future.
Still-low intra-regional trade highlights the potential gains from the AfCFTA
Though intra-African trade has been increasing slightly, it remains substantially below optimal levels, and intracontinental trade is still very low compared to the rest of the world. The share of intra-African exports as a percentage of total African exports has increased from about 10 percent in 1995 to around 17 percent in 2017, but it remains low compared to levels in Europe (69 percent), Asia (59 percent), and North America (31 percent).
Supporting innovation will boost export diversification
For Africa to realize the full potential of the AfCFTA it will have to put in place policies that encourage and protect innovation by both residents and non-residents alike, but with a sharper focus on domestic innovation.
Indeed, an important component of export diversification is innovation—for which Africa is primed due to its young, dynamic, and increasingly educated population. Unfortunately, current policy frameworks on the continent do not adequately protect and encourage innovation.
One indication of innovation is the number of patent registrations filed in countries, and Africa is lagging globally. In 2017, African countries registered 1,330 patents by residents, compared to 1,682 in Latin America and the Caribbean, 592,508 in Asia and 116,359 in Europe (Figure 6.5). Moreover, contrary to the case of Latin America, Asia, and other developing market economies, in Africa, registration by non-residents is higher than by residents and growing faster. The substantial difference between patents registered by residents and patents registered by non-residents could be a result of the high and prohibitive costs of patent registration, as non-residents often are more able to afford patent registration than residents. For example, it is more expensive to register an idea in Côte d’Ivoire, Kenya, or Senegal than it is to register in Canada, the U.K., or Japan, which creates an avoidably and prohibitively high barrier to innovation (Figure 6.6). Notably, countries with more diversified economic bases—such as Tanzania, South Africa, and Botswana—also tend to have lower patent registration costs.
In GDP per capita terms, registration costs are even more prohibitive for Africa’s innovators, who are more often young and without jobs. Kenya’s patent registration fees are 13.3 times its GDP per capita, while for Senegal and Ethiopia the ratio is 10.2 and 7.9 respectively. By contrast, the same ratios for the U.S., Germany, and Malaysia are 0.1, 0.3 and 0.4, respectively, a reflection of more affordability in registration of ideas in other regions.
Two key sectors in which IP protection along with the AfCFTA will boost growth
New technology platforms are developing across the continent, from Ride in Ethiopia to health care platform Bylos in Rwanda. In Kenya, for example, nearly 50 percent of all transactions are done through mobile payment.
In 2018, Africa’s services sector accounted for over 52 percent of Africa’s GDP—largely boosted by the booming digital sector. (For more on the potential of technology and digitization in boosting African economies, see Chapter 5). These technologies are empowering new small and medium entrepreneurs, creating jobs, diversifying economies, improving productivity, and facilitating entry into new markets. The AfCFTA can provide the vehicle for going to scale through a pooled African market—but only if these innovations are adequately protected, a move that requires innovation registration to be standardized across markets. Currently, in some cases, new technologies need to be registered in every country of entry, adding another barrier for young entrepreneurs already facing challenges like financing and poor infrastructure. While policymakers invest heavily in cybersecurity, which is important, significant investment is needed in the protection of innovation by ensuring the application of affordable harmonized IP laws across the continent.
In addition, an important area of the intellectual property rights discussion is in the health and pharmaceutical sector. The health and biotechnology market holds great potential for the continent. Indeed, a recent report by Global Market Insights projects that the size of the biotechnology market will almost double from about $399.4 billion in 2017 to $775 billion by 2024.Currently, Africa accounts for over 25 percent of the pharmaceutical market, but produces only 2 percent of the drugs used there. The continent also imports over $14 billion worth of drugs, many of which are produced using African plant varieties.
The development of a biotechnology supply chain on the continent will not only help to diversify Africa’s economies but will also create jobs. A well-exploited African health care and wellness sector, including regional pharmaceutical value chains, could create over 16 million jobs across the continent. The IP rights discussion is central to the success of Africa’s health and pharmaceutical sector. While the World Trade Organization (WTO) supports rules requiring countries to provide an effective level of plant variety protection,[5] an IP protocol in the AfCFTA can address gaps in the existing WTO rules by protecting traditional knowledge, cultural expression, and biological resources. With the collective weight of the continent behind the AfCFTA, African countries may be able to finally get an agreement harmonizing key IP issues that are not at all or not fully covered under other multilateral treaties.
Next steps for Africa and the Continental Free Trade Agreement
The current trade tensions among the United States, China, and others loom large on the global agenda. Moreover, a synchronized slowdown of the world economy, underpinned by Brexit and a weak euro area, would lower world demand. These challenges portend a difficult external environment and underscore the importance of the AfCFTA. To benefit from the AfCFTA, though, including economic diversification, implementation of policies that encourage and protect innovations are fundamental prerequisites.
In addition to protecting innovation, Africa will have to work towards a continental policy on research and development that enables African governments to accelerate research and development in universities. Second, as more and more industries locate to the continent, Africa must ensure that the innovations from its new companies are available to or shared with local producers. Third, to support innovation, education, especially higher education and education for girls, has never been more crucial for Africa. Growth in areas like the pharmaceutical and biotechnology sectors requires substantial investments in higher education. Education will support efforts to build and strengthen Africa’s competitiveness in an increasingly global environment where margins are dropping and competition is increasing. Already, regional institutions like the African Regional Intellectual Property Organization and the Pan-African Intellectual Property Organization provide for regional cooperation in the management of IPs as Phase II negotiations of the AfCFTA begin, but a continental regulatory body could help to harmonize regulation and implementation of policies.
We’re still getting out of the starting gates, but already Africa is speeding ahead. While implementation of this landmark trade agreement will require time and effort, protecting the spirit of and Africa’s aspirations for increased trade and prosperity should be the focus of the policymakers, the private sector, and the international community alike over the next decade and beyond.
Source: Brookings
