As we enter the last quarter of 2019, it is looking more certain that the year will be remembered as the year that trade turned the global economy sour.  The ongoing trade tension between the United States and the People’s Republic of China has already scrambled and remapped existing trade routes, alliances and networks.  And there is more to come. 

And because the issue at stake between the US and the PRC is much more than balance of trade and current account deficit, no one should expect a quick resolution; and therefore, it will be years before we can truly tally the full economic impact as well the winners and losers of this dispute.  But we already know who some of the winners are –more on that shortly.

On a positive note, 2019 will also be remembered as the year that Africa “got” trade.  With the recently ratified Africa continental Free Trade Agreement (AfCFTA), Africa commenced a bold journey that will stitch together currently disparate trade practices and rules and make it easier for goods and services to flow between more than 50 countries on the continent.  It is indeed a monumental commitment to creating the largest free trade area in the world, and if executed according to plan, the agreement will no doubt boost economic growth, produce employment, create and improve infrastructure, and foster the positive socio-cultural environment that usually emanates from economic connectedness and integration. 

Yes, some observers will say AfCFTA should have happened years ago.  Maybe so. But an arrangement of this magnitude only happens when the conditions are right. And I say, better late than never.  The most important work now begins…the work of creating the modalities of the agreement and the various rules that will undergird it. 

The negotiations will be hard and complex as negotiators seek to balance the interest of the smaller economies against the larger economies, and it will therefore take time. And that’s exactly why all the stakeholders should get to work immediately.  And they should not allow perfection to be the enemy good as they seek to balance multiple interests and concerns. 

One of the lessons of the US-China trade dispute is that success in trade policy does not happen by pure luck.  In my book, success is what happens when preparation meets opportunity.  In this instance, the one country that exemplifies the preparation required for success to happen in trade is Vietnam.  

Most trade observers now count Vietnam as one of the most significant beneficiaries of the US-China trade dispute.  A report published in June by Nomura, indicted that Vietnam gained 7.9% of GDP from trade diversion as western manufacturers sought alternatives to China.  That is a significant economic benefit whether temporary or not, and many trade economists will tell you that the positive externalities of even a short-term benefit of this nature can be significant.  More importantly, some of the benefits will become permanent because businesses now know full well the risk of concentration. Which means many will remain in Vietnam for good. 

To a casual observer, Vietnam’s proximity to China would seem to be the primary reason why it is now a trade dispute winner.  But as someone that has visited Vietnam many times, met with their government officials, and consulted with western companies that do business in Vietnam, I’ve had the opportunity to witness the country’s painstaking preparation for this opportunity that finally came.  Vietnam prepared by implementing a policy of close coordination between central and regional governments; fostering an environment in language and actions that welcomes rather than bashes investment; investing in infrastructure, including roads and power generation; focusing on developing the skills required by employers; improving transparency and focusing on creating a regulatory climate, including tax and incentives policies that make it easier for investors to make and commit to long term plans; and lowering barriers to foster trade.  In short, Vietnam focused on the items one will typically find on the World Bank’s ease of doing business index.  

All is not perfect, and Vietnam still has ways to go on this journey. But from my interactions with government officials, I can attest to their commitment to continue do more.

For me, Vietnam’s story is the strongest reminder yet, that growth and development seldom happen by accident.  Yes, globalization has its faults, but no reasonable person would dispute that fact that many Asian countries tapped into globalization to lift millions of their citizenry out poverty and to create economic opportunities that would make it easier for the next generation to remain home rather than emigrate.  But the fact is, Vietnam is not special or unique.  Indeed, many African countries provide more compelling rationale for western companies to divert production to Africa.  In addition to cultural and political affinity and proximity to western end markets, many African countries already enjoy preferential trade arrangements with the US and European Union, for example, under the Africa Growth and Opportunity Act (AGOA) and the Economic Partnership Agreement (EPA).  That is to say, under the right environment, Africa should be a winner in the context of the current US-China trade dispute.  And it’s never too late.

This is why AfCFTA and quick implementation is a big deal.  By any measure, a trade community that includes more than 50 African countries with combined GDP in excess of $2 trillion and more than 1.2 billion potential consumers is a dream for any global company.  Policy makers at the AU must now focus on accelerating work on the enabling modalities and rules that will make AfCFTA live up to its expectations.  It is also important for each country to focus on fostering the environment and implementing policies that encourage rather than discourage investments by home grown and foreign companies.  

AfCFTA has the potential to help create many African multinational companies within a short period and that can only be positive for the continent.  

Written By Larry Eyinla, EY Africa Tax Practice Leader