The African Continental Free Trade Area: Local Content Requirements as a Means to Addressing Africa’s Productive Capacity Constraints

The Agreement Establishing the African Continental Free Trade Area (AfCFTA) presents an unprecedented opportunity for African integration and is projected to spur unprecedented levels of job growth and productivity, and to drive sustainable economic development. However, as the implementation of the AfCFTA unfolds, it is apparent that certain bottlenecks stand in the way of the AfCFTA achieving its full potential. The bottleneck at the core of the AfCFTA’s effective implementation is the limited availability of tradable goods due to the limited productive capacity of many State Parties. This article argues that the implementation of local content requirements by State Parties, in the context of Foreign Direct Investment, presents an avenue for sector and industry development, through the development of linkages and the inclusion in regional and global value chains, which would strengthen productive capacity.

This article analyzes the restrictions imposed by applicable WTO agreements on the use of local content requirements, which limit the use of such requirements in the form of quantitative restrictions, preferential treatment, subsidies and market entry requirements. In doing so, this article analyzes the available policy space for local content requirements in light of WTO agreements and highlights how the restrictions they impose deviate from the WTO’s development objectives and the Sustainable Development Goals.

Considering the limited policy space available for local content requirements under WTO agreements, this article determines that more policy space is needed to develop productive capacity. This article concludes that local content requirements present a viable path to skills development, diversification, as well as sector and industry development, all of which are the primary ingredients of the productive capacity needed for countries to truly participate in and reap the full benefits of trading under the AfCFTA.