Last week we looked at visa openness in Africa and concluded that the continent remains largely closed with its citizens requiring visas to travel to 55% of other African countries. This week we take a closer look at free trade in Africa. There are currently 17 trade blocs in Africa, but intra-African trade falls below 10% versus 50% in Asia and 65% in Europe. So why is intra-African trade so low and what can African leaders do to encourage greater trade and integration in Africa?
The Ritesh Anand Column
Last year, at the 25th African Union Summit in Cairo, Egypt, African leaders signed the Tripartite Free Trade Agreement (TFTA). Prior to its signing, the agreement had been in negotiations for seven years. TFTA intends to unite three existing trading blocks in Africa, namely Sadc, East African Community (EAC) and Comesa, into one unified region. In doing so, the agreement renews the long-standing dream of an economically-integrated entity stretching from Cape to Cairo. If ratified, the agreement will create the largest free trade zone in the continent’s history with a membership of over 26 African states, a population of 632 million, an area of 17,3 million square kilometres, total trade of U$1,2 trillion and 60% of continental output.
The large number of borders has long divided Africa’s 54 countries, limiting economies of scale. Fixing common problems such as a shortage of roads takes co-operation, but will lead to more integration. Transport costs in Africa are twice the world average and are detrimental to trade more than tariffs and other barriers.
Regional economic deals are often poorly implemented. According to UN Conference on Trade and Development (UNCTAD), an African firm selling goods on the continent still faces an average tariff rate of 8,7%, compared with 2,5% overseas. This is one reason why intra-African trade as a percentage of total African trade is well below Europe and other developing nations. Thus Africa has some way to go before it can be considered successful in terms of free trade.
Almost all African countries are party to more than one regional agreement, but overlapping allegiances cause unnecessary confusion. Members of Comesa, for example, impose a common external tariff on goods of non-members.
However, several members are also in the Sadc free-trade area, which requires lower tariffs on goods from some non-Comesa states. The TFTA is meant to iron out these differences, but the details are still to be decided.
So why is intra-African trade so low? African countries vary in size, geography and resources, so trade deals affect each differently. Manufacturing tends to cluster in the larger more developed economies such as Kenya, Nigeria and South Africa. Small agricultural producers fear being swamped with food from larger neighbours. There are no mechanisms for helping the less fortunate.
Whether to protect their dominance or avoid hardship, most countries revert to protectionism. The Economic Community of West African States (Ecowas), is meant to be a customs union, but has an extensive list of exceptions. Two decades after it promised free movement of people, goods and transport, implementation is poor. Even Zimbabwe, which until recently was considered fairly open, has introduced import controls in an effort to protect its domestic industries.
According to UNCTAD, the reduction of tariffs in Africa has led to an increase in the use of other obstacles. In Sadc, for example, such protectionism has resulted in more imports from non-Sadc countries. Clothes, for example, are required to be both manufactured and sourced in Sadc to qualify for preferences. Since few textiles are produced in the region, the rules have stifled trade in garments.
Bureaucracy is expensive to overcome. According to research by Nick Charalambides of Imani Development, a consultancy, Shoprite, a South African retailer, spent US$5,8 million dealing with red tape in 2009 in order to gain US$13,6 million in duty savings under Sadc. Others avoid the hassle of customs: informal trade is thought to provide income to over 40% of Africa’s population.
Perhaps Africa needs to approach trade differently? We need to ask ourselves what can we trade with each other? Unfortunately, African countries produce a narrow range of goods and have export sectors geared towards wealthier developed countries. Unlike Asia, the continent has not developed significant manufacturing bases and there is little trade in inputs or services that might lead to African chains of production.
Over the last two decades, most African countries have relied on commodities to drive growth and failed to diversify their economies. The sharp decline in commodity prices in recent years has forced countries to develop other sectors of the economy. Perhaps this will be the catalyst for greater regional trade and economic integration? In order to survive, African countries will need to work closely in developing their economies while focussing on products and services in which they have a competitive advantage.
In their zeal to integrate, African leaders may be using the wrong model? Broad and shallow agreements are the norm, but the continent’s most successful economic bloc consists of just five countries. EAC members keep good data and a public scorecard holds them accountable for non-tariff barriers. Talk of a common currency in East Africa and even a political federation do not seem far-fetched.
It is far-fetched to think that the TFTA will lead to anything similar given the complexity and diversity of 26 African countries. Smaller more integrated regional hubs are likely to be more successful. So for the moment, the dream of creating “One Africa” remains an illusion and requires greater commitment and trust among its leaders.
Free movement of people and goods is the first step towards a more integrated continent and solidify its role on the global economic stage.