The African continent is a mosaic of countries, cultures, religions and systems, from small landlocked countries, to giants with huge sprawling metropolises, all at various levels of economic development. What is undeniable is that Africa is on the move and has seen high levels of economic growth over the last decade.
Key to accelerating this growth further is increased regional trade. Formal intra-African trade flows stand at 12% - 14% according to statistics cited by the WTO. At a recent trade and transport conference, an African trader lamented that Kenya imports all of its cotton from the US despite having Zambia a cotton producer on its doorstep.
Why is this the case? Historically Africa has traded with the West rather than intra-regionally and has established legal frameworks to do so (such as the preferential Economic Partnership Agreements with Europe). In addition the relatively poor infrastructure and transport networks pose significant obstacles to increased regional trade. Another limiting factor is overlapping membership of regional economic communities (RECs), of which there are eight on the continent, causing inconsistencies in trading of goods.
In order to facilitate regional trade, efforts are currently underway to set up free trade areas (FTAs) in Africa simplifying the multiple RECs memberships’ regime into a single trading bloc in line with the Abuja treaty establishing the African economic community (AEC). The first of these was the Tripartite Free Trade Area (TFTA) launched by Comesa, the EAC and SADC. The Tripartite provides a clear example of the complexities of overlapping memberships on the continent. For instance the EAC is already a common market but shares four member States with COMESA and one member State with SADC, meanwhile five SADC member States are members of Southern African customs union (SACU).
Though the TFTA was officially launched in June 2015 much still needs to be done to implement the agreement, which has so far only been ratified by 13 of the 26 Tripartite member States. More recently the African Union (AU) has been leading the way for integration on a continental level through the Continental Free Trade Agreement (CFTA) which it aims to launch by 2017. The CFTA would be a key part of the AU’s strategy to boost intra-African trade by at least 25-30 percent in the coming decade.
Crown Agents has been supporting RECs, including the tripartite RECs and the African Union, at a regional level with the preparatory work and roll out of both the TFTA and CFTA negotiations including through the £12 million DFID funded trade advocacy fund programme.
It is also supporting individual countries in preparing for trade negotiations. Crown Agents recently launched a project working with the African Development Bank on Zimbabwe’s Regional Trade Integration Strategy Paper (RISP) Programme. RISP will provide the Government of Zimbabwe with a strategic approach to regional integration - both at a sub-regional and continental level - ultimately enhancing Zimbabwe’s presence in the global market-place, and increasing its intra-regional trade.
The benefits of regional integration are significant given the potential to leverage economies of scale. Small landlocked / land-linked economies need the cooperation of coastal neighbours for an effective integration with the global economy. Integration brings about a sufficiently large market size to generate lower production cost thereby increasing regional competitiveness.
In the manufacturing sector, consumers benefit from greater competition in products markets as well as a wider choice of products to choose from. Integration attracts foreign direct investment as multinationals seek new markets beyond their borders. Countries belonging to a regional bloc are incentivised to develop their infrastructure to minimise barriers to free trade, and the joint provision of infrastructural services leads to lower per unit costs. Regional blocks are also able to negotiate more effectively with other trading blocs.
But while the benefits of integration can be significant they are not automatic. Relatively industrialised economies tend to benefit from open borders immediately, while those depending on duties from regional imports stand to lose revenue in the short term. Imports can also displace domestically produced goods, leading to job losses and factory closures. In order to take advantage of an expanded regional market, institutional constraints need to be addressed. An enabling policy environment needs to be put in place, and countries need to deal with structural bottlenecks including infrastructure deficit, weak institutions and a lack of capital.
In terms of the negotiations, there has been steady progress in areas such as tariff reduction but more is needed on removal of non-tariff barriers, trade facilitation, and the movement of people. Above all, integration should be about creating a common pan-African approach, with countries standing to gain by harmonising regulations and standards, sharing natural resources and lessons learned.
Importantly there is a need to engage with the private sector as the ultimate beneficiary of the agreements and engine for economic growth. RECs such as the AU have recognised this and efforts to create platforms for dialogue with bodies representing the private sector are currently underway. This will surely result in a more grounded agreement.
Despite the challenges posed by fifty-four diverse countries agreeing a common approach, the political will to drive the agenda forward is there and timing for integration ripe. One need only look at Cote d’Ivoire, whose commitment to advancing African integration is enshrined in its constitution, and the great strides of the Ecowas region (which has led the way in terms of establishing a monetary union) to demonstrate the progress that could be achieved if the vision were to become a reality.
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