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Africa looks to boost growth with free-trade area

Africa looks to boost growth with free-trade area

Africa looks to boost growth with free-trade area
December 03
07:27 2016

Six years ago it took almost three weeks for a shipping container to travel the 1,100km from the Kenyan port of Mombasa to Kampala, the Ugandan capital. While poor infrastructure did not help, the delays were largely down to the myriad layers of red tape between the two countries. Now that journey is regularly done is seven days. 

Frank Matsaert, chief executive of TradeMark East Africa, a donor-funded agency working to boost trade in the region, attributes the progress to “a series of interlocking reforms that have worked as a result of concerted political will by east African leaders”. 

Such developments are not confined to one part of the continent. The vast majority of Africa’s 54 nations are members of at least one of what African Union officials call the “spaghetti bowl” of more than a dozen regional economic groups. 

Last year three of the largest — the Southern African Development Community (Sadc), the east African Community (EAC), and the Common Market for Eastern and Southern Africa (COMESA) — came together under the Tripartite Free Trade Agreement.

The even loftier ambition of Africa’s leaders, however, is to create a single free-trade area spanning the continent that would boost commerce, stimulate growth and create much-needed employment. This week the African Union and UN are hosting the first conference on the Continental Free Trade Area (CFTA), as the pan-African trade initiative has been named. 

The African Export-Import Bank estimates that intra-African trade will be worth $180bn this year, of which about 40 per cent is informal. It hopes to boost this by a third by 2021. 

But this year’s figure is only 19 per cent of the continent’s $930bn total trade, the bank says, compared with more than 60 per cent for the EU. It attributes the paltry figure to low industrialisation levels, restricted movement of labour, poor infrastructure and a high dependence on exporting unprocessed commodities in many countries.

The CFTA conference in the Ethiopian capital Addis Ababa brings together governments, the private sector, academics and civil society group with the aim of finalising the structure of the negotiations. Officials hope African heads of state will approve these at a summit next month, leading to a deal being signed in 18 months. Implementation, which is likely to take years, will then follow.

Fatima Acyl, the AU trade and industry commissioner, is “10 out of 10 certain” that the CFTA is going to happen, although she admits “it’s a journey and not flipping a switch”.

“Right now we’re focusing on trade in goods and trade in services,” she says. “We can later turn to things like competition policy and intellectual property rights.” 

Ms Acyl dismisses concerns that global opinion is moving away from deeper integration, with the failure of the World Trade Organisation’s Doha round, the UK’s decision to leave the EU, and Donald Trump’s plans to withdraw from agreements such as the Trans-Pacific Partnership

“If you look at the EU, at Brexit . . . they have already the industrialisation; they’re powerful countries that have integrated but now maybe they’re going in different directions,” she says. “That’s not the case for Africa. We need each other. We need to integrate. We’re too small, too fragmented to have a voice anywhere. We need it to attract a huge amount of investment.” 

The CFTA is a “must-do thing”, says Nana Dankawoso, president of the Pan African Chamber of Commerce and Industry. “We’re going well in the global markets but the challenge is to trade among ourselves,” he says. Mr Matsaert estimates that reducing trade barriers, let alone eliminating them, would lift Africa’s growth rate by 1-2 per cent a year, creating millions of much-needed jobs.

But securing a deal is going to be far from easy, despite the political will from the heads of state. Analysts say examples of barriers include high tariffs in countries such as Nigeria that are hindering integration in the Economic Community of west African States (Ecowas), nations’ nationalistic traits, and Tanzania’s refusal to join EAC partners in signing an economic partnership with the EU. 

African countries are also at very different stages of development, with per-capita gross national income ranging from under $300 in Burundi to $16,000 in the Seychelles. 

Mr Dankawoso accepts it will not be easy. “We have to do it bit by bit and in our own way instead of copying others,” he says. “This will give everyone ownership of it and ensure we don’t lose control.” 

Some analysts and businesspeople, however, are cautioning against starting the negotiations from scratch, but instead want leaders using the structures of the regional groups as a foundation for a pan-African deal.

All the ministers attending the conference were in favour of the CFTA and say they are keeping an open mind about how it should be achieved. As Okechukwu Enelamah, Nigeria’s trade minister, says: “For those of us that are realistic, we know that this journey is going to take a long while to get tangible benefits.” 

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