The Strategist

Africa's Struggle to Bring Its Own Free Trade Zone Into Play

02/29/2016 - 15:26

Two of the largest in the history regional trade associations were created last year. One of them, Trans-Pacific Partnership (TPP), which includes 12 countries in Asia, South and North America, has received great attention from the world media and experts.

Stephen Morrison via flickr
Stephen Morrison via flickr
Yet only few people have heard about Tripartite Free Trade Area (TFTA), which covers 26 African countries and is the largest trade union of the Continent ("from Cairo to Cape Town," as it is often called).

Many in the developing world believe that global trade works in favor of rich countries. However, regional unions are extremely popular in Africa. Today, the continent formally hosts 17 retail units. Combining three of them - the East African Community (EAC), the Southern African Development Community (SADC) and Common Market for Eastern and Southern Africa (COMESA) - the main goal TFTA.

54 countries of the continent are separated by numerous borders, what limits growth of the national economies. Resolving common problems (such as lack of quality roads) requires a joint effort. Eventually, it should lead to closer integration.

Average transport costs in Africa are two times higher than those in the world. They harm to trade more than tariffs and other barriers, says the British magazine The Economist.

Unfortunately, many of the regional economic agreements are poorly implemented. Any African company, that sells its products in the continent, is faced with an average tariff of 8.7% compared with 2.5% in the world, according to United Nations Conference on Trade and Development (UNCTAD). This is one reason why share of intra-African trade in Africa's total trade turnover is much lower than in other poor regions of the world.

African countries differ from each other in size, geography and resources, so any trade agreements are reflected on them in different ways. Industrial production is mainly concentrated in more developed countries, such as Kenya, Nigeria and South Africa. Small agricultural producers fear to get inundated with cheap food from larger neighbors. So far, there are no effective mechanisms that can compensate for such losses. Perhaps that is why some countries are difficult to make sacrifices in order to increase trade.

To maintain its dominant position or to prevent difficulties, most countries have to resort to protectionism. Take, for example, Economic Community Of West African States (ECOWAS). Initially, it was assumed that this would be a customs union, but it quickly got encrusted with a large list of exceptions. Twenty years after its inception, the promised free movement of persons, goods and transport is still on paper.

In Eastern Africa, the situation is a little better, but Karim Sadek, head of the railway company Rift Valley Railways of Kenya and Uganda, said that absence of formal barriers does not make life easier for business at the border since the continent is crossed by non-visible yet tangible informal borders.

Some believe that Africa should approach to trade a little differently. Most African countries produce a small amount of goods and their export sectors are focused on richer countries.

The volume of intra-African trade is so small that some countries may struggle with many challenges and radical improvement of the continent’s infrastructure as a waste of money. Perhaps that is why the United Nations recommends establishment of an integration fund, financed by richer African countries, for construction of new roads and creation of export capacity in poorer countries.

The appearance of Tripartite Free Trade Area is certainly a positive event, but to ensure that the agreement is not only remained on paper, the participants of the new association should start real integration.