Intra-African trade: Not an easy path

4 July 2012

The need to enhance intra-African trade among African countries led to the formation of the EAC-COMESA-SADC (East African Community; Common Market for Eastern and Southern Africa and the Southern Africa Development Community) tripartite Free Trade Agreement (TFTA), as well as to the proposed 2017 Continental FTA (CFTA) between Cairo and Cape Town. The tripartite agreement is expected to grant parties access to economies of scale and invite other benefits associated with market integration (such as income and employment generation). However, the agreement faces certain obstacles. In highlighting some of the hindrances to both the tripartite agreement and the CFTA, this paper proposes some strategic policy suggestions to help realise the goals of the FTAs.

Between benefits and obstacles

Intra-African trade is necessary in order for African nations to develop the complementarities of their economies and take full advantage of the economies of scale, along with the other benefits associated with greater market integration. The TFTA, dated from June 2011, is established on tariff-free, quota-free, exemption-free, and variable geometry principles. Additionally, through complementary programmes – involving customs cooperation, the harmonisation of industrial standards, the combating of unfair trade practices and infrastructure development – it is intended to foster intra-regional trade within the Regional Economic Communities (RECs). During its annual summit in January 2012, the African Union endorsed a plan of action, aimed at boosting trade within the region by at least 25-30 percent in the next decade.

However, before the tripartite FTA can fully yield the benefits of increased trade, members must first address the obstacles to the free movement of goods and people within their own countries and RECs. It remains, for instance, very expensive to transport commodities from Nairobi to Mombasa, two cities within the same country. Indeed, the proposed 2017 CFTA appears a very tall dream so long as strategic structures and systems on the continent remain weak.

Obstacles to overcome in the medium term

Both the TFTA and CFTA offer potential benefits to member countries and sub-regions. The prospects include a bigger economy, increased market access for products, elimination of overlapping memberships, increased foreign direct investment, increased industrialisation, improved competitiveness of products, enhanced food security, and a more efficient infrastructure. However, many fear that the tripartite agreement cannot be sustained in view of the numerous obstacles undermining trade in Africa. These obstacles include:

The conflicting membership: Overlapping memberships hinder harmonization and standardization, as well as the enforcement of rules of origin. At present, every country in Africa is a member of at least one REC, and most belong to two or more. For example, the EAC is already a Common Market and has four of its members in COMESA and one in SADC. Five SADC Member States (Botswana, Lesotho, Namibia, Swaziland, and South Africa) are members of the Southern African Customs Union (SACU). These proliferating memberships in RECs have drawbacks as they impose high costs on governments in terms of time, energy and resources, forcing them to juggle between competing regulations.

Economic Diversification: The vast majority of Africa’s economies lack globally competitive industries and services. With few complementary goods to exchange with each other, these countries cannot exploit the gains of comparative advantage.

Conflict: Political tension, conflict and, violence also weaken the capacities of African states to engage in intra-regional trade. These factors lead to low levels of economic growth, destruction of trade-facilitating infrastructure, and intra-regional disintegration.

Infrastructure: Infrastructural deficiencies continue to hamper trade within and between African countries and raise transportation costs.

Border issues: Africa’s notoriously bad customs environment poses yet another impediment to the success of its intra-regional trade. The exorbitant fees that customs offices charge are part of the problem. The costs to businesses in time delays are another issue. Delays are up to three times longer in Africa compared with other regions of the world. Excessive bureaucracy is one cause of this.

Varying stages of economic integration among RECs: Regions that are characterised by different levels of trade and economic integration. For example, with its common external tariff arrangements, the EAC is already a Customs Union. Thus, while the EAC might be charging duties on some imports from outside the region both COMESA and SADC advocate free trade with outsiders.

Financial constraint: Currently, many of the countries in the RECs are financially weak and fall within the category of Least Developed Country (LDCs), and therefore lack the capacity to undertake massive investments in infrastructure development under TFTA and CFTA.

Lack of political commitment: The reluctance to cede power to a supra-national body and the failure to implement commitments made at the REC level is also a frequent problem with some of the countries involved in inter-RECs negotiations.

Language barriers and currency: While English is the agreed-upon language across some RECs, French is used in others for the purposes of administration, public trade facilitation and private transactions. Furthermore, the fact that multiple currencies are currently being used in Africa is a problem for the progress of the FTAs.

Conclusion

In order to maximise the opportunities offered by FTAs and generate a sustainable CFTA, it is necessary to deal with the barriers outlined above. In any trading arrangement, there is always the possibility of disputes between trading partners. Unless a good dispute settlement mechanism exists, some disputes can threaten the continued operation of FTAs. Both TFTA and CFTA therefore need to provide an appropriate dispute settlement system for the resolution of any conflict that may arise in the course of achieving the FTA goals.

A thorough analysis of the situation should always precede the launching of a programme in order to determine its feasibility. Such an analysis should necessarily include an assessment of the resources available for the implementation, as well as the time frame over which to carry out the programme. Partners in the FTA should ensure that the negotiations result in a win-win situation for both Member States and the participating RECs. Otherwise unfair treatment relating to inequitable distribution of losses or gains will lead to disenfranchisement and unwillingness to cooperate. Compensation and budgetary support as a result of revenue loss occasioned by the inter-RECs’ FTA agreements should be a one-off exercise, and time bound to avoid the creation of indolence and the over indulgence of states, which could breed inefficiency and uncompetitive trading regimes.

Trade agreements in an FTA should prescribe discriminatory interventions in investments and infrastructural development with the aim of supporting highly disadvantaged states and regions, in order to boost their confidence and guarantee fairness. A bottom-up rather than top-down approach should be adopted to ensure that all stakeholders, especially those at the grassroots, are involved in the planning and conceptualisation stage of the programme. This would also avoid the disruptive effects incurred by using ministers – whose frequent turnovers cause projects built around them to be abandoned or delayed – in programme implementation.

Authors: Adetunji Babatunde is a Lecturer in the Department of Economics, University of Ibadan, Nigeria and Gbadebo Odularu is a regional policy analyst at the Forum for Agricultural Research in Africa (FARA), Accra, Ghana.

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