I
t is often cheaper to export outside Africa than within it, with tariffs averaging 6.1 percent. The UN Economic Council on Africa (UNECA) estimates that an FTA could increase intra-African trade by 52.3 percent through the elimination of those tariffs — and by 106.4 percent if it could manage to eliminate all (non-tariff) barriers. The FTA came into force in May last year and forms the largest trade agreement since the establishment of the World Trade Organisation (WTO) in 1995. Initially created by 54 of the 55 African Union nations — Eritrea being the exception — it came into force after 22 countries deposited their instruments of ratification. Today, 28 countries from Egypt to South Africa participate in the FTA. Five core aims will drive the initiative: 1. Deepen economic integration, liberalise tariffs and remove non-tariff barriers to trade 2. Facilitate free movement of people and capital, developing a basis for an African customs union 3. Create socially and economically sustainable development 4. Enhance the global competitiveness of member country economies 5. Encourage development and diversification of regional economies The FTA’s collective economy is forecast to grow at twice the rate of the developed world’s, but in relative terms it is still in its infancy. It has grand ambitions and the means to reach them — but those means are yet to be fully demonstrated. Liberalising tariffs form the core basis of the FTA’s aims and from this it is envisaged that diversification of Africa’s export industries and the widening of the employment market are priorities. More than 75 percent of Africa’s international exports between 2012 and 2014 were extractive commodities (oil and minerals) and comprised 34 percent of internal exports during the same period. Diversification and greater access to domestic markets would help member countries to reduce their reliance on that sector. Extractive commodities industries are generally not labour-intensive, so diversification will help member countries to reduce their reliance. Promoting manufacturing and agricultural industries — labour-intensive sectors — with a broad diversification agenda would create more jobs and better access to domestic markets. SMEs particularly stand to benefit. They account for roughly 80 percent of the continent’s businesses, but struggle to penetrate international markets. Visionaries hope that
"The FTA’s collective economy is forecast to grow at twice the rate of the developed world’s, but in relative terms it is still in its infancy." easing of intra-African business will act as a springboard into overseas and international markets — SMEs generally operate through larger regional companies. This supports the FTA’s macro-aim of producing sustainable development, increases market stability, investor confidence and interest. On a micro level, it has improved the experience of informal cross-border traders, an estimated 70 percent of whom are women. While core aims lie in liberalising goods, tariffs have been a historic and key source of revenue for many member countries. Protecting the value of domestic goods is especially the case for the continent’s less-developed economies. Countries will need to adjust their tariffs to meet FTA requirements, and this will take time. Participating countries must liberalise 90 percent of goods within five years for industrialised economies, such as South Africa and Kenya, and 10 years for less developed economies. Non-trade barriers will take longer to remove. The so-called G6 countries of Ethiopia, Madagascar, Malawi, Sudan, Zambia, Zimbabwe have been granted 15 years to liberalise tariffs because of the particular challenges related to other barriers — rail and road networks and other infrastructure. So those states with more industrialised economies and good infrastructure (Kenya and South Africa again) will benefit. Countries whose main barriers are non-tariff will see limited benefits until they establish road and rail networks. Evidence suggests that Africa is not immune to global trends of nationalism and protectionism. Anti-immigration sentiment in South Africa, trade restrictions in East Africa, and border closures in Nigeria are all serious threats to FTA aims. Success will require significant concessions from participating countries. Security also poses a hurdle for countries that use border closures to protect goods and reduce smuggling.
Some nations fail to ensure stable government and consistent political governance. This further hinders members’ ability to negotiate, implement and maintain rules and agreements. Flagging governments could have an adverse knock-on effect in achieving a more integrated economic region. There is also little evidence that investors are paying attention to the FTA. Multinationals and foreign investors are not reacting to changes proposed by the FTA, and have not produced evidence of their investment plans or projections. What we are as yet to see is how the FTA will reconcile trends of nationalism and protectionism — threats to the aims of free movement and tariff liberalisation. Nigeria has pulled out of negotiations, fearing that the FTA will harm domestic manufacturers. The FTA has been active for less than a year, and is still in its infancy. There is still a great deal to discuss, negotiate and decide: rules of origin of goods, cross-border payments, competitions policy, intellectual property rights, transport infrastructure and domestic regulations, for starters. But the FTA is symptomatic of a continent rightly moving on from colonial association, exemplified by over-reliance on north/south airlinks. It is realising its potential. Challenges remain, but a continent-wide FTA is an initiative to be encouraged and supported. Support could come in multiple ways. Africa’s challenge of feeding a growing population, providing a livelihood for farmers, and protecting the environment are some of the greatest challenges facing the world today. Uncompetitive, poor productivity, limited access to finance, vulnerabilities of KYC (know your customer) or intermediaries and the question of delayed payments apply throughout all manufacturing industries. These issues must be tackled together to make sustainable progress. Partnership through innovation is desirable, with blockchain as an example. The next generation of software architecture is cropping up in provenance and payment systems to address farmers’ banking needs, to create transparency, and to reduce operational costs. Blockchain technology provides a solution here. Those with the technical expertise should assist where they can with this improvement of informational transparency and accuracy. The UK is well placed in this regard. i
"Evidence suggests that Africa is not immune to global trends of nationalism and protectionism. Anti-immigration sentiment in South Africa, trade restrictions in East Africa, and border closures in Nigeria are all serious threats to FTA aims." 106
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