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Big read: Is Africa’s free trade area a pipe dream?

Big read: Is Africa’s free trade area a pipe dream?

Six long years after the African Union’s decision to establish an African free trade area, policymakers met in Kigali this March to put their signatures to the most ambitious pact in the continent’s history.

After sitting through endless meetings and wading through hundreds of documents, an initial forty-four countries united to pledge their support for the Continental Free Trade Area (CFTA), an ambitious pact which promises to create a single market for goods and services by eventually removing tariffs on 90% of goods and facilitating the free movement of business people.   

For many African politicians, the signing of the CFTA represents a hard-earned victory – a vital shot in the arm for the forces of trade liberalisation and a firm commitment to overhauling a continent mired in red tape and protectionism. For national governments, just getting to this stage involved a delicate process of placating anxious neighbours, navigating complex negotiations with industry and warding off domestic political pressures. On a continent where pan-African rhetoric often falls prey to the politics of self-interest, many argue that the signing of the CFTA represents a genuine multilateral achievement.  

“I think it’s a positive development, there’s no question that regional integration has been on the African trade agenda for some time, so to see this agreement being signed by 44 is an indication that it’s really being taken seriously and that governments recognise that intra-regional trade is an important component of economic growth and the development of the continent,” says Witney Schneidman, senior advisor for Africa at law firm Covington and a former US deputy assistant secretary of state for African affairs.   

Yet while a congratulatory round of backslapping may be in order, the signing of the pact represents the beginning, rather than the end, of the monumental task of overhauling Africa’s dire trade record. Despite broad economic liberalisation across the continent over the last two decades, reflected in improved GDP growth and a spike in personal incomes in many countries, Africa’s trade figures have yet to catch up. According to the Brookings Institution, intra-African exports in 2016 made up a paltry 18% of the continent’s total exports, compared to 59 and 69% for intra-Asian and intra-European exports respectively. For too many African countries, trade still means exporting raw commodities to the developing world. Meanwhile, high tariffs and decrepit infrastructure – including crowded border posts and dilapidated roads – perversely prevent many countries from trading successfully with their own neighbours.    

While the CFTA is the largest plan yet to tackle these challenges, previous initiatives, including the 27-member Tripartite Free Trade Area and a plethora of regional agreements, have laid some of the groundwork. If the CFTA is to succeed where predecessors have stumbled, it will have to get to grips with complex issues of tariff removal, non-tariff barriers, and diverging degrees of economic development among signatory states. Perhaps most importantly, those who have committed to the pact will have to pursue the kind of ruthless implementation that has long eluded them.  

“I see a lot more of the political buy-in. There’s a strong engagement at the highest political level in trying to advance this agenda,” says Dorothy Tembo, deputy executive director at the International Trade Centre and a former chief trade negotiator for Zambia.  

“What will be key is how all this is translated from good intent into an operational plan of action. How does this translate from the continental perspective to the national strategies, their different plans, actions, and budgets?”  

Barrier busting 

After stubbornly pursuing a controversial economic strategy of currency controls and import restrictions, African policymakers are wearily familiar with the protectionist instincts of Nigerian president Muhammadu Buhari. Yet in the run-up to the Kigali summit, many still held out hope that the Nigerian government would set aside its concerns and sign up to the CFTA. Those hopes were quickly dashed. Under pressure from domestic manufacturers, Buhari told local media in no uncertain terms why he was submitting the proposals for further domestic consultation.     

“We will not agree to anything that will undermine local manufacturers and entrepreneurs, or that may lead to Nigeria becoming a dumping ground for finished goods,” he argued.  

If Nigeria’s withdrawal put a dampener on the CFTA signing ceremony, the withdrawal of South Africa for “technical” reasons, again pending further consultations, compounded fears that the CFTA could be strangled at birth by an upsurge in protectionist sentiment among the largest economies. While hope remains that both will eventually sign up, some fear that their scepticism could influence signatories whose weaker economic position leaves them open to protectionism.  

“It’s worth noting that this agreement is being achieved at a time of Brexit, at a time of Trump’s America First,” says Schneidman. “I don’t think [this nationalism or isolationism] is to be dismissed out of hand, because there are losers when it comes to free trade. It’s important that Nigeria’s concerns are taken seriously and that it’s engaged on these issues to ensure that negative consequences are ameliorated or addressed.”  

Nowhere are states’ protectionist instincts likely to be stimulated more than in the upcoming CFTA negotiations on tariff removal. While the CFTA has set itself the ambitious target of reducing tariffs on 90% of goods across the zone, the differing goals of dozens of diverse economies are likely to hinder implementation. Income disparities in the bloc are over double that of other free trade areas, and economically fragile states dependent on tariff revenue are likely to resist efforts to tamper with a major source of their income.  

“Every country has its own issues about what it wants to protect or trade,” says Dianna Games, chief executive of the Africa At Work consultancy. “We’re not talking about uniform countries, we’re talking about countries with very different levels of development and economic priorities and it’s always a testing thing when people are trying to hammer out these deals.”  

Holding the CFTA signatories together during these testing negotiations will prove a significant challenge, especially as countries bid to gain carve-outs for strategically important industries. Tembo says that CFTA negotiators can alleviate these fears by looking to the example set by existing free trade areas such as COMESA, which she argues successfully encouraged countries to come aboard via a well-defined adjustment facility for those facing revenue losses.   

“This is a matter that has come up particularly from vulnerable countries. If there are measures put in place, perhaps facilities to address the potential negative implications for those heavily reliant on customs revenue, then the process on tariff reduction will move. If there is a clear recognition of that aspect and steps taken to give a minimum level of comfort, that would help to push countries to make commitments,” says Tembo.  

Even then, some analysts believe that a total removal of tariffs will only have a limited impact on overall trade figures. The United Nations Conference on Trade and Development estimates that if all intra-bloc tariffs fall to zero, the total annual welfare gain for the continent could be just $4.6bn (0.2% of GDP), although if tariff removal succeeds in stimulating investment, gains could rise to as much as $16bn annually. Just as significant will be a concerted CFTA effort to bring down non-tariff barriers (NTBs) – a catch-all term embracing rules of origin, product quotas, labelling requirements and other export restrictions.   

“What you will see I suspect is that countries will sign the free trade agreement and then will introduce trade protectionism through the back door, in other words non-tariff barriers. I think you will see a proliferation of non-tariff barriers even as these tariff barriers come down, and you’ve seen that in previous trade arrangements,” says Games.   

Even here, past experience provides a workable template for future action. In 2016, the Overseas Development Institute conducted an investigation into non-tariff barriers in the East African Community. It found that while some NTBs required much lengthier, multi-institutional processes to remove, a quarter were simple complaints solved in less than three months. By 2016, 25 NTBs restricted EAC trade, but 104 had been removed following a concerted EAC campaign launched in 2009. NTBs relating to trade facilitation and customs typically took longer to resolve at around 10 months, but the process showed that systematic action to remove NTBs is possible if countries work together. Tembo believes that building on the pioneering work of these regional authorities will be crucial if the CFTA is to make progress.  

“There will still be a lot of effort required to enhance integration efforts they’ve made at the regional level. There are still a lot of non-tariff barriers and trade facilitation aspects, and border requirements remain a challenge. Bringing together the developments that have been made by the eight regional groupings so far is something that will really be a challenge.” 

Implementation, implementation, implementation  

There is little doubt that huge reserves of political capital will need to be expended in pursuit of the CFTA’s goals. While existing free trade areas prove that African policymakers are fond of headline-grabbing initiatives that meet with occasional success, deeply entrenched problems afflicting African trade, including a dearth of reliable trading infrastructure, remain as pressing as ever.  

“There’s a tendency in Africa to move forward without getting the ground floor right, building high rises on shaky foundations, and I think that’s what’s happening here – not sorting out the problems in previous trade areas and yet we are moving ahead to more ambitious projects,” says Games.  

“Individual countries that sign up should be publicly accountable for how they plan to make this work, how they will make their own countries ready for the deal… there should be consequences for non-implementation and qualifying factors for countries to be part of big initiatives.” 

Tembo argues that while the secretariat should be strengthened to enforce pledges, signatories should also make the positive case for mutual adherence. After a typically top-down consultation process involving politicians and big business, Tembo believes that CFTA organisers need to reach out to smaller businesses and common citizens to persuade them of the benefits of free trade.  

“That’s what I’m not really seeing a plan for. How do you integrate the bottom of the pyramid? It’s good to remove tariffs and they can have a clear conversation on that, but what can they do with respect to cross border trade that involves very small businesses that perhaps may not have adequate measures in place to accommodate that?” 

Whether the CFTA will ultimately deliver the $34.6bn boost estimated by the UN’s Economic Commission on Africa remains to be seen. While wary of backing that figure, Tembo believes that even partial implementation of the scheme will auger well for the future of African trade. 

“It’s very ambitious and perhaps the targets and timeframes may not be very realistic if you take into account the realities that will come with implementation,” she says. “[But] I’ve been very closely associated with this process and I’ve not [previously]seen this level of engagement, the level of conversations around some of the details, which gives me a lot of positivity.”  

David Thomas 

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Written by David Thomas

David Thomas is deputy editor at African Business Magazine. He has also been published in the Financial Times, the Wall Street Journal, the Economist and South Africa's Cape Times.

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