Will Africa create a Free-Trade Area?
Looking at the statistics behind the claims
Africa’s share of global trade has not changed significantly in twenty years – from around 2.4% or thereabouts between the early 2000s and now. From habits forced by colonialism, African nations have historically relied too heavily on export income from primary commodities, including oil, minerals and raw materials which partly explain the continent’s disappointingly low level of intra-continental trade – about 15% compared to averages of 54% in the North America Free Trade Area, 70% within the European Union and 60% in Asia.
Europeans and other developed countries are still benefiting from the exploitation of raw materials from the continent to stoke their economies and markets at the cost of Africa’s sustainable development. Continuing reliance on commodity exports sixty years after most African countries won their independence for the European powers is a bad sign, most simply demonstrated in the travel sector, where it is cheaper to fly from Abidjan to New York than to Khartoum.
Removing tariffs to trade between African countries to create a genuine single market seems fraught with problems, not the least of which is that most African economies are far too small to properly capitalise on the continental opportunities of scale that could exist in a 21st century global economy. Almost all African nations boast their national flagship airline. Of course they are all subsidised and only one – Ethiopian Airlines – makes any kind of profit. African businesses face an average higher tariff to export to other African countries (6.1%) than to export outside Africa (less than 2%).
Sustainable economic development requires bigger markets, skilled workers, higher investment, and a large increase in manufacturing and services to encourage Africa to work more and trade more with itself.
That’s why the emerging protectionist and nationalist policies, especially among industrial countries, will be so damaging to developing countries. It’s also why Africa, the only and last continent facing the challenge of economic development, needs to be allowed the means and the space to develop without being undercut by aggressive international export policies.
At the same time, Africa must demonstrate that it understands the implications of the scale economies to be won by a common free trade area. It should therefore make determined progress on removing its tariff barriers to its continental neighbours, and make the African Continental Free Trade Area a reality.
Everyone is in favour of a free trade area for Africa, although the rather more protective European phrase ‘single market’ is much less often used in Africa. This because they are two different things. A single market would build a tariff wall around the African continent and, ideally, allow free continental movement of goods, services, investment and people within it.
A free trade area would essentially open Africa to the full impact of the world’s exports, offering the falsity of including the subsidised exports of agricultural products, committing the African continent to another century of economic slavery and penury.
The African Continental Free Trade Area (AfCFTA) builds on existing initiatives for regional integration and lays the groundwork for more. There has been notably heavy political support from the more progressive African countries and leaders.
But however strong the support, the claims for the Free Trade Area’s potential benefits must be fact-checked. For example, a highly misleading impression has been created that signatory countries will quickly enjoy vastly improved trade levels, and the estimate that AfCFTA will lead to a 52.3% increase in intra-African trade by 2022 has now become a stock UN narrative.
However, the estimate was based on assumptions that have already been disproved. One of these was that Africa must have completed a fully liberalised and continent-wide border-free trade area by 2017. It must have harmonised external tariffs by 2019; and should already have undertaken trade facilitation measures, none of which have even started. There is no common external tariff; and full liberalisation – the near removal of most tariffs on most goods – will not take place under current plans, since the deadline was 2020. There are even some African leaders (with elections next year) cynically pretending that this might still happen.
Instead, the agreements are that 90% of goods and services will be liberalised over the course of the next 5-8 years; 7% will be classed as sensitive and liberalised over 10-13 years; and 3% of goods (mostly weapons) will be exempt from free trade entirely. These commitments already look challenging. Even more worrying is that although non-tariff barriers, many of which are imposed for health and safety reasons on food exports, are nominally included in these commitments, there appears to be no realistic thinking about how to avoid them being maintained or introduced.
Given the lobbying going on, it is already likely that the inclusion of exempt goods will disproportionately limit many intra-African trade gains. The narrow range of industries and products in many African countries mean that just a few exemptions could account for a high proportion of a country’s exports, restricting potential new regional trade.
And despite the obvious and pressing continental needs, intra-African trade benefits of AfCFTA are only slowly being realised. Existing African regional trade areas such as the EAC and the Common Market for Eastern and Southern Africa (COMESA) have already introduced regional free trade, but many are stymied by serious non-tariff barriers.
Highlighting these uncertainties is not a criticism of the admirable goals of AfCFTA, which in the long-term is still likely to improve and increase intra-African trade. Rather, it is recognition that their impact in the next few years will not be as great as suggested by some of its proponents.
The expectations of governments and businesses must be managed, and signatories need to have the patience to deliver this precious project over a longer time period than the AU’s continental PR or the next national presidential election might promise.