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Thursday, 16 July 2015

Africa sets deadline for free-trade area as regional blocs come together

extFor years African leaders have been touting the dream of greater continental integration, with a vision of people and goods criss-crossing borders, boosting job creation and driving development.

For all the talk there has been little action, and trade between Africa’s 54 nations has remained stubbornly low. The continent still predominantly relies on the export of raw materials and the import of finished products, primarily from China. Often African nations struggle to find a common voice as politics and regional and national interests stymie co-operation.

But African officials say the dynamics are shifting as heads of state at an African Union summit in Johannesburg today formally launch negotiations for a continental free-trade area. They have set the target of 2017 for the agreement to be implemented.

It is a highly ambitious goal in a hugely diverse continent. But Fatima Haram Acyl, AU commissioner for trade and industry, insists that the initiative is not mere rhetoric. African leaders, she says, realise that improving trade is critical to tackling the continent’s problems of unemployment, poverty and underdevelopment. She adds that Africa risks “missing the boat” as other regions push ahead with their own trade agreements.

“It is happening now because there’s a huge realisation that even when you talk about the peace and security of this continent, some of these root causes [of instability] are really underdevelopment,” Ms Acyl told the Financial Times. “The more and more we talk about it, we find out our real strength lies in our unity.”

A free-trade agreement would focus on breaking down trade barriers to improve the intracontinental flow of services and goods, while easing the movement of people by simplifying visa processes, she says.

The ultimate aim is to open a market that has a youthful, fast-growing population of about 1bn and a combined gross domestic product of $3tn, according to the AU.

As Ms Acyl points out, this month three regional trade blocs — the Common Market for Eastern and Southern Africa, the East African Community and the Southern African Development Community (Sadc) — signed a tripartite trade agreement that covers 26 states. The AU hailed the move as a stepping stone to even wider integration.

Africa has eight regional economic groups, such as Sadc and the EAC, but their success has been limited. Even though the continent has boasted many of the world’s fastest-growing economies in recent years, intra-Africa trade is a meagre 12 per cent of the total trade taking place there.

By contrast intra¬regional exports accounted for about 50 per cent of the total between 2007 and 2011 in developing Asia, 21 per cent in Latin America and the Caribbean, and 70 per cent in Europe, according to a 2013 report by United Nations Conference on Trade and Development (Unctad).

The EAC, which counts Kenya, Uganda and Rwanda among its members, has been the most successful bloc, with Africa’s share in its total trade amounting to 23 per cent from 2007 to 2011, says Unctad. For the Economic Community of West African States, the figure was 14.2 per cent. The numbers would be higher if informal trade were included, the agency adds.

Analysts caution that there are myriad hurdles to increasing African trade, not least the huge logistical, infrastructure and cost challenges of moving goods between countries.

“It’s so costly to take goods from point A to point B in the region, and it’s much cheaper because of the logistics to bring it all across from China,” says Razia Khan at Standard Chartered. “Infrastructure is still a massive drawback. How much can you proceed with this intent to liberalise trade if the infrastructure is not there?”

China is Africa’s biggest trade partner with trade volumes reaching $222bn last year, according to Standard Bank, which is based in Johannesburg. In comparison, South African trade with the rest of the continent was $41bn. South Africa is by far the continent’s most advanced economy with a sophisticated corporate sector. Most other African nations have tiny manufacturing bases.

Simon Freemantle, Africa analyst at Standard Bank, says there needs to be a structural change to economies to achieve a genuine boost in trade. “Maybe it’s the chicken and egg, and if you ease trade between borders that acts as a spur to invest in manufacturing,” he says.

“But you still need power, you still need skills, you still need the capacity to compete with China, and we are way off that.”

Ms Acyl remains bullish, arguing that the creation of a free-trade area would attract greater investment, which in turn would accelerate industrialisation and development.

“Right now our markets are too small, our economies are too fragmented to justify the big amount of investment we require for infrastructure,” she says. “When we have a free-trade agreement any company in the world will come and place themselves in Africa.”

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