Other blocs are yet to achieve such steps. With these differing stages of integration, a continental agenda might seem cumbersome to negotiate. The AU, however, suggests that it would simply build on the existing arrangements achieved by the different blocs. What then is key to implement the continental FTA?
On May 29th, the United Kingdom triggered Article 50 of the Lisbon Treaty, moving a step closer with its plans to exit from the EU. In the wake of this, African leaders are forging ahead with their resolve to create a Continental Free Trade Area (CFTA). Guided by the African Union (AU), all 54 countries are negotiating to eliminate tariffs and liberalise trade in services within their markets by December 2017. Negotiating fora consisting of experts from all countries convene to negotiate how to open up trade in goods, services and other issues such as Intellectual Property Rights. The fifth and latest forum met in March 2017 and agreed to liberalise between 85 to 95 percent of their tariff lines over a period of five to 10 years. They also agreed to allow for flexibilities through exclusion of certain products considered “sensitive” based on their fragility to accommodate shocks when markets are opened up. With a recent EU referendum and the December 2017 deadline approaching, this article highlights key considerations, which African leaders must consider to successfully implement a CFTA.
Understanding Integration In Africa
Africa’s integration story is framed by an inherent desire to consolidate economies of scale following colonial fragmentation of the continent, which created weak economies. A few colonial cross-border arrangements were established such as the African Financial Community (CFA) zone, comprising the West and Central African CFA franc. However, key agreements that triggered a continental agenda include the formulation of the Organisation of African Unity (OAU) in 1963, the 1980 Lagos Plan of Action and the Abuja treaty of 1991 establishing the African Economic Community (AEC). Eight sub-regional blocs have since been formed such as the Economic Community of West African States (ECOWAS), the Southern African Development Community (SADC), all within the framework of the AEC. These sub-regional groupings are, however, at different levels of integration. ECOWAS countries, for example, have moved on to achieve a uniform tariff applied on non-members’ products. SADC, East African Community (EAC) and Common Market for Eastern and Southern Africa (COMESA) have gone a step further to open trade among all three blocs and create a Tripartite Free Trade Area (TFTA). Other blocs are yet to achieve such steps. With these differing stages of integration, a continental agenda might seem cumbersome to negotiate. The AU, however, suggests that it would simply build on the existing arrangements achieved by the different blocs. What then is key to implement the continental FTA?
Do Not Present Unrealistic Expectations From Free Trade
African leaders must be realistic in presenting expectations from the CFTA to citizens. The inherent nature of trade negotiations is that winners and losers would emerge in the short term. For a successful CFTA, our leaders must ensure that adjustment costs are factored into the negotiations so that disadvantageous outcomes are not excessive or roll into the long term. For example, countries with better infrastructure are likely to attract more investors to the detriment of smaller economies since the market access conditions are the same. This is bound to create a shift in industry concentration affecting the poorest farmers and local producers, further resulting in job losses. It is key that African leaders and policymakers take stock of these potential losses, and seek complementarities to mitigate them. African leaders must therefore be clear from the onset and factor in adjustment or compensation costs in the negotiations to provide sustainable buffers for the short-term negative effects an open market would bring.
…the private sector must be included in the negotiations. The African Development Bank suggests that 90 percent of Africa’s private sector constitutes of SMEs. It would do no good, therefore, to exclude this segment of the private sector in the negotiations or during implementation since higher competition is expected from a wider market.
An All-inclusive Negotiation Agenda
Flowing from the point above, the impact on all segments of the economy, not just the elite, must be considered during the negotiations. A successful BREXIT campaign was run as it appealed to the ordinary farmer in rural Britain, for example, who receives low earnings from his products with cheaper competition from other EU products. The BBC reports that the highest “remain” votes were from cities where the higher income earners reside such as London. For the CFTA to be successfully implemented, considerations must be made for Small and Medium scale Enterprises (SMEs), informal women traders, the youth, subsistence farmers, etc. The OECD reports that Informal Cross Border Trade constitutes the bulk of Sub-Saharan trade in terms of share and impact and 60 to 80 percent of this is conducted by women. Women traders must, therefore, receive support measures in their trade activities. In East Africa, for example, at the border between Uganda and Kenya, informal women traders are grouped into associations and provided storage facilities at the border to reduce post-harvest losses and transportation costs.
Having the Right Type of Private Sector at the Table
As highlighted above, the private sector must be included in the negotiations. The African Development Bank suggests that 90 percent of Africa’s private sector constitutes of SMEs. It would do no good, therefore, to exclude this segment of the private sector in the negotiations or during implementation since higher competition is expected from a wider market. Providing support measures such as improved access to credit, and streamlining regulatory requirements would support SME transition into the continental value chain.
Talks of implementing a continental free trade area seem far-fetched if labour mobility is ineffective and this should form the core of the negotiations for African leaders. The establishing treaties of most RECs contain “free movement of people” as an objective and ECOWAS seems the only REC to have attained this stride, having created a single passport for its citizens.
Is the Trade Data Correct?
Another key consideration is that whilst perfect data is difficult to obtain, African leaders need to strive towards enhancing the reliability of information sources to truly shape trade policy. The difficulty of assessing trade flows in Africa is further exacerbated by the earlier stated fact that cross border trade is mostly informal, due largely to historical cultural relations in our trade patterns. For example, the largest grains market in Africa, the Dawanu market in Kano, Nigeria is unregulated and conducts its trade informally, exporting soghum, millet, maize, peanuts to as far as Ghana, Niger, Mali. An innovative approach to capturing informal trade data is a Simplified Trade Regime (STR) implemented by the EAC, where traders who transact in low value consignments of under $2000 receive Certificates of Origin exempting them from paying customs duties. This gradually encourages such informal traders to avoid the dangerous informal “panya” routes and trade under this scheme, thereby providing data to work with. African leaders must also exude the political will to enhance data quality and share information.
People Must Move Freely
Talks of implementing a continental free trade area seem far-fetched if labour mobility is ineffective and this should form the core of the negotiations for African leaders. The establishing treaties of most RECs contain “free movement of people” as an objective and ECOWAS seems the only REC to have attained this stride, having created a single passport for its citizens. That said, however, intra-African travel remains tumultuous. The 2016 AfDB visa openness report indicates that only a mere 13 out of 55 countries operate liberal visa access to Africans such as visas upon arrival or visa free entry. The average European stands a higher chance of travelling across the continent than an African. Governments use visas as inhibiting instruments during diplomatic conflicts against each other. Addressing this malaise seems a good starting point and the AU’s single passport initiative must be supported by national governments to truly advance the benefits of a continental bloc.
Amanda Archibong is Manager, Partnerships, African Risk Capacity (ARC), UN World Food Programme.
