African leaders on Wednesday signed what some are calling a potentially historic 26-nation free trade agreement to create a common market in Africa and encourage intra-Africa trade, which isn’t happening enough. Others are saying ho hum, it’s been done before. And where’s Nigeria? The continent’s largest economy isn’t on the list of member countries.
After five years of negotiations, the Tripartite Free Trade Area spans a fast-growing but fragmented region from Cape Town to Cairo.
The goal is to ensure easy, duty-free movement of goods between countries. In theory, companies will benefit from an improved and harmonized trade with reduced cost of doing business and eliminate overlapping trade rules, BusinessDayLive reports.
The deal sets up a framework for preferential tariffs, easing the movement of goods in an area that’s home to 625-million people.
Analysts say it could have enormous impact for African economies, which despite growth still only account for about 2 percent of global trade. Just 12 percent of Africa’s trade is between countries on the continent.
The agreement was signed by President Robert Mugabe of Zimbabwe, Prime Minister Hailemariam Desalegn of Ethiopia, Egyptian President Abdel Fattah al-Sisi, and Mohamed Bilal, vice president of Tanzania at a summit in Sharm el-Sheikh.
World Bank president Jim Yong Kim said the TFTA would allow Africa “to make tremendous progress and move the entire continent forward,” according to BusinessDayLive.
The deal integrates three existing trade communities — the five-member East African Community, the 15-member Southern African Development Community, and the overlapping 19-member Common Market for Eastern and Southern Africa.
These are the member countries:
East African Community: Burundi, Kenya, Rwanda, Tanzania, and Uganda.
Southern African Development Community: Angola, Botswana, DRC, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe .
Common Market for Eastern and Southern Africa: Burundi, Comoros, DRC, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe.
Combined, these countries have a gross domestic product of more than $1-trillion. Mugabe said the deal will create a borderless economy that will rank 13th in the world for gross domestic product.
Negotiators this week at Sharm el-Sheikh said the deal had addressed concerns such as management of trade disputes and protection for small manufacturers once the TFTA comes into force.
The creation of a regional body promoting economic integration in Africa is a logical response to the paltry levels of intra-continental trade, Quartz reports. The only problem is that it’s been done before in Africa – a lot.
The African Union, itself a regional body dedicated to promoting peace and development in Africa, has sponsored the development of Regional Economic Communities, formally recognizing eight, Quartz reports: the common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC), Southern African Development Community (SADC), the Inter-Governmental Authority on Development (IGAD), the Economic Community of West African States (ECOWAS), the Community of Sahel-Saharan States (CEN-SAD), the Economic Community of Central African States (ECCAS), and the Arab Maghreb Union (UMA).
The existence of bodies to promote regional integration don’t actually change trade patterns, according to Quartz.
All Regional Economic Communities reviewed by the African Development Bank imported significantly more from the European Union than from other African countries.
In 2010, only one Regional Economic Community exported goods more to Africa than to the European Union — the Inter-Governmental Authority on Development (IGAD). It had 18.8 percent of its exports go to other African markets compared to 15.6 percent sent to the European Union, Quartz reports.
The three trade communities that make up the new Tripartite Free Trade Area — the East African Community, Southern African Development Community, and Common Market for Eastern and Southern Africa — have made some real economic strides, according to BusinessSpectator.
Countries in Southern Africa have common external tariffs and several of them effectively share South Africa’s rand, the most liquid and widely traded currency on the continent.
The East African Community, the continent’s most integrated cross-border economy, fostered a trade spike among members Kenya, Rwanda, Tanzania, Burundi and Uganda, BusinessSpectator reports.
More than $100 billion US in goods passed between members of the three communities in 2014, a threefold increase from a decade ago, according to officials drafting the Tripartite Free Trade Area.
Freer trade in the three existing communities “has resulted in major revisions in the projections of the GDP of the grand free area,” said Calestous Juma, a Kenyan professor at Harvard Kennedy School, BusinessSpectator reports.
But, Nigeria, the continent’s largest economy, is not in the new bloc. Nigeria anchors another group called the Economic Community of West African States. ECOWAS covers 15 countries and more than 300 million people but has failed to reach many tangible trade agreements, according to BusinessSpectator.
“ECOWAS has been preoccupied mostly with peacekeeping efforts and less with regional trade facilitation,” Juma said. He predicted it might be brought into the new pan-continental trade grouping eventually.
Some doubt the Tripartite Free Trade Area can live up to the hype. Matthew Davies with BBC said if it functions properly, it will be a free trade area, not a common market and certainly nothing approaching what the E.U. is. That’s not to say the tripartite agreement is a waste of time. “Free trade from Cape to Cairo has been a goal since colonial times (Cecil Rhodes talked about it) and this agreement is a baby step towards that,” BBC reported.
In theory, it’ll boost intra-African trade, but that depends more on the capacity of African countries to make what each other want at competitive prices, rather than a simple lowering or doing away with tariffs between the 26 members, BBC reports.
The devil will be in the details, Davies said. There will be challenges. For a start, customs officials and getting across borders is notoriously cumbersome in Africa.
While there’s a lot of political will and desire for the TFTA to succeed, how it works on the ground will be the proof, and that could take years. “Pardon my cynicism, but the three blocs involved in this are by no means functioning perfectly,” Davies said for BBC.