Africa forms single market Featured

Africa forms single market

Historic pact creates world’s biggest free trade zone fulfilling the pan-African dream.

 For the proponents of free trade, it is a rare dream come true: a single market covering an area of 30.37 million square kilometres with 1.216 consumers and a nominal gross domestic product of $3.3 trillion ($6.76 trillion on purchasing power parity terms).

Decades after the creation of common markets like the European Union (EU) and the North American Free Trade Area (NAFTA), the African Union (AU) has spearheaded the setting up of the largest free trade area, by size at least, in the world. At a ceremony in Kigali, Rwanda, last month, 44 African countries signed a treaty to create the African Continental Free Trade Area (AfCFTA). The pact allows for free movement of goods, persons and services. Of the 44 signatories, 27, including Kenya, have signed up for the full protocol. The other 17 will ratify the agreement to allow free trade but not movement and residency for subjects of the trade area.

Interestingly, the two key African countries that were expected to drive the whole  process backed out. Nigeria and South Africa, the continent’s first and third biggest economies that together account for $700bn  (about 19 per cent) of Africa’s GDP, refused to ratify the treaty. Nigeria’s President Muhammadu Buhari pulled out of the summit at the last minute. His government wants to study the implications of the treaty for an economy with weak infrastructure and lack of competitiveness. One of Nigeria’s fears is that it would become a dumping ground for manufactured goods, the same reasons that its bureaucrats worked so hard to stop the signing of a free trade agreement between the Economic Community of  West African States (ECOWAS) and the EU in 2014.

Among domestic pressure groups opposing the common market is the Nigerian Labour Congress, the country’s umbrella labour movement. Nevertheless, the cabinet believes the agreement   could spur economic growth and create new jobs.  This expectation of an economic dividend as well as the wider picture of pan-African integration explains the position of the country’s former leader Olusegun Obasanjo. His government in the ‘70s spearheaded the liberation of Southern Africa from apartheid rule. He regards  the current administration’s cold feet as unfortunate. “I am surprised that any African leader at this time would be doubting or debating the benefits of what is going to be signed and would fail to show up,” he told Rwandan’s KTpress.

South Africa has given no reason for its decision but it is possible that its new president, Cyril Ramaphosa – barely two months in the job –  wants more time to study the treaty too. There are fears that the  free movement of peoples proviso   would spark an immigration crisis in a country that is already an economic magnet for people from its poorer neighbours. There have been several serious outbreaks of violence against foreign workers in recent years, leading to a number of deaths.

Given the sophistication of the its economy and its strong agricultural and manufacturing base, South Africa, along with Egypt and Morrocco, stands to gain more than any other country from the agreement.  It is possible that South Africa will eventually join the 17 countries who have ratified the agreement for only free trade and not movement of persons, although that would amount to cherry picking and defeat the spirit of the pact.

Albert Muchanga, the AU’s commissioner for trade, believes the 11 hold-out countries (which also include Burundi, Guinea Bissau and Eritrea) will eventually sign up. He is quoted as saying the countries did not say they are turning their backs on the agreement but wanted to carry out more consultation at home.

Despite the stance of the two economic giants, there is no denying the milestone that the treaty represents for Africa’s economic integration. Intra-African trade is put at a mere 16 percent of the continent’s trade volume. The AU expects this to jump to more than 50 percent once all the 55 member countries sign up.

Paul Kagame, president of Rwanda and host of the summit, captured the excitement across the continent: “The promise of free trade and free movement is prosperity for all Africans because we are prioritising the production of value added goods and services that are made in the continent,” he said. As AU chair, Kagame clearly takes some personal pride in  helping get AfCFTA off the ground.

Signatories to the treaty are expected to have their national parliaments ratify it within six months. AfCFTA itself will become effective once 22 countries do so, which Muchanga expects will be  by the end of the year. By the time you read this, the Kenyan parliament would have endorsed it. The cabinet approved the treaty for ratification, on March 27, barely a week after it was signed.

Members of the free market are expected to remove all tariffs on up to 90 per cent of goods and services.  The agreement also seeks to promote regional value chains, industries and agriculture. Muchanga believes it will create jobs and overcome the continent’s reliance on export of unprocessed raw materials.  

The coming of the trade pact realises a long African dream. Shortly after independence from the colonial masters. The founding fathers of the new nation states sought greater cooperation and integration. Seven countries (Algeria, Egypt, Ghana, Guinea, Libya, Mali and Morocco) that formed what was known as the Casablanca bloc wanted an African federation where nations states gave up some sovereignty to create a supranational African government.  

A rival body, the Monrovia group (which included Nigeria), wanted a looser arrangement that protected the statehood of the individual countries. A compromise between the two groups led to the founding of the Organisation of African Unity (OAU) in 1963. Since then, efforts at deeper integration have faltered, largely because of the influence of external forces. While Britain nominally allowed its former colonies to forge an independent economic direction, France created structures to tie its former colonies to the French economy. Guinea, which attempted to break away from the status quo in the 1960s, was punished with sanctions. One of those structures, a monetary union controlled by France, survives until today. This made economic integration, near impossible and explains why ECOWAS, founded in 1975, has failed to make the same progress as the EU, on which it was modelled.

While West African states have struggled, other experiments at free trade in the continent have been more successful.  The East African Community (EAC), founded in 1967 by Uganda, Kenya and Tanzania, was a successful economic federation before political wrangling led to its dissolution in 1977. The group was later revived in 1999 and now includes Burundi, Rwanda and South Sudan. Further down in the continent, Southern African countries established the Southern Africa Development Community (SADC) in 1992. The community now has a membership of 15. With 19 members, the Common Market for Eastern and Southern Africa (COMESA)  formed a customs union in 2009. The group had started out as a Preferential Trade Area in 1981 and became COMESA in 1994. As the push for economic integration gathered momentum, 26 member states from the EAC, SADC and COMESA signed an agreement to form the African Free Trade Zone (AFTZ) in 2008. The AU then got involved and at its 2015 summit in South Africa kickstarted negotiations for a continent wide free trade area.

The signing of the treaty also represent s a new consciousness in the benefits of deeper integration on the part of African leaders. While most of them baulked at signing a free trade agreement with the EU, despite tempting offers of aid, they readily embraced a continental free trade arrangement

Already, other countries are signalling their intention to trade with the bloc. India’s commerce and industry minister, Suresh Prabhu, said last month that both sides can work on negotiating a completely unique free trade agreement.

The consensus is that this arrangement will benefit large swathes of the population and may be the stimulus Africa needs to cease to be an economic basket case accounting for a miserly 2.5 per cent of global GDP against a 17 percent share of the global population.            

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