African countries are building a giant free-trade area (Economist Politics)

African countries are building a giant free-trade area

http://econ.st/2jqFDwi

“AFRICA must unite,” wrote Kwame Nkrumah, Ghana’s first president, in 1963, lamenting that African countries sold raw materials to their former colonisers rather than trading among themselves. His pan-African dream never became reality. Even today, African countries still trade twice as much with Europe as they do with each other (see chart). But that spirit of unity now animates a push for a Continental Free-Trade Area (CFTA), involving all 55 countries in the region. Negotiations began in 2015, aimed at forming the CFTA by the end of this year. In contrast to the WTO, African trade talks are making progress.

At a meeting on December 1st and 2nd in Niamey, the capital of Niger, African trade ministers agreed on final tweaks to the text. Heads of state will probably sign it in March, once an accompanying protocol on goods has been concluded (agreement on services has already been reached). But trade barriers will not tumble overnight. The CFTA will come into force only when 15 countries have ratified it. Even then, the deal only sets a framework, within which some details of tariff reduction have still to be worked out. Separate negotiations, covering competition, investment and intellectual-property rights, are yet to begin.

Nonetheless, technocrats are keen to talk up the agreement. Chiedu Osakwe, Nigeria’s chief negotiator and chairman of the negotiating forum, sees it as a “massive historical opportunity” to escape the colonial legacy. Some 82% of African countries’ exports go to other continents; they consist mostly of commodities. By contrast, over half of intra-African trade is in manufactured products. Supporters of the deal argue that it will create larger, more competitive markets, helping to ignite Africa’s stalled industrialisation.

African leaders also have an eye on relations with the rest of the world. No longer able to count on unilateral trade concessions from rich countries, they are instead being forced into reciprocal deals, which involve more give-and-take. A strong CFTA would give Africa extra weight in talks with Europe and America, argues George Boateng of the African Centre for Economic Transformation, a pan-African think-tank.

Yet political pressure to rush negotiations may weaken the final text. The CFTA aims to eliminate tariffs on 90% of products over five to ten years, which is less ambitious than it sounds. Much intra-African trade is already between members of smaller free-trade areas, such as the Southern African Development Community. The rest is concentrated in a small range of goods. Peter Draper of Tutwa Consulting, a South African firm, notes that, by retaining tariffs on just 5% of products, African countries could in effect exclude most of their current imports from liberalisation.

A study by the United Nations Economic Commission for Africa estimates that, with the CFTA, intra-African trade would be 52% higher in 2022 than it was in 2010. Since that assumes the removal of all tariffs, the actual effect will almost certainly be more modest. Research also shows that the largest gains come not from reducing tariffs, but from cutting non-tariff barriers and transport times. That will come as no surprise to drivers in the long lines of lorries queuing at a typical African border post. The World Bank estimates that it takes three-and-a-half weeks for a container of car parts to pass Congolese customs.

African countries have a mixed record on easing trade. A new one-stop border post has slashed the time taken to move cargo from Tanzania to Uganda by 90%. But even as tariffs have come down, east African countries are also erecting new non-tariff barriers, such as divergent standards for goods. Informal traders, most of them women, report harassment and extortion at borders. Meanwhile multiple deadlines have been missed on the road to the Tripartite Free-Trade Area, a separate scheme to link three regional blocs.

Free trade runs counter to political currents in many countries, including South Africa and Nigeria, where governments fear losing control over industrial policy. They also worry about losing tariff revenues, because they find other taxes hard to collect. Patience over the CFTA may be a virtue, if it gives countries more time to adjust. The technocrats are optimistic. “You create the foundation, then you can build the house,” says Prudence Sebahizi, the African Union’s chief technical adviser on the CFTA. “Even if it takes many years.”

This article appeared in the Finance and economics section of the print edition under the headline “Africa, unite!”

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via Economist Politics http://econ.st/2mc7Jy9

December 7, 2017 at 12:24PM