AFRICA, 2015 - This year, Africa and the world witnessed an event that many naysayers said it will never come to pass; the signing of a historical pact – Tripartite Free Trade Area (TFTA) agreement or the Cape to Cairo free trade zone in Sharm el Sheikh (Egypt) on June 10th, 2015. The deal was officially unveiled during the 25th African Union Summit in South Africa which was held on 7-15 June 2015.
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| Image Source: AFP |
This is an exciting trade and infrastructure development in Africa at the moment but it depends on whether the parties to the arrangement see this as an opportunity or threat,"
Kuugongelwa-Amadhila - Prime Minister (Namibia)
This is the continent’s largest intra-African free trade zone and currently comprises of 26 African states within the Cape Town (South Africa) and Cairo (Egypt) area. Zimbabwe's head of State, Mr. Mugabe put it in a simple term, a deal that would create a "borderless economy".
The COMESA-EAC-SADC Tripartite member states have a combination of GDP of US$1 trillion, more than half of the continent’s GDP and population of over 600 million. For a continent that has been stagnated with slow progress in accomplishing economic integration, this change was overdue but still a welcomed one.
"Africa has made it clear that it is open for business."
Jim Yong Kim - World Bank President (Regarding the TFTA)
The intra-regional trade will see three of African existing regional trade blocs, the Southern African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC) merged to form a single trade zone. It should however be emphasised that the Tripartite does not have a formal institutional status and therefore is neither a REC nor a legal structure.
With an average growth rates of 5% in the passing years, the continent needs to integrate its economy in order to foster a way forward to cross-regional infrastructure development more especially modes of goods transportations (railways, roads and airlines) and also to boost the investment. Its main objective is to fast-track the continent’s economic integration and accomplishes regional sustainable economic development.
The Tripartite is founded on three (3) pillars:
Market Integration: Its aim is to eliminate trade barriers and ease goods movement across its members. This will in turn lower the costs of goods and reinforce more visible intra-regional trade and increase economic activities throughout the region this will come through the implementation of duty free, quota free market access for all originating goods. It has since put into place a common online computerised system which will assists in identifying and therefore lead to the elimination of non-tariff barriers (NTBs).
Infrastructure Development: The Task Force has so far outlined and listed the energy, transport and telecom sectors as priority infrastructure projects. A broader market means investment flow growth which will boost the regional infrastructure development.
Industrial Development: The Tripartite also aims to realign industrial production between its members which in turn will also assists in the industrial production expansion.
The three Regional Economic Communities (RECs) trade blocs also come with their own challenges:
COMESA – Since the launch of its Custom Union (CU) in 2009, which gave its member states a three-year transition period to align their national tariff to the Common External Tariff (CET) and other requirements the custom union’s progression have been elusive with none of the members meeting them up to this point. In order to control inflation, one of its member state, Ethiopia, has imposed prices controls on its essential goods therefore interfering with free trade.
EAC – This is the most advanced and more integrated regional bloc of the three. It brings with it high competition and disputes between two of its member states, Kenya and Tanzania. Tourism is one of the main issues between these two neighbouring countries with ideological differences; Kenya is a capitalist while Tanzania on the other hand is a socialist. On the bright side, the two countries have been working hard to salvage their relationship through talks.
SADC – South Africa, with a continental trade weight, dominates trade in the SADC. It exports more goods to the world than other state members and most of the members trade more with South Africa than with others, resulting in virtually no intra-SADC trade with 10% of total SADC trade between 2000 and 2010. It is also a member of Common Monetary Area (CMA) with three other countries; Lesotho, Swaziland and Namibia, from a five-member state custom union, Southern African Customs Union (SACU), and its currency, Rand, is commonly used as legal tender in these countries therefore boosting South Africa’s status as the regional’s significant hub for trade. Like the COMESA’s customs union, the SADC FTA is still in its infancy and without much visible progress but it has some of its members; Botswana, Lesotho, Swaziland, South Africa and Namibia as members of one of the oldest custom union – SACU which was formed in 1910.
The Tripartite brings with it more advantages for its members which include:
- increased and wider market,
- cheaper but quality foods for the consumers,
- industrial production increment,
- the inflow of foreign direct investment into the region will help in increasing their economic growth.
However, many have raised concerns that the TFTA is going to benefit countries unequally as economic powerhouses like South Africa and Nigeria that are already dominating the continent’s trade. More than half of intra-African exports is dominated by five countries; South Africa, Nigeria, Côte d'Ivoire, Kenya and Egypt. This means countries with small economies with limited industrial production capacity and less competitive edge will have to compete with giant and well established industries which will pose a threat to their already weak economies.
Most of African countries have inadequate trade‐related infrastructure.
Informal traders make most of African countries’ market, including the cross-border, intra-regional trade so the question is; what policies are going to be put in place to cater to them in terms of inter-governmental procedures which usually turn to be obstacles to this trade?
Another concern is that the deal is mostly likely to benefit foreign multinational corporations which will piggyback on the free trade as it will give them a more easy access to mass markets that is supposed to benefit Africa.
For countries with governments that rely heavily on revenue from customs duties, this will be a heavy blow. The writer however believes that the Tripartite should come up with a structure to compensate these countries.
Now what is left is for countries to inform and educate their communities; the general public, all civil servants together with the private sector about the TFTA.
My hope is that more African RECs may join the Free Trade and therefore improve the intra-African trade. Hopefully, this will be a step towards the creation of African monetary union and introduction of a common currency for the continent in the future.
You can view the Communiqué of the Third COMESA-EAC-SADC Tripartite Summit, 10 June 2015: Towards a Single Market here or the Sharm El Sheikh Declaration Launching the COMESA-EAC-SADC Tripartite Free Trade Area, 10 June 2015 here. For more COMESA-EAC-SADC Tripartite documents you can visit the tralac Website here.
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