The African continent has a combined population of more than one (1) billion people in its fifty-four (54) countries and its combined gross domestic product (GDP) is more than USD 1.2 trillion, however, the continent records low continental trade which stands at a total of 14% according to United Nations Economic Commission for Africa. The low intra-Africa trade still remains a pressing issue for the development of the continent and that is why the African Union, in its twenty-fifth Summit held in South Africa in June 2015, has made it its main objective to tackle this problem by pushing forward the creation of a continental free trade area (CFTA) by 2017.
Through its objectives, CFTA intends to improve and boost trade across the continent by creating a single continental market for goods and services and to expand the intra-African trade by improving harmonisation and coordination of trade liberalisation.
Brief Overview of CFTA in Intra-African Trade Monetary Value and Prospect
In their computable general equilibrium (CGE) analysis, Cheong, Jansen and Peters estimate that compared with the baseline, the regional FTAs will stimulate the intra-African trade by 35.7 per cent (or $23.6 billion) and the CFTA will increase the trade by 52.3 per cent (or $34.6 billion) in 2022 and therefore increasing exchange within the continent in all main sectors: industrial sector will rise by 53.3 per cent, agricultural and food products trade by 53.1 per cent and the service trade will increase by 31.9 per cent. The CFTA also has the potential to decrease the imports from outside the continent by USD 10 billion.
Implementing the CFTA
There are few stimulants and initiatives that the continent can put in place in order to pave way for the CFTA and some are discussed below.
Free Should Mean Free: Elimination of Non-Tariff Barriers
In 1994, the then Organization of African Unity introduced the Abuja Treaty which established the African Economic Community (AEC) and called political and economic integration and for the removal of tariffs on goods and services traded within the continent’s RECs in order to make way for free trade areas. It is saddening that it costs less to export goods from continent to European market than it is to ship them within the continent because of high trade taxes imposed by the countries themselves. To harmonise tax, the countries should develop and increase bilateral and multilateral tax tools.
Regional economic communities (RECs) should be used as grounds to eliminate all non-tariff barriers, transit corridor issues, implement continental uniform tax administration and the AU should pave a way for the continent’s customs union that will embrace all regions as one so as to create common external tariff rate to be imposed on all imports. Instead of upholding the need to dominate the continent’s market and stand as single entities, the blocs need to pave a way forward to feed into AEC and CFTA by complementing each other when it comes to resources such as personnel and competencies.
The CFTA can work hand in hand with the recent introduced Tripartite Free Trade Area (TFTA) which has brought together three (3) RECs; COMESA, EAC and SADC. The TFTA aims to create free trade amongst its twenty-six (26) member states and therefore the CFTA can benefit from this relationship.
Promoting Trade within Individual Countries
African countries need to first minimise the trade footprints left behind by their former colonial sovereigns in which African countries’ trade is dominated by the former rulers and in place, start to maximise trade with each other. For the CFTA to be realised, Africa needs to start with small steps by endorsing intra-trading between individual countries in order to build and realise the bigger picture.
Trade amongst African countries have received heavy blow from the countries themselves as they tend to favour individualism where each country tries to serve and protect its interest ahead of the continent’s goal; tax is used as a political tool to drive the various countries’ agendas. Once the countries get used to dealing with one another on small scales, then regional economic blocs such as SADC and COMESA can be brought in to work together in harmony in order to solidify the CFTA objective.
Regulatory Reforms, Eliminate Hindering Administrative Barriers and Corruption
Many African traders have experience gruelling border checks, harassment and illegal solicitation from police or customs officials one way or another. Roadblocks tend to make the goods transportation between countries strenuous and time-consuming as the traders are usually made to offload and unpack packages and even at times money extorted from them.
According to the Africa Infrastructure Knowledge Program, most of African countries scores low on the Logistics Performance Index. The Africa Infrastructure Knowledge Program reports that corrupt acts such as bribery, can increase the shipping costs of a standard 20-foot container travelling between South Africa’s economic hub and East Africa or the Far East by up to 14 per centtherefore increasing the total port costs up to 130 per cent. All of these acts are costly for the intra-trade and usually end up skyrocketing the goods and service prices for the consumers.
According to World Bank Group’s Doing Business, it takes approximately 108.2 hours to export goods and 123.0 hours to import them across the Sub-Saharan African ports and borders**. Efficient customs processing and boarder handling will assist in reducing time spent on customs clearance and inspection procedures, and shipping times, therefore cutting shipping costs.
Invest in the Youth and Embrace them into the Continental Economic Movement
According to World Population Prospects: The 2015 Revision, Africa, along with Asia and Latin America and the Caribbean accounts for 90 per cent of the world’s young people and due to the youthful age structure of African and Asian countries, young people population will continue to grow and will reach 3.4 billion of more than 9 billion people projected by 2020. The 2015 Revision further notes that all major areas of the world, except for Africa, will have nearly a quarter or more of their populations aged 60 or over by 2050*.
Data: UN World Population Prospects 2015: The 2015 Revision
Most of African countries idolised the youths during their time of liberations as they were active in mobilising resistance against their colonial or neo-colonial rulers and that helped most countries to gain their freedom. Unfortunately, most of these leaders who are now not as young as they used to be, due to their legacy as liberation heroes or compromised linked patronage have nurtured the need to cling onto the political and office powers that they gained during the struggles and instead of stepping down at the end of their tenures they still extend their office terms at times risking civil uproars. Africa has been referred to a young continent due to the high number of youth it has and therefore there is need to embrace them into the continent’s economic discussions and forums.
Youths are innovative, technically and technocratically skilled and equipped and more and more ambitious youth are embracing the possibility of united and developed Africa and therefore capable to bring to table ideas that will help to shape post-colonial continental trade. If Africa is to prosper, then governments need to invest more on the youth as the saying goes, 'they are the future leaders' and it will be disheartening for the continent clueless and uninformed in the future. Youths need to be bought into the idea of borderless trade and made aware of the potentials of the African continent.
Investing in the Continental Multimodal Transport Infrastructure
Transportation plays an important role in the growth and efficiency of the intra-regional trade. The underdeveloped transportation infrastructure in the continent hampers the continental trade as it limits ease of access to consumers due to high costs of importation and exportation. In 2009, Sub-Saharan African’s unpaved secondary roads totalled about 80% of all roads in the region.
The modes of transportation between African countries still need to be improved and integrated in order to contribute significantly to the intra-trade as the success of CFTA implementation will rely on low transportation costs. The Africa Infrastructure Country Diagnostic (AICD) reports that transportation costs increase the prices of African goods by a whopping 75 per cent and that the continent will need to spend approximately USD93 billion a year for a decade to construct the infrastructure needed to meet development goals growth.
However, focus should not be only on the physical transportation infrastructure but also the logistical systems and technology should be improved and interlinked so as to allow the ease of flow of trade from its origin to its destination within the continent whether through road, air, railway or water therefore avoiding unnecessary freight delays experienced by traders.
Encourage Private Sector Participation Infrastructure (PPI) and Attract Investors
As discussed above, infrastructure resources remain underdeveloped in most African countries and need expertise and magnitude investments in order to build and maintain them. Poor infrastructure hinders the flow of trade across the continent and such for the CFTA objectives to be achieved, African countries need to work out partnership with the private sector.
Some developing countries, have initiated ways to overcome this problem by promoting competition, attracting and bringing private sectors and foreign investor on board. However, to attract both domestic and foreign private sectors, the countries need to put in place reliable and well-defined macro-economic policies that are suitable for business environment. To attract investors, African governments need to implement regulatory reforms that will eliminate uncertainties and make it easy to improve business activities and the easiness of doing business across the borders.
Export Diversification of Products (Manufactured within the Continent)
Manufacturing sector can assists in accelerating the continent’s growth and development by creating employment (with the potential to raise millions of people from poverty) and boosting economic empowerment among the continent’s people but currently natural resources and a small number of primary products dominate the trade export in Africa. Most African countries exports raw materials to European and Asian markets which in turn make their way back into the continent as finished commodities.
The African manufacturing sector is crippled by unreliable and inadequate trade logistics which usually result in increased production costs for the continent’s manufacturing sector and therefore casting the continent’s manufacturers as bad merchants to any businesses in the global value chains (GVCs).
Manufacturing is high-productivity sector that needs to be invested in and as such, countries need to introduce incentives such as low taxes and access to availability of funds in order to boost the industrialisation in the continent. African countries should improve productivity in areas that have a comparative advantage so as to assists their goods to progress in the GVCs. It is high time the continent use its mineral wealth for its own development and to propel economic growth that is needed. Countries should be encouraged to buy into the ‘Made in Africa’ brand by increasing inter-country trade between the countries.
Recognising and Utilising the Informal Trade and Promoting Small-scale Sector
Though majority of African countries produce and export raw materials, there are few processed goods coming from these countries. Informal trading is more regionally integrated when compared to the formal economy; a hawker in Botswana will in fact find it easier to get bale clothes from countries such as Zambia and South Africa than it will be for a small enterprise owner to do a cross-boarder trade.
Economic development policies among the countries do not work in harmony with one another and at times they clash at the cost of SMEs. The African economic drives are too-focused on formal sector and overlooking the informal one. Most of the continent’s intra-trade is predominated by small scale sector but the states are failing to fully utilise these sector by easily availing funds to it and also require the traders to pay sales tax on any taxable sales in the process.
Adopt African-Caribbean (Afro-Caribbean) Islands into its Economic Blocs
Every little mass of economy brought into the continental free trade should be welcomed with open hands. Embracing and forming partnership with the African-Caribbean countries such as Jamaica, and the Dominican Republic into the continental trade programme will assists in the parties’ greater integration into the world’s economy.
Though the Islands do not have geographical connection with the continent, they are connected through their shared culture. The continent’s involvement in the upliftment of the African-Caribbean Islands came to light when the continent’s countries came in solidarity to assists the country after the mayhem of the massive earthquake in 2010. The Africa Renewal reports that:
Among the biggest governmental contributors in Africa are: Morocco (not a member of AU but still seeking readmission into the union), which pledged some $33 mn in humanitarian assistance; Ghana, with $3 mn in emergency relief; the Democratic Republic of the Congo (DRC), which has promised $2.5 mn; and Equatorial Guinea, with a pledge of $2 mn.
And finally, in order for the CFTA to be a success, the continent needs to tackle issues by phases rather than taking everything at once for instance, they could first start with issues facing the movement of labour (the goal of visa-less cross-border movement should be discussed here) followed by tangible goods trade then move to service trade and from thereon they can look at the barriers of intercontinental trade.
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