Free Trade for All?

Tuesday, 3 April 2018
Nicholas Westcott

The news that leaders of the African Union, under the Chairmanship of Rwanda’s President Paul Kagame, had signed up to the next phase of a Continental Free Trade Area (CFTA) in Africa at their meeting in Kigali on 21 March was greeted with a certain degree of cynicism by many commentators. The cynics have a point; but they miss a wider one.

It is true that only 44 of the 55 countries in the AU had signed the agreement, and the non-signers included Nigeria, one of the largest economies on the continent. Many think the AU has a better track record in making declarations than in making things happen, and building a continent-wide free trade area is a major undertaking not only of great technical complexity but of great political sensitivity. Constructing the EU’s single market took 50 years and many thousands of hours of painstaking negotiation and thousands of pages of legislation - a huge bureaucratic effort, though in the end producing big benefits for all. Recent studies (eg Amcham, Feb 2017) show that it did indeed increase GDP growth for EU member states by an average of 1% pa since 1995, creating nearly 2 million extra jobs. 

It is also true that there are far greater impediments to intra-African trade than tariffs. Infrastructure networks are still heavily oriented towards export rather than internal or neighbourly trade. Rules of origin and phytosanitary regulations can be as big an obstacle to trade as tariffs. And corruption and incompetence in national customs services mean that processing bilateral exports and imports can take weeks or months rather than days, and both governments and individuals may be reluctant to lose the revenue (and kickbacks) that this trade provides.

The case of Nigeria is also symptomatic. Though it stands, with South Africa, to gain most from a CFTA, through its dominant industries and strong domestic market base as well as the reduction in cost of living for its citizens, the government has succumbed to lobbying from a few sectoral interests that fear they would lose from regional competition if their protected national market was opened up.

So there are indeed plenty of reasons to be sceptical that the agreement signed will lead to much progress in the short or medium term. But there are four important reasons not to be too dismissive.

Firstly, the ambition is not only still there but being acted on. The champions of the CFTA, Rwanda prominent among them, know that most African countries are too small to prosper alone. To develop viable and profitable industries, they need access to larger local as well as global markets. Business begins at home. The larger that home, the easier to be competitive globally. This is as true in agriculture as industry, and, as Kofi Annan and other champions of AGRA (A Green Revolution in Africa) have been arguing for a decade, transforming African agriculture is an essential precursor for faster development. The point is that in Africa, at least, protectionists are in a minority and not in control of the agenda. 

This points to the second reason: that in fact the multilateral structures of world trade are essential to protect the interests of poor countries as much or more than those of rich ones. As the saying goes, when elephants fight it is the grass that gets trampled. A trade war between the US and China would have serious implications for Africa. A CFTA would not only give Africa more of a voice in the WTO, but ensure that it suffered less from such global squabbles if a greater proportion of its trade was internal.

Thirdly, African countries have so far defied the sceptics in making more progress than expected. That an agreement was reached and signed in Kigali by 44 African states demonstrates a level of political will which, if sustained, can force genuine progress. Kagame himself is a true believer, but he is not alone. Presidents Akufo-Addo of Ghana, Sall of Senegal, Ouattara of Cote d’Ivoire, Kenyatta of Kenya and Ramaphosa of South Africa are all signed up and determined to press forward. And with Morocco and Algeria, Egypt, Sudan and Ethiopia all supporting the CFTA, as in Europe it may ultimately help dissipate not reinforce political rivalries.

Finally, the CFTA is a potentially powerful tool in the fight against corruption on the continent. If free trade can be established, customs officers will have less leverage to demand a “consideration” for allowing goods to pass the border or the port. This would reduce a few individual incomes, but greatly enhance the prosperity of ordinary Africans. 

In a world where the shadow of protectionism and of nationalistic economic policies is spreading, there is reason to celebrate Africa’s ambition and actively support the CFTA’s implementation.