Measuring Up: Boosting Intra-African Trade As A Catalyst For Establishing A Continental Free Trade Zone

There is enormous potential for international and intra-African trade to drive economic growth and poverty reduction in the region. Intra-African trade has enormous potential to create employment, catalyze investment and foster growth in Africa. Since gaining political independence in the 1960s, African Governments have made several efforts to exploit this potential of trade for development.

Africa is touted as the continent of opportunities, where there are numerous resources available for economic growth and transformation. Resources of Africa span from minerals such as gold, diamond, bauxite, ore and currently the increasing discovery of oil in large quantities in countries across the continent; cocoa, soya, millet, maize, cattle and livestock are among the various resources that Africa is endowed with.

For Africa to take its rightful position in the world's global economy, then it must dream of becoming borderless in terms of doing business. If we can create a single economic space, eliminate the regulatory and administrative physical barriers; then we are on the rise of taking our rightful position in the global economy. Cross-border trade will become increasingly important in linking food surplus areas to food deficit areas, especially as development is accompanied and driven by the increasing concentration of people and activities in towns and cities. Rising incomes will lead to increasing demands for a wider range of goods and services and enhance the scope for mutually beneficial cross-border exchanges between countries.

The challenge
Africa is still grappling with poor infrastructure, cumbersome procedures and tariffs and an unpredictable power supply. Poor infrastructure make trade physically difficult. Intra-African trade is weak because fundamental aspects of trade logistics such as transport, energy and ICT remain serious challenge. The infrastructure deficit in this case is not only physical such as roads, ports, rails but also the rules and procedures that comes with moving goods across the borders.

There are other several reasons for this weak regional trade performance in Africa, one of which is that the approach to regional integration on the continent has so far focused more on the elimination of trade barriers and less on the development of the productive capacities necessary for trade. While the elimination of trade barriers is certainly important, it will not have the desired effect if it is not complemented with policy measures to boost supply capacities. The limited role of the private sector in regional integration initiatives and efforts has also contributed to the weak trade performance of the continent. Although trade agreements are signed by Governments, it is the private sector that understands the constraints facing enterprises and is in a position to take advantage of the opportunities created by regional trade initiatives. Admittedly, African regional economic communities are increasingly making efforts to incorporate the private sector into their structures and action plans, for example through the establishment of business councils. Nevertheless, Governments are the only active driver of regional integration in Africa and the private sector remains a passive participant in the process. If African Governments want to achieve their objective of boosting intra-African trade, they have to create more space for the private sector to play an active role in the integration process.

Unclear policies also hamper trade across the continent. For example, goods from Togo may be left at border in Nigeria with the reason that they do not satisfy local requirement. A trader may get his/her grain at the Burkina border only to find out that a ban on exports is imposed. Transport costs are very high. African leaders must implement current policies and existing legislation that help to reduce the challenges hampering trade in Africa.

The cost
Africa at the moment is paying up to 40% extra on transport itself of goods at the consumer end. When you look at this cost at the rest of the world it is averaging about 10%. So Africa remains uncompetitive not because of any insurmountable reasons but things that we can remove without additional investments.

Studies show that if we remove these types of barriers to trade and have trade facilitation measures, we can have an additional $34billion of trade annually. This will help Africa's booming informal trade into the formal economy.

This will mean more jobs for Africa's 400 million young people, increased global competitiveness and less reliance on Western struggling economies and it could mean an end to food shortages across the region where hunger affects nearly 240 million people.

The boosting of intra-African trade requires the adoption and implementation of current trade policies at the national, regional and continental levels, which should be geared specifically towards the promotion of intra-African trade. For regional markets to operate efficiently there is the need for strong regional and domestic framework regulations on trade related issues of intellectual property rights, competition policies, investment, government's procurement, trade and the environment.

Non-tariff barriers such as staggering transaction cost, complex immigration procedures, limited capacities of border officials, costly import and export licensing procedures and lack of investments in trade association. 10% of Africa's trade is within Africa whiles it stands at about 60% in other regions as the European Union. Trade is actually an engine of growth and if Africa is to sustain the current growth momenta which currently stand at averagely more than 5%, we should ensure that we increase the volume of trade within the continent.

The agenda:
Africa aspires to achieve a continental Free Trade Zones of which the starting point is then deepening of intra-African trade. FTZ describe an arrangement where different trading entities, usually member countries, agree to cut or scrap taxes in order to lower business costs and remove bureaucracy.

That is, an area of a country where tariffs and quotas are eliminated and bureaucratic requirements are lowered in order to attract companies by raising the incentives for doing business there. The aim is to give a massive artificial boost to trade, especially between raw material producers and manufacturing based economies.

Free Trade Zone in Africa would mean to bring about greater trade synergies and strategic coordination of the continent's free trade and economic development zones, and through this, maximize and cheapen the flow of goods and services.

The Free Trade Zone (FTZ)
Post-independence conflict in Africa has left much of the continent with a legacy of poor governance and a lack of political integration which free trade zones aim to address. It is appropriate to have free trade areas, such as deepening the trade tides among ECOWAS members before consolidating into a continental Free Trade Zone (FTZ). This will serve as an engine of growth and sustainable development in Africa.

The Free Trade Zone, (FTZ) offers superior quality infrastructure, including, but not limited to, land, office space, utilities, logistics services, business services and other similar facilities. Corporations established within a FTZ may have access to a streamlined customs process with less bureaucracy and red-¬tape.

Firms seeking to secure establishments within a FTZ typically obtain assistance from a single source service provider in order to obtain the necessary permits and applications. In addition, the legislation governing the day-to-day operations of firms operating within the FTZ (e.g., labour law) is usually more flexible relative to the laws applicable in the host country outside the FTZ.

Corporations often choose FTZs for moving their business activities away from the ultimate destination market into a location with a low cost structure. FTZs usually cater to export oriented corporations that produce goods destined for foreign jurisdictions outside of the host country.

Corporate establishment within a FTZ is often coupled with an attractive incentive package, which may include any of the following, an exemption and/or deferral of customs duties; grants for developing and employing local human resources; exemption and/or deferral of sales taxes; and other tax incentives and holidays

A number of challenges have been recognized as hampering the continental Free Trade Zone agenda. These include undiversified und underdeveloped production structures, inadequate infrastructure, and prevalence of non-tariff barriers and lack of trade governance structures. Increased intra-African trade will enable the continent create a large market of close to one billion people as well as encourage the diversification of economies. In the post-independence period, integration has being a core element of the development strategy of African countries.

The importance that African countries attach to regional integration has been reflected in the high number of integration schemes on the continent. The integration is geared towards empowering Africa to take its rightful position in the global economy and the more reason why, Africa should aspire to trade more with its own members.

Although some progress has been achieved on the process of Intra-African trade, the objective of African market integration is far from being realized. Serious efforts must be made to help Africa develop a culture where eventually, we would want to see Africa being borderless particularly in terms of doing business. We must encourage ourselves to do trade across the continent.

Africa is pursuing a continental Free Trade Zone agenda as a collective development and transformation strategy leading to the eventual creation of continent and market. African countries need to put in place trade facilitation measures in terms of financing through borders.

About 80% of African countries exports are to markets outside the continent and similar amount of the continent's imports come from external sources. Boosting intra-African trade is about appropriate and timely given the current economic boom that the continent is experiencing.

Africa is a continent of opportunities, over a billion people with a billion dream; all these can be realized if there is the concerted effort to encourage intra-African trade in order to achieve eventually, a continental Free Trade Zone.

Paul Frimpong, CEPA, FAAFM
Chartered Economist (Ch.E. |ACCE Global)) writes on the macro-economy and global affairs.

He is also an African Affairs Analyst and Emerging Markets Strategist.

Tel: +233 -241 229 548
Email: [email protected]/[email protected]