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Lofty free trade goals announced at WEF on Africa

The 25th World Economic Forum (WEF) on Africa was held in Cape Town during June 3-5. The organisation promoted the event as including “[o]ver a thousand of the world’s top government and business bigwigs.” WEF Managing Board member Philipp Rosler indicated that the volume of attendees signifies the most successful regional summit ever for the organisation. He underscored the WEF’s focus on public-private partnerships, infrastructure development and increased intra-Africa trade as strategies for stimulating the continent’s economy.

Specifically, the WEF tweeted that Africa needs infrastructure that empowers ordinary people to be more productive – and does not just enable big business to thrive. Regional integration and infrastructure development are also amongst the five priorities for the continent’s future success, according to the EY Africa Attractiveness Survey 2015 that was launched at the WEF on Africa.

At the event another unrealistic deadline for the establishment of a continental free trade zone was announced. South Africa chose the event to announce that such a free trade zone is in the process of being established between the Southern African Development Community (SADC) and comparable regional organisations in Eastern and Western Africa.

South Africa’s deputy trade and industry minister, Mzwandile Masina, said in an exclusive interview with Business Report that Pretoria is close to finalising key trade agreements with the rest of the continent, which would be realised within the next five years as a precursor to a significant multi-member free trade area.

While there is no question that a free trade area across the most significant countries on the continent would be beneficial and would help economic growth and investment, it is not going to come about by announcement. We have already seen too many announcements without the necessary backbreaking work and hard political deal-making that must follow.

Mr Masina’s announcement takes us no further to success other than setting a new deadline of 2020. Given the lack of groundwork and the lack of solid negotiated signed agreements, this date remains unrealistic. It follows the announcement in 2012 that an Africa’s free trade zone would be operational by the end of 2017. This, according to the African Union (AU) declaration at the time, would be achieved through the merger of all African regional trade blocks.

Reports quoting AU officials at the time said that SADC, the East African Community (EAC), and Common Market for Eastern and Central Africa (Comesa) had already begun negotiations to merge. If any progress has been made in this merger it would be news to most of us. We suggested back then that 2017 was a totally unrealistic date, and announcing the date smacked more of hope than expectation.

Even further back, in 2008, equally unrealistic deadlines made dramatic headlines even if the substance was lacking. A mooted African Free Trade Zone (AFTZ) was announced at the EAC-SADC-Comesa Summit in October 2008 where the three trading blocs dramatically agreed to create a free trade zone of 26 countries. Little of any substance was to follow.

This week Mr Masina told Business Report that negotiations with the rest of the continent were at “an advanced stage,” and that the agreements could be realised before the 2063 African Union (AU) deadline for free trade in the whole continent. Now there is a date with some potential, certainly far more likely than 2020.

The Southern African Customs Union (SACU) is more than a century old, prone to (potentially terminal) growing problems, and impacts only a handful of countries almost totally economically dependent on South Africa in one way or another. However, it remains the only real, workable integration arrangement in Sub-Saharan Africa (SSA). SADC has a barely working preferential trade area (PTA) that includes only some of its members, and suffers from glaring harmonisation and tariff problems in several countries including Zimbabwe, Malawi and Tanzania.

There is a general lack of urgency in the SADC to even get the PTA fully functional due mainly to severe institutional constraints, yet SADC is supposed to at the forefront of the new (old new) plan, along with Comesa (with even worse institutional capacity) and the EAC (distracted with its own issues of harmonisation and other cross border issues).

The following is a rough guide to regional economic integration processes where the degree of complexity and difficulty increases tenfold each step forward:

  • Preferential Trade Area: Geographical cluster where members agree to reduce or eliminate tariffs on selected imported goods;
  • Free Trade Area: Free trade between member states;
  • Customs Union: Harmonised common external tariffs;
  • Common Market: Free and unrestricted movement between member states of goods, services, capital and people; and
  • Economic Union: Common currency, tax rates, harmonised within certain limits of fiscal and monetary policies.
  • Above this level is a political union that encompasses all of the above, but that is something we are not likely to see in Africa for a very long time.

Perhaps less ambitious attempts to create several regional PTAs that actually function for all member states should be on the agenda. Announcing larger, more grandiose and more complicated integration arrangements attracts headlines but offers little in practical implementation terms. Regional economic integration arrangements take hard work, political determination, strong institutional capacity, several simultaneous internal legislative processes in member states and a clear assessment of what the benefits and disadvantages are in the arrangement.

There is evidence of some low level engagements on these issues but they are always subject to sovereignty disputes, economic disparity, electoral processes, regime changes and a lack of strong structures to drive the processes on both a national and regional level. What we need to see is implementation rather than a new announcement of a new deadline that – even given the best of circumstances and a running start tomorrow – is unrealistic.

Gary van Staden (Senior Political Analyst) & Christie Viljoen (Senior Economist)

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