Trading from Cape to Cairo

Regional groups aim to expand trade within the continent
From Africa Renewal: 
page 21
South African President Kgalema Motlanthe South African President Kgalema Motlanthe:
“The time has come to enlarge our markets.”
Photograph: Associated Press / Themba Hadebe

In October 2008 leaders from East and Southern Africa agreed on plans to form the largest free trade area in the continent. The new entity would be made up of three existing regional groupings — the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Southern African Development Community (SADC).

Speaking at an economic summit in Kampala, Uganda, Kenyan President and COMESA Chairperson Mwai Kibaki emphasized that the move is being made in response to the new global challenges Africa faces. “We realized that by themselves, our individual countries were not equipped to compete on the global marketplace and our markets were too small to attract serious investors,” he said. “We have now come to a point where it is evident that our regional economic groupings must come together to craft a trading bloc that reflects the new dynamics.”

The new trading region will have a membership of 26 states, stretching from Southern Africa up through Egypt. Those countries have a combined gross domestic product of $625 bn and a population of 527 million. The leaders hope that the new arrangement will encourage more trade among the countries, provide them with a better bargaining position in international trade negotiations and attract bigger investments.

Increasing trade

Trade among some of these countries has already been growing. Trade within the EAC — Kenya, Uganda and Tanzania — grew from $778 mn in 2004 to over $1 bn in 2006. Similarly, trade within COMESA stood at $7.8 bn in 2007, up from $4.5 bn in 2002.

Despite such growth in these regions, World Trade Organization statistics show that in 2006 trade among countries in Africa as a whole amounted to only 8.9 per cent of their total exports. Meanwhile, 51.2 per cent of all Asian exports went to Asian countries, while 24.3 per cent of those in South and Central America stayed within that region.

The World Bank cites poor infrastructure, customs barriers and high import duties as significant hurdles to more trade within Africa. Although average duties on imports from within Africa have fallen from 21 per cent of their value to about 17 per cent since 1997, they remain higher than general tariffs in Asia. Roads are few and in poor condition, while those that exist tend to link resource-rich areas to ports, often making it easier to export overseas than to neighbouring African countries (see article, page 12).

Regional integration — closer ties among African economies — can help overcome such obstacles, according to Josephine Ouédraogo, then acting deputy executive secretary of the UN Economic Commission for Africa. “We need to strongly rethink our strategies for development,” she said at a 2007 regional cooperation meeting, “and use regional integration to promote and strengthen the current low levels of intra-African trade.”

South African President Kgalema Motlanthe : “The time has come to enlarge our markets.”

The weak capacity of African economies hinders trade outside the continent as well. Africa’s share of the world market has fallen drastically, from 10 per cent in the 1960s to 2 per cent in 2000. In contrast, Asian and Latin American market shares and trade earnings rose as those regions shifted from selling primary goods (such as coffee beans or iron ore) to selling finished or semi-finished products. But many African countries have small populations, with few highly skilled workers and limited access to the capital needed to develop the capacity to manufacture more valuable products for export.

Policy challenges

Another obstacle is that the three regional groupings are at different levels of integration and follow different trade rules. And because some countries belong to more than one grouping, they often face conflicting obligations.

A single free trade area would need to solve such problems. Once such an area is established, capital goods from all countries will be traded freely without import duties. However, the three blocs will need to set new duties for manufactured goods and standardize them. They will also have to align their customs and border rules.

Other concerns include the potential loss of revenue by smaller economies that trade relatively little, but that still rely heavily on import duties for income. Besides undercutting such revenues, the removal of trade barriers could also lead to local producers in smaller economies getting squeezed out by large quantities of cheaper manufactured goods from bigger economies, such as those of Egypt, Kenya and South Africa. An expert group will look at how these issues can be resolved as part of work on a “road map” for implementation that will be presented to heads of state in six months.

At the Kampala meeting, South African President Kgalema Motlanthe stressed the importance of working out solutions to all these problems. “The time has come,” he said, “for COMESA, EAC and SADC to bring together our respective regional integration programmes in order further to enlarge our markets, unlock our productive potential, increase the levels of intra-African trade and enhance our developmental prospects.”