Africa’s Proposed Single Free Trade Zone

Via Stratfor (subscription required), a close look at the recent announcement that leaders from three regional African trading blocs agreed to harmonize their organizations and form a single free trade zone. The move will bring together the 26 countries that comprise the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Southern African Development Community (SADC).  As the article notes

“…South African President and SADC Chairman Kgalema Motlanthe told reporters that the goals of the bloc would be to foster African economic integration and to develop common strategies for energy and transportation projects. No date was given for a launch of the bloc; officials said it could take another year to decide how to proceed into negotiations.

The free trade area would ultimately eliminate the existing regional trade blocs and merge them into a single zone, stretching across the eastern half of Africa from Egypt and Libya in the north all the way to South Africa. While the move is intended to boost trade within Africa, it is unlikely to bring significant changes in the trade patterns that keep Africa heavily dependent on outside markets.

Proposed African Free Trade Zone Map - 400px

The new free trade zone’s proponents hope it will reduce inefficiencies and redundancies that exist among the trade blocs as they currently are organized. Many countries belong to more than one of the blocs; the Democratic Republic of the Congo, Madagascar, Zambia and Zimbabwe are members of both the COMESA and SADC, while Kenya, Uganda, Rwanda and Burundi belong to both the COMESA and EAC. However, trading privileges such as preferential tariffs are not extended across the blocs, despite the many overlaps. The new megabloc would also aim to pool funds among subregional members to enable the development of infrastructure projects, such as cross-border pipelines and multinational power plants, that would otherwise be out of reach for most of the constituent economies.

Reducing inefficiencies in intra-African trade is an achievable goal within the proposed framework (though many governments will be loath to see customs revenues reduced). A significant boost in trade among participating African countries is much less likely, however. Most of Africa’s trade is with countries outside the continent, and those import and export patterns will not substantially change as a result of reduced tariffs within Africa.

The countries that make up the proposed free trade zone rely on a mere handful of others as their main trading partners. Of the 26 countries’ $233 billion in exports in 2007, almost two-thirds went to just 14 countries, with the United States being the single largest market, followed by East Asia (China and Japan) and then Europe (dominated by Italy, Germany, the United Kingdom and France). Only South Africa factored as a sizeable destination for African exports, taking in from COMESA/EAC/SADC countries goods valued at just shy of $6 billion — an amount that is two-thirds of all intra-COMESA/EAC/SADC trade.

Chart showing destinations of African exports

Imports to countries making up the proposed bloc are similarly concentrated. Almost half of the $214 billion in total imports in 2007 came from a similar grouping of non-African countries. As a group, Europe is the largest source of imports into the 26 African countries, with Germany, Spain, Italy and the United Kingdom as the largest suppliers. China is the biggest overall supplier of goods, providing almost $22 billion worth of imports. Middle Eastern countries, led by Saudi Arabia at $8.3 billion, were the fourth-largest source. Again, South Africa dominated intra-African trade, buying $14 billion worth of goods and by itself representing 80 percent of the African import goods market.

Most of Africa’s exports are energy and mineral products, and there is not a broad industrial capacity in Africa to support any significant redirection of trade flows away from European, East Asian or U.S. markets. Political leaders in Africa will continue to seek out foreign markets for their commodities, and the proposed bloc will not jeopardize those markets. Intra-African trade has languished primarily because of a lack of sound infrastructure, which hobbles any efforts both directly and indirectly by making the development of the industry questionable at best. As such, the new trade zone could help to open up markets in Africa by focusing member states’ energies on overcoming poor infrastructure by rebuilding bad roads and worn-down rail linkages. It could also reduce inefficiencies such as cumbersome customs and bureaucratic regulations, though this is doubtful.

Chart showing sources of African imports

Ultimately, the $3.5 billion in exports and $4 billion in imports for the non-South Africa members of COMESA/EAC/SADC simply are not going to rise to the level of trade exchanged with Europe, East Asia, or North America, no matter what internal trade policies the proposed bloc creates. Harmonizing intra-African tariffs might have some positive economic effects, but it will not meaningfully alter Africa’s strategic-level trade patterns.”

This entry was posted on Friday, October 24th, 2008 at 7:48 am and is filed under Uncategorized.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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