Africa's new free trade deal will transform the continent
Without much fanfare, Africa ushered in the world's largest free trade deal last week. It is a vital step in awakening the economic might of this vast, youthful continent.
The African Continental Free Trade Area agreement was the result of years of negotiation and was finally signed by 52 of the 55 African Union countries, including all of the North African Arab countries. Only three countries did not sign: the relatively small economy of Benin, the closed economy of Eritrea – and, unfortunately, Nigeria, the continent's largest economy.
The agreement creates a single market for goods and services across the whole of the continent, meaning that in theory, it should be as easy for an Egyptian to buy products from neighbouring Sudan as from Namibia, on the other side of the continent.
After so many years of divisions, and with a long, dark history of foreign exploitation, this free trade deal is a chance for Africa to put aside the barriers and borders – often created by outsiders, but upheld by Africans themselves – that have scarred the continent. African countries have been focused on trading with the outside world for many years. Now there is a chance to rediscover and trade directly with their neighbours.
Africa matters. With 60 per cent of its citizens under the age of 25, it is the world's youngest continent and in just a few years, by 2025, according to the UN, Africans will make up the largest share of the world’s population collectively, more than China.
Billed as the largest free trade area in the world because it covers more countries than any other, the agreement covers a market of more than 1.3 billion people, with a combined GDP of more than $3.4 trillion.
Yet trade between African countries is low, accounting for just 16 per cent of overall trade for the continent. By comparison, intra-European amounts to 70 per cent of the continent's total trade and in Asia, it is 60 per cent, meaning both continents overwhelmingly do trade within their own boundaries.
In Africa, the reverse is true. In some places, like in East Africa, a lot of trade is done with geographically close areas such as the Arabian Peninsula. But in most places, it is easier to export to Europe, North America or Asia than to sell to the country next door.
A legacy of colonialism has much to do with it. Maps of major infrastructure on the continent, such as roads and railway lines, show more routes lead from the interior of countries to the ports than from one country to the next. Too often, the pathways of the continent have been laid down to take resources out of Africa.
That remains true even today, with the majority of Africa’s exports being raw materials – cotton, minerals, oil and food – that are then sent to other countries to be developed into products.
It is deficits such as these that the free trade agreement is meant to address.
Ideally, the deal should allow companies to expand easily across borders, selling their products in new African countries and sourcing products from new suppliers.
A particular focus is manufacturing, which remains relatively low at just 10 per cent of Africa's economy. (As a comparison, other developing countries like Indonesia and Mexico are closer to 20 per cent.) A free trade deal should mean manufacturers can widen their customer base beyond their borders, allowing them to invest in creating better products, in the same way that China began manufacturing relatively cheap goods before moving on to more sophisticated products.
There are still enormous challenges, including the tricky problems of intellectual property and “rules of origin”, deciding where products made of components from different countries legally come from. There are also political issues: Nigeria refused to join because its president, Muhammadu Buhari, is reportedly at the mercy of labour unions and powerful businessmen, who are resisting the deal.
But to really work, the deal needs to be backed by a second major change, fixing the lack of free movement across this vast continent.
According to a recent BBC report, African citizens need a visa to travel to more than half the countries on the continent. Africa's richest man, Nigerian businessman and cement manufacturer Aliko Dangote, complained that he needed 38 visas to travel within the continent. Only the Seychelles offers visa-free travel to all Africans. Meanwhile citizens from European nations can travel to most African countries without needing a visa.
The African Union found on average, Africans could travel to less than one in four countries on the continent, despite plans to scrap all visa requirements by last year.
Visas are expensive, as are inter-African flights. It is often cheaper to go to an airport hub outside the continent first and re-enter Africa than to travel directly to countries on the continent.
Moussa Faki, the de facto head of the African Union, put it emotively: “We should ensure that Africans are no longer treated like foreigners on their own continent while others move about therein often freely.”
Greater trade could open up the possibility of freer movement. At the moment, countries don’t want worker migrants and the hardest countries for Africans to get into are also the richest. It is easier for citizens of richer non-African countries to get visas because governments want tourists, not workers.
Growing businesses, however, will increase the demand for workers – a requirement that countries will find easier to fulfil by allowing in other Africans.
Taken together, allowing African goods, services and people to cross borders freely could genuinely transform the world’s youngest continent.
Updated: June 4, 2019 02:49 PM