- The African Continental Free Trade Area aims to scrap tariffs on imports between African countries.
- The eventual agreement will result in free trade, better communication and there are talks of freedom of movement and a common currency in the long run.
- But economists warn that there is going to be a lot of political push back, and the poorest countries could lose out and a Greece-euro situation could develop.
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Just as trade wars and Brexit are splitting alliances apart, at least one area of the world is coming together.
This week all but one African country signed a continent-wide free trade agreement — the African Continental Free Trade Area — which economists are saying could open up the region for increased development.
What the agreement aims to eventually achieve is a potential European Union-like allowance for free movement across the continent, tariff-free trade and perhaps even a common currency.
Why is this being done?
Put simply, Africa as a continent has struggled with economic development. And while there are hundreds of reasons, communication across the continent is a key factor.
The African Continental Free Trade Area will be home to more than a billion people, 55 countries, and would eclipse the EU as the biggest free trade area in the world. 90% of tariffs would be scrapped within five years, but some of the poorest African nations Niger and Malawi will get an extra five to 10 years on tariff reduction to protect producers from the cheaper imports.
Traditionally, you trade with your neighbor. But this hasn’t happened in Africa.
Instead, twice as much trade occurs with Europe than other African countries in the continent according to The Economist. Why? Colonialism.
Have a look at this map below of the spartan nature of African railway networks. Historically, railways were built between colonies and not other neighbours.African Development Bank Group
In terms of trade, the lack of good communication networks is also a hindrance. Hence part of the agreement having a digital passport. In doing so, it means that people will have freedom of movement like in the EU, which could help bypass the issue caused by poor communication.
Poverty has also been a problem. According to World Bank data, just looking at Kenya, Mozambique, and Uganda roughly half of the population live below the poverty line. That’s about 61 million people or equivalent to the entire population of Italy in just three countries.
With a lack of funding for the basics, many countries simply just lack good roads. Much of Africa is extremely local, so when compared to Bangladesh, which has 250,000 kilometers of roads — places like Zambia which have 51,000 kilometers (which is six times bigger than Bangladesh), will struggle. In West Africa, less than a fifth of roads are paved.
But African leaders are positive. "Borders must never be used as an excuse for us to retract back and forget the African spirit of Ubuntu. We remain stronger together," said President Kenyatta, Kenya’s leader in March earlier this year according to Capital News.
Will it work?
Many are skeptical. For one, the pact might do little to tackle corruption, inequality, and other issues that have plagued the continent for decades.
Head of research at NKC African Economics, François Conradie told Markets Insider: "There should be a benefit to consumers in Africa for sure, as goods will be cheaper, but there’s going to a political pushback from countries that are having the same goods imported at a lower price than domestic sellers."
"Integration is going to help, but this is going to take many years for it to work."
Conradie added that one of the biggest stepping stones will be cultural differences: "In Europe, integration was fairly easy as many of the countries were much more similar to each other. In Africa this isn’t the case and that’s going to be something to tackle."
"There’s going to be problems, especially for poorer countries. If Egyptian and South African manufacturers are selling their goods without tariff to Nigeria, Nigerian manufacturers are going to lose out. This could happen in a lot of the poorer countries," Conradie said.
He added: "Just looking at Greece, if one of the poorer nations has a currency crisis then the whole continent could suffer."
Much of the detail will come through in the coming weeks, months and years. Until then, African leaders are hopeful the collaboration could be a lone bright spot for the fragmenting world.
"The eyes of the world are turned towards Africa," Egyptian President and African Union Chairman Abdel Fattah al-Sisi said at the African Union summit in Niger’s opening ceremony according to Reuters.
"The success of the AfCFTA will be the real test to achieve the economic growth that will turn our people’s dream of welfare and quality of life into a reality," he said.
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