Africa’s New Free Trade Area: What Will it Mean for Development?
Discussions in Egypt this month have concluded the creation of a new trade zone in Africa, involving 26 countries on the eastern and southern sides of the continent. The trading zone was launched June 10 and is called the Tripartite Free Trade Area (TFTA). As the largest free trade zone ever established in Africa, it covers an area more than four times the size of the European Union and includes half of the countries in the African Union (AU).
Why create the Tripartite Free Trade Area?
The new TFTA will encompass three already existing trade zones: the East African Community (EAC), the Southern African Development Community (SADC) the Common Market for Eastern and Southern Africa (COMESA). As a result, this zone will have a total combined GDP of over $1 trillion and include over 600 million people.
In the photo: Breakdown of the TFTA
The incentive in uniting these three existing FTAs stems from the economic potential that they share. For instance, between 1994 and 2014, the export value of the groups increased from $2.3 to $36 billion. While this increase still puts Africa (25%) behind Europe (60%) and Asia (50%) in terms of intracontinental trade, the growth rate is alarming and is stronger than the growth rate of their trade with the rest of the world. Combining the trio will facilitate and accelerate this economic growth.
Furthermore, this agreement is interesting politically for Africa insofar as it represents an ideological shift on behalf of the ruling African elite. In other words, opening countries up to international trade and competition differs from the previously protectionist policies. It also surfaces the continuing shift from trade with western markets to a more intraregional trade.
What does this mean for development?
Reducing dependence on other continents will help to increase production and build self-sufficiency of the member countries. It will also put forward the comparative advantage of the resourceful countries. Many argue that the FTA will reduce Africa’s dependence on international aid and investment, seen by scholars as today’s form of colonialism.
Additionally, there are estimates that the new zone will increase intraregional trade from 12% to 30%. On the one hand, as always with removing protectionist trade policies, this will increase competitiveness and productive efficiency of the goods traded between these countries. In the short term, this will increase exports and expand the members’ circular flows of goods and services. In the longer term, the trade zone will make TFTA countries more competitive globally, increasing their competitiveness across every continent. The resulting growth in GDP, if used correctly by the African leaders, will only push forward development.
On the other hand, removing protectionist barriers may lead to excessive competition for the countries, particularly for their infant industries. In turn, this could result in many losing their jobs, hindering possibilities of development. A turn to intracontinental trade may also subtract investment from other continents, slowing infrastructural and technological development. To make matters worse, there is always the risk that the economic growth will be exploited by corrupt governments. This poor leadership brings a bad name to the continent and is one of the biggest obstacles to development; the TFTA could amplify this obstacle. Either the TFTA will unite the trading countries and help expand their GDPs, or it will fragment and isolate them.
One must also take into account the non-TFTA members of the African continent. The TFTA could impact development throughout these countries, too. By creating the zone which will cover the Eastern and half of the Sub-Saharan portion of Africa, we may be splitting Africa in two, transferring development from the already fragmented Western side over into the Tripartite zone. A drain of resources in the Francophone Africa to the Anglophone side may also cause political tension, potentially slowing future socioeconomic progress of the TFTA and Africa overall.
In summary, the creation of the Tripartite Free Trade Area may not be receiving as much media coverage as the Trans-Pacific Partnership (TPP) or the Transatlantic Trade and Investment Partnership (TTIP), but it certainly deserves its place in the limelight. It represents the biggest free trade zone ever created in Africa and will affect half of the entire African population. This means potentially monumental effects on the future of development in Africa. Hopefully the TFTA will not divide Africa but unite its countries, aiding development and moving towards the long term goal of creating the Continental Free Trade Area by 2017.
In top photo: Cape Town port- Credit to Damien Du Toit