Free trade area talks point to new African era

An important process that started three years ago began to mo ve in early December as the first round of negotiations to establish a free trade area covering 27 countries in east and southern Africa kicked off in Nairobi, Kenya.

It is envisaged that negotiations for the proposed free trade area (FTA), which promises to be an important instrument for the future of trade and industrialisation in Africa, will be completed in about 36 months.

The three trade blocs involved - the Southern African Development Community (SADC), the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA) - decided in Kampala, Uganda in October 2008 to move towards a free trade agreement.

The intention is to boost intra-regional trade. Because the market will be much bigger, there will be more investment flows, enhanced competitiveness and the development of cross-regional infrastructure. At the same time, the FTA will act as a spur to industrialisation, as countries move from selling primary products to making goods to sell.

Competition with older, established and also bigger emerging economies might be a stumbling block initially, but the huge new market may make it possible for locally manufactured goods to compete with those imported from outside the FTA.

With close to 600-million people live within the FTA, and a combined gross domestic product of $1-trillion, the region could find itself competing in the same league as the likes of China, India, Russia, Brazil, the US and the EU. And it is becoming easier to make the world believe this, because the continent is already being touted as the next economic frontier.

A glance at some figures confirms this view:

Africa's combined consumer spending was US$860-billion in 2008, and will be an estimated $1.4-trillion in 2020.

With 43% of Africans currently under the age of 15, by 2040 there will be 1.1-billion Africans of working age.

Africa already has 52 cities with more than a million inhabitants, more than Europe. By 2030, around fifty percent of Africa's populationi will be living in cities.

Africa's returns on foreign direct investment (FDI) are the highest in the world.

However, the road to setting up the FTA could be a rocky one. South African Trade and Industry Minister Rob Davies has warned that negotiations over industrial policy could be tough. South Africa has just set out to implement its Industrial Policy Action Plan, and talks around the trade in manufactured goods will be of particular concern.

But South Africa does have an advantage. As Davies points out, unlike exports to the rest of the world, a high percentage of exports into Africa are already made up of value-added products.

Other problems would be the levels of protectionism between African countries, restrictive trade permit needs, and very obvious economic disparities.

Additionally, the fact that three existing trade blocs aim to merge into one is a stumbling block as they are at different levels of integration, with different rules and regulations. All of this will be part of the negotiations that started in Decvember.

The fact remains that economic growth in all participating countries will be boosted by increased intra-regional trade. For Africa as a whole, intra-regional trade currently stands at only 12% of all cross-border trade, whereas in Asia the figure is rising toward 50%, and in the European Union towards 80%.

The FTA would also be an important building block towards achieving the vision of the founding fathers of the Organisation of African Unity in 1963 - a continent-wide African Economic Union.

News 24