Tuesday,17 October, 2017
Current issue | Issue 1250, (11 - 17 June 2015)
Tuesday,17 October, 2017
Issue 1250, (11 - 17 June 2015)

Ahram Weekly

‘The future is Africa’

The Tripartite Free Trade Area launched yesterday holds out the promise of continent wide prosperity, writes Niveen Wahish

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Al-Ahram Weekly

Yesterday, leaders and representatives from 26 African states agreed to create a Tripartite Free Trade Area (TFTA). The new economic bloc brings together members of the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Southern Africa Development Community (SADC). With a combined population of 625 million people and a Gross Domestic Product (GDP) of $1.2 trillion, the TFTA will be the largest economic bloc in Africa.

TFTA’s launch in Sharm El-Sheikh sets the stage for a Continental Free Trade Area (CFTA), to include other African regional blocs, to be set up by 2017.

TFTA is expected to boost intra-African trade as well as Africa’s share of global trade. Intra-African trade currently stands at 12 per cent of the continent’s total. This is far less than in other regions according to Assessing Regional Integration in Africa (V): Towards an African Continental Free Trade Area, a joint publication by the United Nations Economic Commission for Africa (UNECA), the African Union Commission (AUC) and the African Development Bank (AfDB).

TFTA will capitalise on existing efforts to expand trade within its three member economic blocs.

“The combined intra-trade of the three regional economic communities (RECS) grew from $30.6 billion to $102.6 billion between 2004 and 2014. This translates to a more than threefold growth in a period of 10 years,” points out Mwangi Gakunga, public relations officer for the COMESA Secretariat.

TFTA was initially intended to overcome the challenges arising from states belonging to more than one regional economic community. Of the 26 countries in COMESA, EAC and SADC, 17 are either in a customs union or are negotiating an alternative customs union to the one to which they belong. Some are negotiating two separate customs unions.

The economic benefits of the new grouping could be huge. The aim of the enlarged bloc is not only to increase intra-regional trade but to ensure the newly integrated markets and economies attract investment and create jobs.

TFTA is anchored on three pillars — infrastructure development, industrialisation and free movement of business people.

Phase two of the negotiations, launched yesterday, will cover a host of trade related matters including competition policy, trade in services and intellectual property rights.

Sindiso Ngwenya, the chairman of the COMESA-EAC-SADC Tripartite Task Force, stresses that African leaders need to speed up the implementation of the integration agenda if the continent is to create jobs for the young people who form 60 per cent of Africa’s population. Ngwenya argued the current surge in illegal migration out of Africa is testimony to the economic frustration young people feel.

The new agreement significantly expands the number of countries with which Egypt can exchange tariff free goods and services and could buck a far from positive trend in Egypt’s continental trade arrangements.

Economist Ahmed Ghoneim argues Egypt’s membership of COMESA has provided only moderate trade returns. In a 2013 paper The Political Economy of Egypt’s Regional Trade Integration Policy: The Case of Joining the Tripartite Free Trade Agreement, he pointed out that the significant increase in Egypt’s exports to COMESA, which turned the trade balance from deficit to surplus, only occurred achieved after Libya joined.

He concludes that “the lack of depth and proliferation of several obstacles — including non-tariff measures, inefficient infrastructure and modest transport — hindered the benefits that could have accrued to Egypt from joining COMESA.”

Yet Ghoneim believes “it would be both politically and economically beneficial for Egypt to join the TFTA.”

While the immediate economic gains might be meagre he stresses that “Egypt’s engagement in the largest African preferential trade agreement will ensure its attachment to the African continent, and help cement its status as a core and influential country.” The spin offs, not least when it comes to reducing political friction over Egypt’s share of Nile water, could be considerable.

Khaled Ramzi, export manager for a durable goods manufacturer, welcomes the opening of a huge market for Egyptian goods.

“The future is Africa,” he says, though he warns against complacency, pointing out that South Africa’s developed industrial base makes it a strong competitor to Egypt.

Ramzi believes tackling non-tariff barriers will ultimately prove more important than the lifting of tariffs. Problems that need to be overcome include rules of origin and specification regulations and the lack of national shipping lines to transport exports directly.

For Egypt to succeed in Africa it must overhaul the way it does business, says Ramzi. First companies need to form consortiums to set up a continent wide chain of hypermarkets selling their products, a strategy that South Africa has already employed. Later, to reduce transport and after sale service costs, it will be necessary to establish plants in other member states to assemble Egyptian.

Egypt’s industrial base, says Ramzi, makes the country well positioned to export a range of products and services including pharmaceuticals, durable goods, chemical and food items.

Ahmed Al-Wakil, head of the Egyptian Federation of Chambers of Commerce, is optimistic the new agreement will help smooth out some of problems associated with trading in Africa. He would like to see arrangements that allow Egyptian products to be bartered for imports from other member states so as to overcome the problems associated with a shortage of hard currency.

Africa’s three regional economic communities (RECs) will not merge under the TFTA, explains Trudi Hartzenberg of the Trade Law Centre for Southern Africa.

“The RECs will continue to exist and the members of these RECs will continue to trade according to the regimes of the RECs. Only those member states that do not have free trade areas amongst themselves will be negotiating new tariff liberalisation regimes,” she told Al-Ahram Weekly.

Hartzenberg worries that rather than solving the problem of overlapping membership the TFTA could make tariff regimes more complex.  She is also disappointed that negotiations on the free movement of member nationals have been postponed to a second phase with some countries very reluctant to liberalise the movement of businessmen.

“At this stage TFTA is very much work in progress.  Much still has to be negotiated,” says Hartzenberg, meaning that TFTA cannot yet serve as a template for a Continental Free Trade Area (CFTA).  

“At this stage TFTA does not promise much new liberalisation with regard to tariffs.  Rules of origin still need to be negotiated.  Aspects of the TFTA that can make an important contribution include provisions on the elimination of non-tariff barriers, trade facilitation and cooperation on customs and border management,” she says.

With the signing ceremony over tripartite member states now need to steer the process of ratification through their domestic legislative agendas, says Gakunga. Once this is done member states are required to deposit their ratification instruments with the Tripartite Task Force. If a simple majority of tripartite members ratify the agreement it comes into force.

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