June 9, 2011
Johannesburg: African leaders meet Sunday for talks on forming the continent’s biggest free-trade bloc, aimed at unlocking a multi-billion dollar market and boosting the region’s role in the global economy.
Leaders and representatives from 26 countries in eastern and southern Africa with a combined gross domestic product of $875 billion (€597 billion) will launch negotiations to join forces from Cape Town to Cairo.
“We believe this is an extremely important development for Africa,” said South African Trade Minister Rob Davies.
“The African continent is now being looked on as a source of opportunity and is one of the growth areas in the world’s economies — six out 10 of the fastest growing economies in the world are located in Africa.”
The proposed free trade area (FTA) would join three existing, and sometimes overlapping, blocs.
The idea was endorsed in 2008 and will include the continent’s most developed economies of South Africa and Egypt and some of its most energetic, such as Angola and Ethiopia.
But the pact faces immense hurdles: tariff barriers, poor infrastructure, weak supply chains, and economies that are often largely reliant on natural resources rather than manufactured products.
“The tripartite FTA would certainly be a very important landmark in Africa’s regional integration process,” Alex Rugamba, African Development Bank director of regional integration and trade, told AFP.
“It’s an issue really of economies of scale — this is where we see huge opportunities. Also if the FTA of the tripartite works, we think it can also be a stepping stone for Africa’s meaningful integration in the global economy.”
But the three existing areas — of which the five-member East African Community (EAC) is the most advanced —have failed to meet intra-trade targets despite removing the bulk of trade tariffs.
“Only a small fraction of the regional economic communities have achieved their targets for trade among members,” said Rugamba.
“Very many are still lagging, and they’re lagging on almost all the necessary elements for the next phases of integration, such as customs and monetary unions.”
New World Bank research says trade within southern African accounts for just 10 percent of the region’s total trade — compared to 60 percent in Europe and 40 percent in North America.
Southern African Development Community (SADC) exports increased from 20 to more than 30 percent of combined GDP in the past decade, but regional trade made up a mere three percent of the increase.
Stumbling blocks such as border hiccups and non-tariff barriers like import bans and permits cut into competitiveness, with losses of $500 a day for South African grocery chain giant Shoprite for each truck delayed at border posts.
“As these countries look for innovative ways to counter the economic slowdown, not enough attention has been paid to the growth-boosting effects of regional trade,” said Ruth Kagia, World Bank country director for South Africa.
As the 19-member Common Market for Eastern and Southern Africa (COMESA) members join the other two blocs on Sunday, the aim is to work towards a roadmap that will combine small domestic markets into a sizeable force.
“The most important aspect of this tripartite FTA is the strong political commitments,” said Rugamba.
“It will be a long process — you’re looking at a roadmap of two to five years. It will not be an easy ride but the fact that they are ready to launch negotiations is very encouraging.”