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African Integration: Challenging but Possible
The creation of an Africa wide free trade area (FTA) is very challenging and should draw on the experiences of the three economic communities on the continent and lessons learned from the failed free trade area of the Americas (FTAA), said Tsidio Disenyana, deputy head of the development of the South African Institute of International Affairs Trade Programme.
Mr. Disenyana said that African decision-makers as far back as Kwame Nkrumah had realised the importance of regional economic integration, and Africa’s marginalisation resulting from the challenges of globalisation and interdependence make the issue still important.
African countries look forward to the creation of the African Economic Community by 2027, using existing free trade areas, such as the East Africa Community (EAC), Common Market for Eastern and Southern African Countries (COMESA) and the Southern African Development Community (SADC) as building blocks, Disenyana said. A step forward in this regard was realized when these three communities signed a memorandum of understanding in October 2008 on harmonising trade and investment regimes, infrastructure programmes and facilitating free movement of persons.
These three communities have 26 countries, with 14 countries sporting double memberships, which, according to Disenyana, is a dilemma which one big community like the African Economic Community could resolve. The three regional communities also show widely varying levels of economic development, though the continent’s actual economic might is in the hands of very few countries.
According to Disenyana’a presentation, South Africa and Egypt alone account for more than half of the US$712 billion GDP of the 26 countries in the three communities, with South Africa having the lion’s share (40%) and Egypt having 17%. Moreover, the collective GDP per capita of EAC countries, computed from 2007 data mentioned in the study, stands at US$383, followed by COMESA, US$ 720, and SADC, US$1529.
COMESA countries have agreed to start a common market by 2014 and an economic union by 2025. Last June, they launched a customs union which they have agreed to make a reality within three to five years. Its provisions include zero customs duty rates for capital goods and raw materials. Regionalising the market for capital goods was being advocated at another meeting on the first day of the African Economic Conference. Paul Collier, economics professor at the University of Oxford, had argued that the market for capital goods in individual countries was so small that it fostered the creation of monopolies and cartels, which charged whatever price they wanted with little control. He said these should be broken by regionalizing and broadening the market.
Although COMESA formed the FTA in October 2000, nine years on, five countries out of the 24, are still not participating in it. Other provisions of the customs union include 10% duty rates for intermediate goods, including agricultural products, such as wheat and maize, and 25% for manufactured goods. In theory, countries will make these happen in five years time, although what will happen then is yet to be known.
In SADC, only two of the 14 member countries are not participating in the FTA; nevertheless, Disneyana said, that SADC had not included the liberalization of services in the FTA arrangement. “Considering that services contribute to SADC GDP in the range of 35% to 70%,” he said, “it becomes clear what was left out of the FTA is quite significant.”
There is more to the challenge in SADC. He said that individual countries had introduced non-tariff barriers, badly affecting the level of integration among each other. He also pointed out a number of areas that had to be addressed to improve the chances of successful integration, including investing in infrastructure, services and utilities. There remains the fear factor that could delay the progress of integrations. “Kenya, Egypt and South Africa are in a much better position to market their export,” he said. “This raises a concern over possible polarization as investment may be attracted toward these economies.”
He also said that because a majority of these countries collected up to 50% of their fiscal revenues from trade taxes, their reluctance could be a major obstacle to tariff liberalization. The desired results could be achieved, however, if, according to him, countries were committed to removing tariffs and taking measures to address other barriers to trade in the region. Drawing on the experiences of the FTAA, Disenyana called for shorter negotiating period, unity of vision, setting up achievable goals, and willingness and capacity to finance and support the negotiating process for integration to occur.