More than five years in the making, the ambitious African trade agreement known as the Tripartite Free Trade Area (TFTA), officially launched in June, aims to bring together three key African trading blocs—the Southern African Development Community (SADC), the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA)—to create a common market spanning the continent from Cairo to Cape Town. With a huge free trade zone encompassing a region of more than 626 million people and a total gross domestic product of $1.2 trillion—equivalent to 58 percent of the continent’s entire GDP—the deal hopes to succeed where earlier, smaller efforts have failed in boosting intra-African trade and economic integration.
So far 16 countries have signed on, with another 10 expected to do so after they fully comply with their own internal protocols for joining a binding international agreement. Although the endorsement of 26 African heads of state is in itself a major achievement for the TFTA, there are still many barriers that must be overcome to make this deal a success before negotiations are concluded.
High expectations have been placed on the deal by policymakers and politicians across the continent, with the African Union saying the trade zone will be up and running by 2017. Throughout the negotiations for the TFTA, the main goal has been the full liberalization of tariff schedules across Africa. Proponents of the deal believe it will be a stepping-stone toward a full continental free trade agreement.
For Africa to reach the lofty growth targets of “not less than 7 percent” set by the African Union’s so-called Agenda 2063 initiative, promoting intra-African trade will be vital. At the moment such trade makes up only around 11 percent of Africa’s total trade, far below the equivalent figure of 40 percent in North America and 60 percent in Western Europe. Once the TFTA is in full effect, and trade tariffs are removed, the free movement of goods and people will be markedly easier, and those trade numbers should rise. But that will not happen overnight, with around two-thirds of existing tariffs expected to be liberalized as soon as the TFTA becomes law, and further tariff schedules liberalized within eight years.
And while it is true that the TFTA will have some effect on improving free trade within Africa, that could be hampered if leading countries in the TFTA seek instead to safeguard their privileged position inside the trading bloc. After all, countries that already have favorable access to profitable markets—such as Egypt in Kenya and South Africa—will likely be reluctant to lose their preferential status by letting potential future TFTA members, like Nigeria, into their free trade zone down the road.
Moreover, there have already been a number of missed opportunities in the TFTA negotiations, such as a lack of a clear framework on foreign direct investment policy, which limits the TFTA’s appeal to investors. This is especially disappointing as foreign investors could play a major role in developing infrastructure in the larger market, if they weren’t dissuaded by inconsistent regulations across member states. Issues around property rights and intellectual property must also still be resolved by the three existing trading blocs that will make up the TFTA. Doing so will prove to be a challenge due to the separate draft agreements created by the SADC and EAC.
The relationship of countries in the TFTA to Africa’s various existing regional trading blocs—there are over 15—is also destined to be strained. Conflicting memberships will complicate enforcing the various trade regimes. Countries in the TFTA will also have to navigate an increasingly complex customs environment when trading with these regional groups.
Though the TFTA will, in principle, help stimulate greater trade within Africa, the dearth of efficient transportation infrastructure throughout the continent will undoubtedly limit the benefits in practice. There is also a need to ensure that smaller countries, such as Namibia and Mozambique, do not see their economies severely damaged by the almost instantaneous introduction of highly competitive companies from more-developed economies like South Africa and Egypt. One hope is that the increased trade volumes will give TFTA countries a wider range of tax sources and foreign currency options, giving rise to a more stable and diversified economic environment that offsets the effects of heightened competition.
To be successful, however, the TFTA bloc will have to not only implement tariff liberalization measures, but also address nontariff barriers to trade and adopt a common industrial policy. That will require a high level of coordination and compromise, which has eluded previous regional African trade groups. In particular, countries with completely different economic circumstances will find it challenging to create a joint industrial policy that all members are happy with.
The Southern African Customs Union, which includes Botswana, Lesotho, Namibia, South Africa and Swaziland, offers a useful parallel. Established in 1910, it is the world’s oldest customs union. Yet its members have struggled to create a common industrial policy for southern Africa. A renegotiation of the customs agreement in 2002, which included an ineffective framework for a common industrial policy, took almost two years to be ratified by all parties. One key obstacle was that tiny Swaziland has core economic differences compared to its much larger neighbor, South Africa.
Should these and other issues be resolved, the TFTA will undoubtedly shape trade both in and among many African countries. But the broader impact outside Africa will be minimal, as the continent’s share of world trade stood at a lowly 3.3 percent in 2013.
As with most sweeping trade deals, the devil will be in the TFTA’s details, and there are many obstacles ahead. Still, the deal is a major step forward in integrating trade across Africa and, perhaps, eventually achieving a truly continental free trade agreement, as long as the political will lasts.
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