JOHANNESBURG (Reuters) - A planned Cape-to-Cairo free trade zone encompassing 26 countries, 525 million people and $1 trillion in output could spur major investment in Africa, but only if politicians stick to their open market promises.
Talks on the so-called African Grand Free Trade Area, which will stretch from Libya to Kenya to South Africa, were launched this week at a meeting of three smaller regional blocs that will effectively be merging into one.
African leaders declared that the Free Trade Area (FTA) would be in place in three years — an ambitious but not unreasonable goal given that two of the blocs, the Common Market for East and Southern Africa (COMESA) and the East African Community (EAC), already have tariff- and quota-free trade.
Meanwhile the third, the Southern Africa Development Community (SADC), only has levies on 15 percent of goods and should be scrapping those by January.
However, for a grand bloc to work properly, and attract foreign companies and boost Africa’s woefully low levels of regional trade, governments will have to agree liberal “rules of origin” that define whether a motorbike or shirt, say, is or is not ‘Made in Africa’.
If the definitions are made too tight in order to protect domestic producers such as South Africa’s ailing textile sector, the expanded zone will appear a lot less attractive to a Honda or Nike, whose goods may fall outside the tariff-free limits.
Conversely, if the rules are loose, allowing for a minimum of local content or labour, the FTA only increases the logic for outside firms looking to get into a region with some of the world’s high rates of population and economic growth.
“It very much depends on the rules of origin,” said Mark Pearson of Trademark Southern Africa, a UK-funded agency helping African trade ministries.
“If you have very restrictive rules of origin, such that it’s very difficult to meet the requirements, then not a lot of people are going to be interested,” he said.
As the stalled ‘Doha Round’ of world trade negotiations shows, the talks will be long-winded, complicated and political, and even if concluded there is no guarantee they will make any difference at Africa’s notoriously haphazard customs points.
So far, however, the omens are fair.
EAC and COMESA “rules of origin” are broadly comparable and relatively liberal, making it likely that SADC’s stiffer guidelines — the product of SADC member South Africa’s fear of external competition — will be forced to give ground.
The penny has also dropped in most capitals that Africa needs to start making more goods and selling them internally rather than just digging up minerals, putting them on a ship to China and importing washing machines or shoes on the return run.
In contrast to emerging Asia, which conducts nearly half its trade with its regional peers, intra-African trade is less than 10 percent of the continent’s total commerce, according to the United Nations trade body UNCTAD.
In particular, South Africa, far and away Africa’s biggest and most sophisticated economy, stands to gain from greater and cheaper access to African markets for its manufacturing sector, which accounts for 16 percent of GDP and 14 percent of jobs.
Politically powerful unions, notably in textiles, are sure to come out swinging against more external competition, but overall they should be able to see the employment logic of expanded factory output.
Similarly, the knee-jerk protectionism that pervades much of the ruling ANC may well be blunted by the boost the FTA should give to Pretoria’s goal of creating 5 million new jobs in the next decade.
Overall, the South African economy should receive a boost equivalent to 0.22 percent of GDP, according to estimates from the Trade Law Centre for Southern Africa (TRALAC).
“South Africa stands to gain hands down because we have the export capacity and the other countries don’t,” said Peter Draper, a trade expert at the South African Institute of International Affairs. “It’s not a tough sell here. Business is interested and the unions are interested.”
Following this argument, manufacturing in Egypt and Kenya, the region’s second-most advanced economies, should also emerge winners although TRALAC estimated the net gains as negligible.
The other big winner, according to TRALAC, will be Mozambique, a major sugar grower but currently an outlier in Africa’s spaghetti soup of regional trade and customs groupings.
If concluded, the enlarged FTA would include:
Libya, Djibouti, Eritrea, Sudan, Egypt, Ethiopia, Kenya, Uganda, Burundi, Rwanda, Tanzania, Malawi, Zambia, Zimbabwe, Angola, DRC, Mauritius, Madagascar, Comoros, Seychelles, Mozambique, Botswana, Lesotho, Namibia, South Africa and Swaziland.