How free trade could unlock Africa’s potential
How free trade could unlock Africa’s potential

How free trade could unlock Africa’s potential


Despite today’s anti-globalization trends, more than forty African countries seek to decrease tariffs on trade by signing a continent-wide agreement. Undoubtedly, Africa’s need of free trade is much higher than in other continents. The complexity of African continent is rooted in the outcomes of Colonialism and the creation of more than fifty independent states. Moreover, such artificial division of African countries has caused weak physical and cultural connections between bordering countries.

Only a few states in the continent, such as South Africa and Egypt, have been able to break the basic pattern of trade and boost their economies by becoming both producers of raw material and recipients of manufactured goods. According to the Brookings Institution, intra-African commerce is almost three times lower than intra-Asia and intra-Europe exports. Therefore, trading with each other could be a way increase the value chain of goods produced in African countries. On the one hand, African economies have all the potential to erase the colonial legacy. On the other hand, the continent is in need of significant infrastructure and market makeover that will secure higher demands and low tariffs.



How free trade could unlock Africa’s potential

Free trade is not exactly the dish du jour. The US and China are busily slapping tariffs on each other’s steel, pork and wine. Free trade agreements, such as Nafta, are being revisited. And the political backlash against globalisation is so fierce that the idea of completing the Doha round of global trade talks is as dead as any duck, imported or otherwise. But one region of the world is bucking the trend: Africa.


Last month, 44 African nations signed up to a continent-wide free trade agreement that will cut tariffs to zero on 90 per cent of imports, phase in lower tariffs on “sensitive items” and liberalise trade in services. Though the principles of free trade are under ideological attack in many parts of the world, in Africa the case for more intra-regional commerce is overwhelming.


Africa needs free trade for many reasons. The most important is to remake history. Colonialism left Africa in bad shape to develop. It broke the continent into more than 50 pieces, few of which today have the scale to attract sufficient investment or ramp up manufacturing. The whole of Africa has a gross domestic product of about $2.5tn, roughly the same as the UK. Imagine if Britain were broken up into 54 units, each with its own politics, language, regulatory environment and hard border.


No fewer than 16 African countries are landlocked. Worse, they are trapped in a history of extraction. For colonial powers, African colonies were suppliers of raw materials. What little infrastructure there was connected mineshaft to port, and port to colonial metropole. That purely extractive arrangement left an indelible legacy. To this day, physical and cultural links between some African neighbours are weaker than with the former colonial power.


Even if they tried, many post-colonial African governments were unable to break the basic pattern of trade: ship raw materials out and bring manufactured goods in. Diversification and economic complexity are the foundations of development. Yet, with the exception of South Africa, Egypt and a few others, most African economies are stuck as suppliers of basic commodities.


Trading with each other is a way out of that bind. But intra-African commerce is low. In 2016, intra-African exports made up 18 per cent of total exports, according to the Brookings Institution, compared with 59 and 69 per cent for intra-Asia and intra-Europe exports, respectively.


Most African countries are missing out on the classic benefits of trade: economies of scale, specialisation, access to cheaper inputs and, for consumers, more affordable products.


According to the United Nations Conference on Trade and Development, medium and high technology manufactures account for 25 per cent of intra-African trade, but only 14 per cent of African countries’ exports to developed countries. Trading with each other is a way of moving up the value chain.


Firestone has supplied the world with Liberian rubber since 1926. In all that time, not a single tyre has been produced in the west African country of 4.6m people. Conceivably, if it were part of a genuine free trade area spanning a continent of 1.2bn people, the mathematics of manufacturing might change.


Chiedu Osakwe, Nigeria’s chief trade negotiator, sees continental trade as nothing less than a way to “reverse the colonial inheritance of fragmented and polarised African economies”.


Getting from here to there will not be easy. For a start, countries must build the intercontinental road and rail links, install the regular power and enforce the frictionless customs needed to convert lower tariffs into actual trade and production.


Just as important is political buy-in. Nigeria, Africa’s biggest economy, is yet to sign the free trade agreement because of opposition from domestic unions, which have warned against what they call a “radioactive neoliberal policy initiative”. Such opposition cannot simply be dismissed. The cause of free trade has suffered worldwide because, in any arrangement, there are losers as well as winners. In aggregate, people may gain. But all politics is disaggregated, which is to say, local.


Still, something is already happening. Intra-African trade, while still low, has risen 11-fold since 1990, according to Renaissance Capital. While trade with the US and Europe has slowed or even reversed, trade with the likes of China, India, Russia, Turkey and Indonesia has ballooned.


That brings the possibility of a new kind of trading relationship, more complex and more beneficial to Africa. The pattern of trade has not altered nearly enough. But it is changing. It is imperative that it changes more.


Source: The Financial Times, David Pilling , April 4, 2018. Photo credit toThe Financial Times.

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