logo logo

African trade: Integration of economic blocs into a global player

Leadership Magazine, South Africa

African trade: Integration of economic blocs into a global player

29 May 2012

Plans to create an African free trade area (FTA) by integrating three existing African trade blocs consisting of 26 countries by July 2014 are gaining momentum. The aim is to create a free market of 525 million people with an output of US$1 trillion making it a global player.

Involved in the initiative are the governments of the countries presently organised in the existing East African Community (EAC), the Common Market for Eastern and Southern Africa (Comesa) and the Southern African Development Community (SADC).

Sindiso Ngwenya, secretary-general of Comesa, recently said that "the major challenge for the tripartite FTA negotiations will be rules of origin. Whereas Comesa and EAC have identical rules of origin, SADC has different rules so we have to engage with them."

He was optimistic that the process would move quickly because of the experience gained in building the existing trade blocs.

The process is likely to be boosted by factors such as the discovery of some of the world’s biggest gas fields in East Africa; the ambitious North-South Corridor (NSC), a road and rail infrastructure project spanning eight countries from Tanzania to South Africa is starting to take shape along with plans to establish a continental top-level web domain for Africa.

Just this month more gas was discovered off Tanzania and Mozambique. It is estimated that these latest finds alone could supply all of Italy, Germany, France and Britain with gas for at least a year and possibly for much longer.

Coupled with oil discoveries in Kenya and Uganda, the region is about to compete with Nigeria as Africa’s biggest energy producer. It has joined the small club of global gas giants, threatening Russia’s gas supply monopoly in Europe and, to a lesser extent, that of Qatar in Asia.

The gas find came at an opportune moment for the region’s development plans which have been hampered by poor infrastructure, slow integration and a lack of funds.

Gas money could now help to fast-track the NSC. It should also improve the appetite of private equity entities to commit to long-term investment in this project. The region should also benefit from an influx of construction, gas production and downstream companies.

Ngwenya said that once the integration process was complete, it could be expected that more multi-national companies would be created in the region. He referred to the example of Bidco, a Kenyan edible oils and soap manufacturer which, through Comesa, had established operations in 15 nations.

"They [firms like Bidco] have moved away from being national champions to regional champions and, ultimately, they will become multi-national companies," he said.

Until now the slow pace of integration, the high cost of doing business, the lack of infrastructure, and disagreements over the harmonising of cross-border trade regulations have been seen as negatives. This has been offset, however, by the rapid economic growth recorded in Africa, second only to the Asian giants.

Nonetheless the World Bank said, in February, that trade barriers and regulatory requirements were holding back developments causing the region to lose out on growth.

However, this month South Africa’s President Jacob Zuma, when answering questions in Parliament, reported progress on the NSC and regional integration.

He said the Presidential Infrastructure Championing Initiative committee, comprising of eight heads of state and government under South Africa’s leadership, was enthusiastic in supporting the NSC road and rail projects to remove trade restraints. Various problem areas were identified and have been or are being addressed.

“Among the challenges is the need to further improve and strengthen co-ordination among the member states. Other issues we are looking at include funding methods for the projects and how to get more private sector investments into the projects. We are committed to making this succeed given the importance of infrastructure for Africa’s growth and development,” president Zuma said.

Feeding into the unfolding regional development will be South Africa’s own R840-billion infrastructure development programme, while the likes of the European Union, for example, have pledged €400 million (about R 4 billion) for projects in the emerging trade bloc. Now revenue from gas projects may bolster these investments and help fast-track the regional development initiatives.