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The tripartite FTA - Snags in Africa’s grand plan

Financial Mail, South Africa

The tripartite FTA - Snags in Africa’s grand plan

The free trade zone from the Cape to Cairo would benefit SA, but Africa’s track record doesn’t inspire confidence but many countries could actually lose

By Claire Bisseker

21 July 2011

At the Chirundu border, along the north-south transport corridor between Zimbabwe and Zambia, commercial trucks used to wait five days to get clearance. Now, they can get through in a matter of hours.

In the first one-stop border post in Africa, a common control zone has been created so that the two countries’ border agencies can share one facility to eliminate duplication. The project is one of the first successes under the auspices of the Tripartite Free Trade Area (FTA) — a grand plan to establish a free trade zone from Cape Town to Cairo.

Initiated by the participating governments in 2008, the Tripartite plan seeks to create an FTA involving the 26 countries of the Southern African Development Community (SADC), the Common Market for Eastern & Southern Africa (Comesa) and the East African Community — a market of 530m people with a combined GDP of R5,7trillion .

It is the most ambitious regional integration undertaking Africa has proposed yet. Politicians see it as one of the building blocks in creating a single African economic and monetary area (with a single currency and central bank, like the European Union) by 2025.

Africa currently accounts for less than 3% of global trade and only 10% of Africa’s trade is with countries within the continent. This despite African governments concluding a large number of regional integration arrangements.

The intention behind the Tripartite FTA is to allow the duty-free, quota-free flow of goods and services, and the free movement of business people by 2016.

The hope is that positioning half of Africa as one large common market will allow it to benefit far more from global trade flows, as well as attracting greater investment and large-scale production.

But trade analysts will be forgiven for their cynicism. “If past experience is anything to go by, the prospects for a successful Tripartite FTA are minimal,” says Trade Law Centre for Southern Africa (Tralac) researcher Taku Fundira. In Comesa, for example, some members have yet to adopt the common external tariff, while some SADC members have still not complied with their free trade obligations long after deadlines lapsed.

Colin McCarthy, professor emeritus in economics at Stellenbosch University, is equally sceptical. “After more than 40 years of rhetoric on grand integration schemes and ambitious road maps along the linear route to economic union, real integration [on the continent] remains an evanescent goal.”

Indeed, the idea in Tripartite FTA’s 2008 founding documents that the FTA would be the first step towards merging all 26 countries into a single customs union seems to have been dropped in their most recent June 2011 communiqué. Sobriety has set in.

Does this mean the 2025 goal of an African monetary union is less likely to be attain ed? “One would hope so,” says Peter Draper, senior research fellow at the SA Institute of International Affairs .

While he believes the FTA is a good idea , in practice it’s proving “fiendishly difficult” to create. Initially, the planners thought it would be a relatively simple task to extend the existing FTAs in Comesa, the EAC and the SADC, but they have subsequently found that the FTAs are riddled with exclusion clauses for sensitive products. Comesa and the SADC also have different philosophies for dealing with rules of origin.

Also, all the countries are wary of opening their markets to products from SA — the largest and most diversified economy in the region. As the main producer of goods and services in sub- Saharan Africa, SA has ostensibly the most to gain from the proposed Tripartite FTA. SA’s trade negotiators are according the project top priority this year, confirms the department of trade & industry’s Xavier Carrim.

However, a computer analysis described in a recent Tralac publication, “Cape to Cairo: An Assessment of the Tripartite FTA”, finds that there will be more losers than winners if the project is fully implemented. Though the researchers say their results using the latest Global Trade Analysis Project modelling technique are only indicative, they believe they offer “a very realistic view of the final outcome”.

They find that only SA and Mozambique stand to gain a lot . Mozambique gains by R387m. But SA’s welfare stands to increase by a whopping R8,8bn thanks to the boost sugar and manufactured exports would get as a result of improved access to East African countries, especially Kenya.

Most other tripartite partners gain marginally or lose marginally since most already have multiple membership of overlapping FTAs.

Despite this, there is strong political backing for the Tripartite FTA from the rest of the continent. Their support is due partly to the idea that the project furthers the African political dream of a single monetary and economic union, but leaders also see it as key to unlocking the next phase of the region’s development. That’s because the project is not just about reducing tariff barriers. Its other pillars involve transport, and development of infrastructure and industry.

It is widely accepted that if Africa is to develop economically it will need to not only rehabilitate existing infrastructure but also build new infrastructure. Severe logistical constraints, especially in energy and transport, hammer Africa’s economic competitiveness, rendering its average export costs 78% higher than in OECD countries, according to some studies.

The idea behind the Tripartite FTA is to integrate the three blocs by linking infrastructure. The first flagship programme is the creation of a north-south corridor from the DRC to Durban (see box). W hile these developments are positive, achieving regional integration will require sustained infrastructure spending of $5,5bn/year , says the World Bank.