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Tripartite FTA is key to dismantling the ‘spaghetti bowl’

The Independent, South Africa

Tripartite FTA is key to dismantling the ‘spaghetti bowl’

8 June 2011

By Rob Davies

On Sunday, heads of state and government from Africa’s three main regional blocs – the Southern African Development Community, the Common Market for Eastern and Southern Africa and the East African Community – will meet in South Africa to launch negotiations for a Tripartite Free Trade Area (T-FTA).

Spanning the continent from Cape Town to Cairo, this “grand” FTA will encompass 26 countries with a combined gross domestic product of $860 billion (R5.7 trillion) and a combined population of about 590 million people.

The tripartite framework derives its basis from the Lagos Plan of Action and the Abuja Treaty establishing the African Economic Community (AEC).

It is a strategic response to the AEC’s objective to rationalise and consolidate existing regional economic communities, with a view to achieving a common market covering the African continent.

A pan-African common market of 1 billion people without internal borders will unleash the enormous economic growth and development potential of Africa. Its establishment will mark a historical milestone in the integration of the continent.

Set against intensifying global competition for resources and markets, Africa is increasingly viewed as the frontier market of the future.

Compared with the slower growth prospects of the developed world, the International Monetary Fund forecasts that growth in sub-Saharan Africa will average 5.5 percent this year, increasing to 6 percent next year.

Foreign direct investment flows to Africa are back to the rising levels of the early to mid 2000s. Ernst & Young’s 2011 Africa Attractiveness Survey forecasts capital inflows to reach $150bn by 2015, creating 350 000 jobs a year (directly and through local spillovers).

In this regard, it is not insignificant that South African companies are among the leading and most diversified emerging market investors in Africa, at times more directly invested than China.

From banking to telecoms, local firms have established their reputations as market leaders, contributing significantly to Africa’s economic renaissance.

Clearly, the establishment of the T-FTA will provide a compelling and accessible marketplace for business, while opening up a host of opportunities for development and poverty reduction.

A larger, more integrated and growing regional market will enhance the interest of foreign investment and provide the basis for enhanced intra-African trade.

Unlike more developed regions (and even some dynamic regional markets such as Asia), Africa has a relatively low level of intra-regional trade.

The bulk of Africa’s exports are destined for Europe, the US and Asia. This is partly the result of an overwhelmingly resources-based export basket.

However, the potential for raising intra-African trade and diversifying production remains untapped. In order to exploit such potential, it is imperative to tackle the most binding constraints to continental trade.

Most of South Africa’s trade with African countries is not in commodities, but in higher value-added manufactured goods. Extending the regional FTAs already in place on the continent thus has the potential to build and sustain more diverse markets in Africa.

In the context of markedly improved growth prospects for Africa alongside intensifying global competition for Africa’s resources and markets, it is imperative that South Africa accelerates efforts to promote regional integration to ensure that we trade on terms at least as favourable as other competitors.

The T-FTA also offers the possibility to resolve the “spaghetti bowl” of overlapping memberships of different regional integration groups, which raises the transaction costs of trade and hinders efforts to deepen regional economic integration. Of the 53 countries in Africa, 27 are members of two regional groupings, 18 belong to three, and one country is a member of four.

South Africa’s approach to the T-FTA is informed by a “developmental integration” paradigm. This approach combines market integration with sectoral policy coordination and cross-border infrastructure development to strengthen regional supply capacity. It also recognises that high-level political co-operation is required at an early stage of the process.

South Africa’s approach to the negotiations contains three core elements. First, the T-FTA should be limited to a trade in goods agreement that is flexible and provides sufficient scope for the parties to protect sensitive sectors.

Second, trade-related issues such as services and competition policy should be pursued on separate tracks and are the subject for future engagement.

A third and separate track of the T-FTA should focus on regional infrastructure development, notably the north-south corridor, to facilitate trade and reduce the costs of doing business. By extending “developmental integration” from Cape to Cairo, the continent is one step closer to achieving Kwame Nkrumah’s vision of a united and prosperous Africa.

Rob Davies is the minister of trade and industry.