Africa needs a single market but lacks the will to create it

by Olu Fasan

October 30, 2017 | 12:36 am
  |     |     |   Start Conversation

Over the past fifty years, Africa has mimicked Europe, institutionally,in its quest for economic integration. But Africa isa bad photocopy of Europe when it comes to the pursuit ofregional integration. AlthoughAfrican leaders havealways, since the 1960s,endorsed closer economic integration for the continent, and have replicated the integrationist institutions of Europe, they have lacked the political will of the Europeans to achieve thatobjective. The result is that, today, Europe is the most economically integrated region in the world; Africa is the least!

Let’s compare the two journeys. In 1957, the Treaty of Rome established the European Economic Community (EEC) to develop a common market, and, in 1986, the Single European Act set a deadline for completing the single market. By 1992, the single market for goods was virtually completed, while that for services, usuallyan ongoing process, hasprogressed steadily. Significantly, in 1992, the Maastricht Treaty established the European Union (EU), the Economic and Monetary Union (EMU), the forerunner of the Single Currency, and several other supranational institutions, such as the European Commission, the European Parliament and the European Court of Justice to underpin the proper functioning of the single market, the world’s largest, encompassing a free trade area, a customs union and, of course, free movement of goods, services, capital and people.

Institutionally, Africa has tried to follow the EU model. The Organisation of African Union (OAU), formed in 1963, had at its heart intra-African economic cooperation and integration. Indeed, in 1980, the OAU adopted the Lagos Plan of Action for Economic Development of Africa through the formation of an African common market. As progress to achieve economic integration stalled, African leaders signed the Abuja treaty in 1991, establishing the African Economic Community (AEC). Like Europe’s EEC, the AEC had ambitious economic integration agenda, including a customs union, a single market and an economic and monetary union. Again, mimicking the EU, African leaders established the African Union (AU) in 2001, with all the EU-stylesupranational bodies.

Thus, as you can see, African leaders have made a practice of copying the EU’s institutional structure. In reality,however, they have only imitatedthe “political Europe”, and not the “economic Europe”. Unlike Europe, where the single market and customs union were well established before the formal political institutions, such as the commission and the parliament were created, in Africa, it is the political institutions, the rendezvous of politicians and bureaucrats, that have been going strong and expanding, while the economic infrastructures are non-existent or languishing.

Yet the economics of regional integration issound.A single market would benefit producers, consumers and the wider economies. Producers enjoy cheap inputs, a large consumer market, larger economies of scale, and a competitive environment that engenders specialisation and higher productivity and, thus, higher profitability. Consumers enjoy greater varieties of goods and services, better quality products and low prices, all of which help to reduce poverty and increase general welfare. And, of course, at an aggregate level, a single market, underpinned by genuine liberalisation of trade and the factors of production, enables a country to allocate resources more efficiently, and supports the development of the productive sectors of the economy, thus leading to greater industrialisation and value-added exports.

Sadly, there is a lot of resistance to genuine trade and economic openness in many African countries, not least in Nigeria, whose trade policy is traditionally based on import substitution, characterised by local content restrictions, import prohibitions and capital controls. It is precisely these protectionist practices, coupled with excessive dependence on primary commodities and several supply-side constraints, which inhibit intra-African trade. Last week, the African Development Bank (AfDB) tweeted a map showing that intra-Africa trade is just 15% of its total trade, compared with 19% intra-regional trade in Latin America, 51% in Asia, 54% in North America and 70% in Europe. AfDB added in the tweet: “Regional integration is a development priority for Africa”.

Of course, it must be. Several studies have shown that regional integration would benefit Africa hugely. For instance, in a recent presentation, GainmoreZanamwe, senior manager for Intra-African Trade Initiative at the African Export-Import Bank (Afreximbank), said that the volume of intra-African trade could easily double to US$400bn if market information is shared and widely available among African countries. If a digital single market could boost intra-Africa tradethat way, imagine addingthe single market for goods and services, and free movement of the factors of production.

Which brings me to the ongoing negotiations on the Continental Free Trade Area (CFTA), of which a seasoned trade expert and diplomat, DrChiedu Osakwe, Nigeria’s chief trade negotiator and director-general of the Nigerian Office for Trade Negotiations (NOTN), is the chairman of the negotiating forum. The CFTA is, of course,a laudable initiative, but, truth be told, it can’t, as currently envisaged, deliver the kind of regional integration that I have been discussing here. And, for me, there are three reasons for this.

First is theunrealistic deadline. African leaders decided in Addis Ababa, Ethiopia, in 2012, to establish the CFTA by an “indicative date of 2017”. But they did not launch the negotiations until June 2015. I am not aware of any serious FTA that has been negotiated in three years. Although 2017 is described as an “indicative” date, expectations have been raised. The African Union trade commissioner, Albert Muchanga, declared recently: “100 Days to the CFTA!” But, of course, it could be 100 days to a shallow CFTA.

The second point is the frivolous use of nomenclature. PresidentBuhari said at the D-8 meeting in Turkey, “In Africa, we are on the threshold of finalising negotiations to establish the first ever single market for trade in goods and services on our continent”. Indeed, the African Union also states that one of the objectives of the CFTA is “to create a single continental market … with free movement of business persons and investments”. But what is being negotiated is not a single market; it’s, at best, an FTA. And even so, it’s unlikely to have the comprehensiveness of a genuine FTA, even though it may just about meet the WTO requirement of covering “substantially all trade”. In terms of depth, the specific obligations may be narrow, if not watered down by constructive ambiguities.

The aim of any serious regional trade agreement is tariff elimination and not tariff reduction. It is deep and comprehensive liberalisation. But the discussions in the CFTA negotiations are fixated on the modalities for designating sensitive products and exclusion lists. And, of course, the moreexemptions, exclusions and sensitivities are reflected in the CFTA, the more it becomes a shallow FTA. It is not clear how far the agreement will go on services. What about intellectual property rights and competition rules? The trouble, of course, is politics and the unwillingness to embrace trade liberalisation. AsPeter Draper, a respected South African-based trade analyst, puts it, “With differing visions of free trade competing in the CFTA negotiations, it is likely that the agreement will not be ambitious”.

And that’s before even talking about the third point: the credibility of the commitments made. How will the agreement be monitored and enforced? Ask Ghana and Ivory Coast about Nigeria’s compliance with ECOWAS rules before imagining what implementation and compliance with the CFTA treaty obligations may look like. And what about the problem identified by most analysts that the overlapping 14 regional economic communities, although only 8 is recognised by the AU, would make it difficult for countries to meet intended integration commitments, thereby potentially undermining the CFTA?

With 54 countries and over 1 billion people, Africa has the potential to be one of the world’s powerful single markets, with significant intra-regional trade, and the size and bargaining strength to negotiate beneficial FTAs with other nations or regions, as the EU does. But, despite mimicking the political institutions of Europe and talking endlessly about regional integration, African leaders lack the political will to make it happen. They mustn’t just talk the talk, but walk the walk!


Olu Fasan


by Olu Fasan

October 30, 2017 | 12:36 am
  |     |     |   Start Conversation

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