A Protectionist African Continental FTA Will Not Boost Intra-Africa Trade

That intra-Africa trade is low, at 11.78 percent of total imports, has been lamented for decades. A key objective for establishing the Continental Free Trade Area covering all the 55 African countries, has therefore been to boost intra-Africa trade, with a target of doubling it by the year 2022 over a 2014 baseline. All this has been discussed and agreed by Africa’s leaders at the highest political level, and written into decisions taken at their summits since 2010 to date.

With the negotiations for establishing the Continental Free Trade Area (FTA) now in high gear to meet the December 2017 deadline, there is a real risk that in this rush, the FTA might be designed in a manner that, through too many exceptions and high tariffs on key exports, reduces even further the paltry intra-Africa trade, which would be a self-inflicted tragedy.

A whole raft of exceptions might end up in the Continental FTA Agreement, based on a fear of imports from other African countries.

Less than 300 tariff lines

A standard trade agreement must of course be balanced between liberalization and safety-valves to address possible adverse developments such as destruction of the environment or existing and planned industries, to ensure peace and security, and to recognize the policy space for governmental interventions to assist social economic transformation. There are therefore standard general and security exceptions as well as trade remedies. In addition, a number of trade agreements have provision for protection of balance of payments and external reserves and infant industries. Sensitive and excluded products might in some cases cover up to 600 tariff lines, as indeed proposed for the Continental FTA; yet most African countries export to each other on less than 300 tariff lines. These exceptions should, however, be designed to be used sparingly, so that domestic industries can have access to large regional and global markets required for their growth.

Large markets that support more trade in goods, services and assets produced by job-creating enterprises, including small-to-medium-scale-enterprises, assist in employment and income generation, thus meeting the public policy objectives of jobs – and wealth – creation. Large open markets support value chains, specialization and efficiency through sharing of tasks in modern production lines and processes. This calls for creating a large open Continental FTA as a rule of thumb in the negotiations.

Avalanche of imports

On the basis that the bulk of imports into Africa, upwards of 88 percent of total imports, are from outside Africa, a fear of an avalanche of imports from other African countries needs to be
properly assessed. A starting point is that such a fear needs to be addressed with respect to the sources of those imports, which are outside Africa, which means that restrictions on such imports as might be deemed appropriate should be addressed under other frameworks such as the World Trade Organisation but not the Continental FTA.

However, should in fact there be an increase in imports from other African countries resulting from the Continental FTA, then that should be a very welcome development as the objective of boosting intra-Africa trade would be seeing the light of day.

The fear should not be of imports from other African countries. The issue to focus on is how to boost exports through scaling up production especially of products that can have niche markets through product differentiation or wholly new products and industries, within the overall framework of industrialization, agricultural productivity, and infrastructure development.

There are more specific interventions to focus on in the negotiations. Regarding trade policy instruments, while tariff protection can be considered but bearing in mind that high tariff negate the very idea of building a Continental FTA, the more appropriate interventions should seek to grow the industries. These include market intelligence, elimination of non-tariff barriers, forms of subsidies, quality infrastructure and capacity building for familiarity with the CFTA trade rules for instance rules of origin, customs and trade facilitation procedures, and reporting and resolution of non-tariff barriers.

Grow domestic industries

But the more poignant interventions must seek to grow the domestic industries through addressing the well-known constraints especially those faced by small-to-medium enterprises (SMEs).

These constraints include especially access to affordable and patient capital; access to and insertion into the high value ends of global and regional value chains and networks in highly regulated industries dominated by multinational enterprises that mostly buy from their own branches or subsidiaries or franchisees or the like; local sourcing and local content partnerships that twin SMEs with wholesale and retail outlets in the entire region; public procurement systems that build in preferences for SMEs and vulnerable sections of society; mapping and supporting start-ups especially those with potential to generate whole new industries; harnessing and applying innovations, skills and technology from around the world; mentorship programs for business management and global networks; as well as education curri-
culum reforms towards entrepreneurial training institutions that through course work, dissertations, seminars and applied research do incubate and produce businesses and entrepreneurs rather that job-seekers.

What this means for negotiations is that the purely core trade provisions can aim to achieve a vastly open Continental FTA, but these be complemented not by flexibilities that set up numerous exceptions, high tariffs and protected markets, but rather flexibilities that seek to directly build up and grow domestic industries especially SMEs through directly addressing their capacity and management constraints.

Critical role of resource mobilization and skills

In this regard then, a multi-sectorial high level development committee can be set up to continuously and holistically address such development challenges. Membership of the committee can be drawn from government, academia, grass-roots organizations, private sector and development partners. The composition for each session can be dynamic depending on issues for consideration. But it will be important to recognize the critical role of resource mobilization and skills development within an overall framework of building innovation- and technology-driven economies as an overarching strategy that achieves the capacity for industrialization and infrastructure development. So, there should be subcommittees or working groups on areas such as resource mobilization, curriculum development and skills conversion, harnessing innovation and technology, and market intelligence.

High tariffs and protected markets are a development fallacy, for without sizeable markets one can hardly expect critical levels of investment that generate industries and infrastructure. Rather, the Continental FTA should seek to be a huge regional open market, but complemented with interventions that directly grow domestic industries. There should be national level interventions for diversification, value addition, and human skills development; as well as at the regional level to ensure an open functioning Continental FTA that provides a sizeable market to support critical levels of investment and regional value chains supported by free and easier trade in inputs and intermediate products, market information and necessary financial and skills capabilities.

 

 

Francis Mangeni

Director - Trade, Customs and Monetary Affairs

COMESA Secretariat

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