• Moving boundaries

    As plans to establish a Tripartite Free Trade Agreement near completion, what does it mean for intra-regional trade?

    Moving boundaries

    Ambitious plans by Africa’s three largest regional economic communities to work towards the ultimate formation of a single customs union – and by 2017, a continental free trade area – to liberate and boost the continent’s woefully low levels of intra-regional trade, still face daunting challenges, according to trade analysts and economists.

    The proposed mega-trade bloc is set to span from South Africa to Egypt, and from the DRC to Kenya – and estimates around the potential combined GDP that would flow from a consumer base with 632 million people vary between US$624 billion and US$1.3 trillion.

    Years of protracted deliberations on how to free up intra-African trade culminated in the signing in 2015 of a Tripartite Free Trade Agreement (TFTA), which excludes Nigeria, the African country with the highest GDP. However, the trade agreement creates Africa’s largest free trade zone between the three major economic blocs, i.e. SADC, EAC (East African Community) and COMESA (Common Market for Eastern and Southern Africa).

    The 26 countries in the merged COMESA/EAC/SADC free trade zone are Angola, Botswana, Burundi, Comoros, DRC, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Lesotho, Libya, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Rwanda, Seychelles, South Africa, Sudan, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.

    Speaking to Reuters at last year’s AU summit in Johannesburg, AU Trade and Industry Commissioner Fatima Haram Acyl explained that enforcing tariff cuts among countries in Africa’s three major economic blocs could take five years or more. Despite the drawn-out process, however, Africa’s deepest free trade zone, the EAC, is testimony to the fact that the share of total trade could double in a decade.

    ‘Just removing the trade barriers should increase it to 22%. East Africa has been able to do it,’ she said.

    Currently only 10% to 12% of total trade among Africa’s 54 countries is with each other, compared to 55% in Asia and 70% in Europe, according to the USAid East Africa Trade and Investment Hub of the TFTA. It says the putrid intra-regional trade levels on the continent are a result of African countries’ historical focus on eliminating trade barriers instead of concentrating on the development of capacity.

    ‘The private sector also needs to take an active role in the integration process. Africa must expand its industrial base to produce more diversified commodities, eliminate non-tariff trade barriers and improve on various aspects of governance, including elimination of corruption and other rent-seeking practices,’ it states on its website.

    According to the International Centre for Trade and Sustainable Development (ICTSD), a Swiss-based think tank on international trade policies, most African countries belong to more than one of the three major trading blocs, which themselves are at different stages of integration.

    ‘On average, every African nation belongs to about four of the continent’s 30 regional trade arrangements.’

    The EAC with Kenya, Tanzania, Uganda, Rwanda and Burundi have managed to free up trade barriers within its region and between partner states the most.

    Unlike SADC, where 12 countries are trading on a duty-free, quota-free basis for more than 85% of tariff lines under the SADC Protocol, and COMESA, where 15 countries are trading on a duty-free, quota-free basis, the EAC has gone much further.

    ‘This economic zone was declared a single customs territory in 2013,’ states the ICTSD on its website. This means in practice, EAC nations now trade with one another on the basis that export declarations in customs are eliminated, member states use a single import declaration lodged in the country of destination only, duties are paid directly to the country of destination before release from the port of entry to the region and co-operation is tightened among EAC revenue authorities.

    ‘For instance, all revenue authorities use the same information and communication technology system that monitors and enforces the new operational procedures.’

    ‘Africa must expand its industrial base to produce more diversified commodities, eliminate non-tariff trade barriers and improve on aspects of governance’

    Meanwhile, an assessment by the USAid East Africa Trade and Investment Hub suggests that the trade agreement would help countries in the three economic regions overcome the challenges of their multiple membership of the different trading blocs.

    ‘Because EAC countries also belong to the SADC and COMESA trading blocs, EAC countries are forced to use rules of origin, even for internal trade. This reduces the potential for trade within EAC,’ it states.

    ‘The main benefit of the TFTA lies in the adoption of a common trade policy involving the removal of rules of origin within the EAC, a move that would save considerable sums of money for the private sector.’

    The assessment explains how the EAC, SADC and COMESA need to work together for the common good, and that the benefits from the TFTA will be greatly enhanced if countries also improve education, broaden access to finance and infrastructure, and bring about an overall improvement in their competitiveness levels in international markets.

    Christopher Wood, economist at Trade and Industrial Policy Strategies points to the difficulties of overcoming technical barriers to trade – particularly a lack of harmonised standards in certain African countries. ‘First is the presence of inadequate conformity assessment procedures, meaning properly accredited testing laboratories,’ he says.

    ‘Some African countries still send samples to South Africa or out of the region altogether, either because of a lack of quality testing facilities locally, or because their foreign clients don’t trust the local facilities.’

    The same issue was addressed last year by the Commonwealth, when it said ahead of a conference on the advent of global mega-trading blocs that African policymakers and standard-setting bodies should share policy perspectives and insights, and link the different standards-setting bodies on the continent to create networks of learning.

    Meanwhile, the Southern African Customs Union (SACU) between Botswana, Lesotho, Namibia and Swaziland (BLNS countries) and South Africa, allows for a common external tariff for member states and the free flow of goods within SACU. All customs and excise collected go to South Africa’s national revenue fund to be shared in terms of a revenue-sharing formula by the BLNS countries. The residual goes to South Africa. Income from SACU forms a large part of the revenue of the smaller states such as Swaziland and Lesotho, and although SACU countries wanted to thrash out a new revenue-sharing formula some years ago, progress has been slow.

    Paulina Elago, SACU executive secretary, says collections into the common revenue pool experienced a slowdown amid sluggish global economic growth in 2015. ‘It is anticipated that this will continue in the medium term. Work on the review of the revenue sharing arrangement continued in 2015, particularly the development of a proposal on the feasibility of establishing a regional development fund.’

    She adds that SACU is modernising its customs processes, procedures and IT systems. ‘Currently, all customs authorities are automated, and they continue to work towards integrating technology in their daily operations, such as using mobile portable scanners at the border posts, and replacing paper and manual transactions with electronic submissions of documentation, to mention a few. At a country level, all customs administrations within the union continue to make inroads by targeting specific improvement areas. The move towards a paperless environment will eventually create maximum benefits for traders operating in the SACU region.’

    Meanwhile, the SACU secretariat is supporting member states in the implementation of a regional programme to address the remaining challenges related to cross-border co-operation. ‘Work is under way towards development of a regional IT connectivity system that will assist member states in automatically sharing import and export trade data, thus minimising human errors and also reducing the time spent at ports of entry and exit,’ says Elago.

    ‘The SACU secretariat is also assisting member states towards developing a preferred trader programme, intended to recognise traders that are compliant with the law by facilitating their movements without subjecting them to onerous processes at the ports of entry and exit.

    ‘This project is supported by a stringent risk-management strategy to secure the supply chain and limit entry of prohibited and restricted goods in the SACU region.‘

    By Louise Brougham-Cook
    Image: Corbis/Masterfile