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A ‘Cairo to Cape Town’ Free Trade Deal Is Coming to Africa

The agreement — which has been described as a “monumental step” towards economic integration, will create a 26-state single market spanning the eastern half of the continent.
Pierre Longeray
Paris, FR
June 9, 2015, 10:12pm
Photo by Themba Hadebe/AP

Senior officials in Africa are poised to sign a milestone trade deal to create a common market that will span 26 countries across the eastern half of the continent — from Egypt in the north, to South Africa in the south, via Kenya.

Heads of state will sign the Tripartite Free Trade Area (TFTA) pact on Wednesday in the Egyptian seaside resort of Sharm el-Sheikh, bringing five years of negotiations to a close.

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Once the agreement has been signed, the deal will still need to be ratified by the parliaments of each of the signatory states — a mere formality, according to Egypt's industry and trade minister Mounir Fakhry Abdel Nour, who described the final step as "simpler compared to the effort that has gone into preparing the document."

Jean-Joseph Boillot, an advisor to the business club of international economics CEPII, said the deal is "a big step" for Africa. Speaking to VICE News Tuesday, Boillot explained that "the deal could potentially reconcile the 60s dream of a Pan-African nation with the financial interests of companies with an eye on the African market." The market today is "Balkanized," he said and customs barriers and trade restrictions actively discourage intra-African trade.

The deal would convert three African trade blocs — the East African Community (EAC), the Southern African Development Community (SADC), and the Common Market for Eastern and Southern Africa (COMESA) — into a single customs union by 2017.

The area covered by the agreement includes a population of 625 million and a gross domestic product of $1 trillion —51 percent of the continent's GDP. The Comesa, EAC and the SADC will alternate leadership of the new market.

The TFTA brings together a disparate group of nations at different stages of development. Egypt and South Africa are among the continent's wealthiest nations. Countries like Kenya, Ethiopia, and Angola — which have experienced strong economic growth in recent years — have also joined TFTA alongside some of the world's poorest countries, including Burundi and Madagascar. Meanwhile, Nigeria — which boasts the highest population and GDP in Africa — is left out of the deal.

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"According to the politics of free trade, trade occurs where there is difference," said Boillot, who noted the "complementarity" of signatories, and described the contrast between participating nations as "an asset." Boillot added that small countries like Rwanda, which has a highly specialized economy, have more to gain from the deal than their larger counterparts.

Spanning half the continent, from Cairo to Cape Town, the TFTA is expected to boost trade between signatories, by streamlining clearance procedures for goods and dramatically reducing customs fees by 56 percent. According to an Egyptian government spokesman, the long-term goal is to reduce fees by 85 percent over three years.

Africa's so-called "thick" borders hamper intra-continental trade. According to weekly news magazine Jeune Afrique, goods crossing over from one country to another are subject to an average of eight customs documents — versus four for goods being transported across European borders. French radio RFI notes that the average time needed to clear goods through customs in Africa is one month, versus 10 days in Europe.

Today, only 12 percent of trade on the continent is between African countries. In comparison, 55 percent of trade in Asia is between Asian countries, and up to 70 percent of trading in Europe is between EU countries. Speaking ahead of the summit, Kenya's President Uhuru Kenyatta — whose country is one of the signatories of the new agreement —said the time is now for this deal.

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"There can be no good reason for us to trade more easily with Asia, Europe and the Americas, rather than with our African counterparts," Kenyatta said.

And while the TFTA will facilitate trade within Africa, it will also appeal to Asian investors, explained Boillot, whose bookChindiafriqueexplores trade relations between China, India, and Africa. "Companies like Chinese [telecommunications equipment multinational] Huawei or Indian [consumer goods company] Godrej have been complaining about these Balkanized markets," he explained.

For Egyptian trade minister Adel Nour, the deal is a "monumental step" towards achieving "the African continent's dream — the dream of a single market." The African Union has projected that the TFTA pact could help increase intra-African trade by 25 percent over the next decade.

The new agreement is seen as just a stepping stone to creating a free-trade area across the entire continent. African heads of state gathered in Johannesburg for the African Union summit have opened two years of negotiations on a long-term vision for a Continental Free Trade Agreement (CFTA).

Boillot estimates that establishing a free trade area across all of Africa will take at least 10 to 15 years.

"Between outlining the agreement and implementing the free-trade agenda, [supporters of the project] will come up against the trade policies of various countries, who will want to implement non-tariff barriers — as is the case in Europe."

Follow Pierre Longeray on Twitter: @PLongeray