Tear down the walls inside Africa

Trade makes life better. You can understand this saying by common sense even if you have never taken any economic class. As you can see the figure below, the level of intra-regional imports and exports in Africa is the lowest among all the region, and it really hurts the economy in Africa.

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Tripartite Free Trade Area (TFTA), which covers 26 African countries, founded in 2015. Before TFTA, the continent features 17 trade blocs. Then the TFTA wanted to join up three of them: The East African Community (EAC), the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA). It will create the biggest free-trade area on the continent.

So why these country want to build up TFTA? Just like what the title says “they want to tear down the walls inside Africa”. “The walls” or the boarders is one of the biggest reason caused such an unhealthy intra-regional trade situation.

Boarders divides Africa into 54 countries, and it leads many problems. First, the average transport costs in Africa are twice the world average and are thought to hurt trade on the continent more than tariffs and other barriers. This is because the shortage of roads, which need many countries to cooperate to build.

Second, African firms trading on the continent have an average tariff rate of 8.7%, compared with 2.5% overseas, says the UN Conference on Trade and Development (UNCTAD). The higher tariff directly depresses the intra-regional trade in Africa.

The last but not the least, in order to protect their dominance and avoid hardship, many African countries revert to protectionism. Because African countries vary in different factors like size, geography and resources, so trade has different effects on each of them. Some country will take the advantage of trade, and some will not be benefit as that much. No body would like to help the losers. Thus, it is a tough process to convince countries to make sacrifices to increase trade. For example, the Economic Community of West African States (ECOWAS) promised free movement of people, goods and transport two decades ago, but it implemented poorly so far.

The foundation of the TFTA hopefully can make a change for this situation. Most of the African countries are member of more than one regional agreement, which will cause some tariff problem. For example, Members of COMESA impose a common external tariff on goods of non-members. But several members are also in the SADC free-trade area, which requires lower tariffs on goods from some non-COMESA states. So the exist of TFTA can help to iron out these differences, which can encourage them to trade and improve the trade efficiency. TFTA can also facilitate to upgrade the continent’s infrastructure, which can decrease the expense for transportation.

It is hard to predict whether TFTA will be successful, because African countries were threatened by so many problems currently such as political instability, poor quality education and gender equality. Before TFTA, too many trade blocs failed or grew slowly, so we may think TFTA will lead to anything similar, although it is the biggest free-trade area on the continent. Only thing we can do this moment is to be patient. Time will prove everything.

Reference

http://www.economist.com/news/21693562-africas-internal-trade-deals-look-good-paper-pity-they-are-rarely

http://www.brookings.edu/blogs/africa-in-focus/posts/2015/06/17-tripartite-free-trade-area-andriamananjara

 

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One Response to Tear down the walls inside Africa

  1. lanximo says:

    An interesting article! As the globalization developed, more and more countries start to negotiate the free trade agreement and cooperate with each other. As for me, I think it is necessary for Tripartite members should now break the wall and work together to boost their economy. Available data shows that merchandise exports among the members of this new FTA have steadily increased from $2.3 billion to $36 billion between 1994 and 2014—more than a 12-fold increase over 20 years. Over that period, the share of intra-regional trade in total exports increased from 7 percent to 25 percent. This trend clearly indicates that trade among the Tripartite members grew faster than their trade with the rest of the world. Regional officials believe that the TFTA could accelerate this trend by further stimulating intra-regional trade.
    Although low portion of educated people, laggard infrastructures and policy issues make TFTA hard to be successful, I do think Tripartite members should sit together to deal with every problem. Because according to the estimate, when TFTA is fully implemented, it will create a large market with 626 million customers (about 8 percent of the world’s population) with a rapidly emerging middle class. This will definitely help to boost their economy and deal with the poverty.

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