By Mark Schoeman*
The Tripartite Free Trade Area (TFTA) between the member states of three African regional economic communities – SADC, EAC, and COMESA – has been heralded as one of the most important developments in African regional integration.
The agreement aims to create a free trade area between 26 African countries, from the Cape in the South to Cairo in the North, creating a combined market of up to 625 million people. While there has been much hype around the launch of the TFTA, the anticipated benefits from the agreement are likely to be many years away. In the interim, speculation is rife regarding how realistic the agreement is, what the potential benefits are, and who will get to share in the spoils, if at all.
Winners and losers – who stands to gain?
The export profiles of the largest economies in each region – South Africa in the South, Kenya in the East, and Egypt in the North – match well with the import requirements of many of the smaller member states. This indicates that tariff liberalisation should have a trade-creating effect and should help these big regional economies increase their trade across regional groupings on the continent.
However, the export structure of South Africa, Kenya, and Egypt are relatively similar and these countries will likely see an increase in competition with one another within their traditional regions of dominance. Which country will derive the biggest benefit will depend on which country is more efficient at producing a particular product, although proximity to markets, local knowledge, and brand recognition may dampen the change in consumption patterns. The benefit of this increased competition will also accrue to consumers as the price of goods and services is decreased. Ethiopia is another regional powerhouse in East Africa, but its prospects for regional trade are considerably smaller because its export profile is very much geared towards the European market.
What benefit is there for the smaller member states if the large regional economies stand to gain? Their opportunity lies in the possibility of entering regional value chains – providing the inputs to the products and services produced by the major regional economies. The theory is that the larger the local market for these goods (created by the free trade area), the greater the production and the more these regional economies will draw on inputs from their neighbours or countries from other regional groupings.
NTBs, transport infrastructure, and industrial Policy
The TFTA agreement does not only contain tariff liberalisation measures, but places a heavy emphasis on non-tariff barriers to trade (NTBs), the development of transport infrastructure, and the development of a common industrial policy. All of these require a large amount of co-ordination and co-operation among member states, something which African states have struggled with in the past. The most difficult area of co-operation will be on industrial policy where the economic requirements of different member states with vastly different economies will make devising a common industrial policy stance difficult. The Southern African Customs Union (SACU), a much smaller regional grouping, has been trying to develop a common industrial policy since the signing of its 2002 agreement but has been largely unsuccessful because its member states face very different economic challenges (South Africa compared to Lesotho or Swaziland, for example).
Non-tariff barriers to trade (NTBs) remain a pertinent obstacle to intra-African trade and have not been successfully dealt with by regional economic communities (REC). In preparation for the TFTA, each of the RECs implemented an NTB Monitoring Mechanism which allows private sector actors to register NTBs they experience online which then get sent directly to the offending state to be resolved. In the case of SADC, while the mechanism has been successful in having NTBs reported, many of the NTBs are not eliminated and some of the reported NTBs have sat on the system for over 3 years. This largely comes down to disagreements among the public and private sector and about the nature and legitimacy of these NTBs. The mechanism has not provided a platform for dialogue among offending states and the private sector actors who are experiencing these NTBs, and so has failed at achieving NTB elimination. This is partly due to capacity constraints such as a lack of budget to facilitate public-private dialogue among the state authorities tasked with NTB elimination, as well as a lack of human capital and training on NTB elimination among these authorities’ staff. It is also partly due to the co-operative, rather than litigious, model of regional integration that African RECs have adopted which means that there is little that one state can do to hold another state to their NTB elimination obligations. The TFTA’s success at eliminating NTBs will depend on whether significant public-private dialogue is created and sustained.
Transport infrastructure development could be the low-hanging fruit which the TFTA agreement will be able to make progress on. There are already a number of infrastructure development initiatives underway such as the African Development Bank’s Programme for Infrastructure Development in Africa and the World Bank’s Global Infrastructure Facility. The majority of intra-African trade is facilitated by road networks which places severe strain on road infrastructure. This is despite Southern Africa having the largest contiguous single-gauge rail network in the world. The infrastructure development challenge is, therefore, not only about constructing new infrastructure, but upgrading and rehabilitating existing transport networks. The advantages of developing transport infrastructure will be realised by all member states, and there are a number of development finance institutions, including the BRICS New Development Bank, which are willing to finance these projects. However, successful transport infrastructure projects require co-operation among two or more member states and co-ordination between a variety of public and private stakeholders.
Implementation challenges and the road ahead
The TFTA is an important milestone for African regional integration. The agreement is the result of five years of negotiations – an achievement in and of itself. However, it is too early to start celebrating the benefits of the agreement as there are a number of implementation challenges which lie ahead.
Only 16 countries have actually signed the TFTA agreement so far – the rest have signed a memorandum of understanding which commits them to significantly work towards signing the actual agreement. Many of the smaller states, such as Mozambique, have voiced concerns over the impact the agreement would have on their small economies, and require more time to assess these effects. The agreement requires two thirds of the member states to sign the agreement to come into force. Once that happens, the agreement then needs to be ratified by each individual member state and domestic laws and tariff structures need to be changed to reflect the terms of the agreement. So while the launching of the agreement was an important milestone, we are still a long way away from the terms of the agreement coming into force among all 26 potential member states.
Some critics of the TFTA have brought up the fact that the three regional economic communities which make up the TFTA have been slow to make progress and still exhibit low levels of intra-regional trade. While this is true for SADC, the TFTA may actually help with the process of deepening regional integration in these regional economic communities. SADC generally lags behind other regional groupings in its rate of intra-regional trade and implementation of regional trade facilitation policies. In being grouped with more successful RECs, SADC has a greater opportunity and impetus to learn from the success and implementation policies of others in the TFTA. For example, while SADC had a form of NTB monitoring in place before entering TFTA discussions, it was only placed online and made readily accessible to the private sector through donor support as part of the TFTA negotiation process.
Given the history and current nature of regional integration on the continent, the private sector will ultimately have to be the champion of regional integration in Africa. Whether the TFTA will be successful or not will depend on whether industrialists and entrepreneurs take advantage of the provisions of the agreement to invest in regional value chains across the continent. It is unfortunate that the TFTA does not make much mention of co-operation on FDI issues as foreign investors will hopefully see Africa as a more attractive investment destination due to the creation of a larger market, and there is scope for African countries to co-operate on FDI regulation. The creation of a regional FDI policy would makes Africa’s regional economic communities more appealing and provide impetus for investors to build cross-border operations.
*Mark Schoeman is a researcher in SAIIA’s Economic Diplomacy Programme.