Africa to become the World’s Largest Trading Bloc: Game-changer or a step too soon?
An Africa without borders. An Africa where people, goods and services move around freely from country to country. Each nation satisfying the needs of the other in a spirit of mutual benefit and cooperation. The lofty dream of Pan-African icons such as Kwame Nkrumah, Thomas Sankara, Julius Nyere and Haile Selassie.
However, nearly half a century after the passing of these great men, the dream is very far from the reality.
In Africa today, citizens of the Republic of Congo need a visa to enter into the neighbouring Democratic Republic of Congo, even though citizens of Singapore, Haiti and the tiny islands of Micronesia need only a plane ticket and a valid passport. Only 17% of all international trade by African nations is with other African nations — a sharp contrast to the situation in Asia where 50% of all trade is between Asian countries and Europe where the same figure is around 70%. Moving goods on a 1,500km journey from Doula in Cameroon to N’Djamena in neighbouring Chad, costs 6 times more money than moving those same goods12,000km from Doula to Hong-Kong.
The African Single Market
However, all of this might be set to change as on the 7th of July 2019, The Federal Republic Nigeria, Africa’s most populous nation and largest economy by GDP, became the 54th nation to sign up to the African Continental Free Trade Area. An ambitious project led by the African Union that aims to create a single market across the continent for the free movement people, goods and services across all 55 African countries. As of today, Eritrea is the only country that is yet to sign up to the project.
If all goes to plan, the African Free Trade Area will become the largest trading bloc in the entire world by geographical reach — combining 55 economies with a total GDP of $2.5 trillion and population of over 1.2 billion people.
To make it a reality, African governments will have to :
1. Remove over 90% of all existing import and export duties on goods and services from other African countries; and also
2. Remove or at least seriously reduce all existing visa requirements for citizens of other African countries.
By creating the free trade zone, the African Union predicts that it can increase intra-African trade by up to 43% over the next 5 years. African Union experts are also forecasting additional increases in GDP growth of 1–3% for each member country directly as a result of the deal.
United States of Africa?
In terms of its long-term benefits; it is expected that the project will make the continent more attractive to foreign investors and manufacturers who will now only need to set up base in a few strategic locations in order to have access the entire African market. The continent’s connectivity problem could now finally be addressed as new roads and railways will need to be built in order to facilitate the movement of people and goods across the continent. However, the loftiest idea by far, is the notion that the success of this free-trade zone could pave the way for a deeper political union between African states; starting with the harmonisation of rules and regulations, the creation of an African Court of Justice, the creation of a single currency and central bank, and finally, the establishment of central administrative body overseeing the affairs of the entire continent. The Pan-African dream made reality.
Unfortunately, things are never quite so simple. Commentators and analysts have pointed out a whole host of challenges that will need to be addressed if the free trade deal is to have any sort of positive impact.
Can we boost trade without industrialisation?
Firstly, there is the fact that most African economies primarily rely on the exportation of raw natural resources to the Europe, Asia and the Americas — a structure that that has been in place for centuries. Many argue that this is the real reason why African countries don’t trade with each other — The people of Congo simply have no need for Nigerian Crude Oil because they do not have the oil refineries to process it. Similarly, the people of Nigeria have no use of Congolese coltan as there is literally only one mobile phone factory in Nigeria.
It is for this reason that some question if African leaders are putting the cart before the horse with this project — with most African countries lacking the industrial capacity to process their own raw materials and export manufactured goods, it is questionable what difference a free trade deal will actually make.
Tied in with the first problem is the risk that delicate industries such as textile and food processing will be seriously harmed, as money-hungry businessmen will see the dropping of trade barriers as an opportunity to flood the African market with cheap Asian goods deceptively advertised as Made in Africa. The tragic death of the once prosperous textile industry of Northern Nigeria is a perfect example, as the loosening of trade barriers in the late 80s and 90s led to an influx of cheap Chinese imports which ultimately ended in the loss of half a million jobs and the closure of over 100 factories. Now ravaged by poverty, unemployment and terrorism, the region has never been the same since.
Mass migration
When it comes to the free movement of people, the danger here is that the removal of visa requirements could lead to a mass exodus of people from all across Africa to the small group of countries with relatively stronger economies, such as South Africa, Nigeria, Ghana and Algeria. The effects of this could be devastating as demonstrated in 2008 by the wave of xenophobic attacks in South Africa.
The Opposition
Finally there is the biggest problem of all, vested interests. With virtually any African problem you can point to, there always seems to be a small group of Africans that personally benefit from the bad situation and would be quite happy for the majority to suffer as long as it means their interests will be protected. As far as the free trade deal is concerned, the list of potential saboteurs is very long: corrupt politicians, oligarchs, customs officers, importers, exporters, and worst of all, government-backed private sector monopolies.
One name that is often cited in this category is Dangote Cement Plc, the company owned by Africa’s richest man, Alhaji Aliko Dangote. Dangote Cement is a $4.1bn business and controls 65% of the cement market in Nigeria meaning more than 1 in every 2 buildings in the country is made with Dangote Cement. The company’s profit margins are 3 times higher than the world average for the cement industry and have helped Dangote amass a fortune of over $9.8bn, making him the richest black man in the entire world. However, it is alleged that Dangote’s profit margins are less to do with his business acumen, and more to do with the fact that the Nigerian government specifically restrict foreign cement from penetrating the Nigerian market. It is believed that government protected monopolies of this sort, exist all across Africa. It for this very reason that some wonder if the rich and powerful politicians that businesses that benefit from the current system will not simply collude to sabotage the project whether by employing delaying or by simply disregarding the agreement and continuing with business as usual.
Ultimately, no one can say for sure how it is all going to play out.
