Africa gateway


Free trade talks point to new African era

7 December 2011

An important process that started three years ago will begin to move forward this week as the first round of negotiations to establish a free trade area covering 27 countries in east and southern Africa kicks off in Nairobi, Kenya on Thursday.

It is envisaged that negotiations for the proposed free trade area (FTA), which promises to be an important instrument for the future of trade and industrialisation in Africa, will be completed in about 36 months.

The three trade blocs involved - the Southern African Development Community (SADC), the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA) - decided in Kampala, Uganda in October 2008 to move towards a free trade agreement.

Boosting intra-regional trade, industrialisation

The intention is to boost intra-regional trade. Because the market will be much bigger, there will be more investment flows, enhanced competitiveness and the development of cross-regional infrastructure.

At the same time, the FTA will act as a spur to industrialisation, as countries move from selling primary products to making goods to sell.

Competition with older, established and also bigger emerging economies might be a stumbling block initially, but the huge new market may make it possible for locally manufactured goods to compete with those imported from outside the FTA.

With close to 600-million people live within the FTA, and a combined gross domestic product of $1-trillion, the region could find itself competing in the same league as the likes of China, India, Russia, Brazil, the US and the EU.

The next economic frontier

And it is becoming easier to make the world believe this, because the continent is already being touted as the next economic frontier.

A glance at some figures confirms this view:

  • Africa's combined consumer spending was US$860-billion in 2008, and will be an estimated $1.4-trillion in 2020.
  • With 43% of Africans currently under the age of 15, by 2040 there will be 1.1-billion Africans of working age.
  • Urbanisation enhances growth Africa already has 52 cities with more than a million inhabitants, more than Europe. By 2030, around fifty percent of Africa's populationi will be living in cities.
  • Africa's returns on foreign direct investment (FDI) are the highest in the world.

South Africa well placed to benefit

South Africa, with its advanced and sophisticated economy, is best suited to exploit the advantages offered by such an expanded market.

Already, the World Economic Forum (WEF) has rated South Africa first in the world for the strength of its auditing and reporting standards and for the regulation of its securities exchanges. The soundness of the country's banks rated second in the world is an important asset these days when banks everywhere else are shaky.

Add the certainty offered by the government's recently announced National Development Plan, which sets out the country's path until 2030, and it is clear that South Africa's competitiveness will only be enhanced by the establishment of an African FTA.

South Africa's fellow BRICS countries - Brazil, Russia, India and China - all started their upward economic trend based on huge domestic markets. With the establishment of an FTA, South Africa will have access a market 12 times bigger than the 50-million domestic customers it now has.

Tough negotiations expected

However, the road to setting up the FTA could be a rocky one. Trade and Industry Minister Rob Davies has warned that negotiations over industrial policy could be tough. South Africa has just set out to implement its Industrial Policy Action Plan, and talks around the trade in manufactured goods will be of particular concern.

But South Africa does have an advantage. As Davies points out, unlike exports to the rest of the world, a high percentage of exports into Africa are already made up of value-added products.

Other problems would be the levels of protectionism between African countries, restrictive trade permit needs, and very obvious economic disparities.

Additionally, the fact that three existing trade blocs aim to merge into one is a stumbling block as they are at different levels of integration, with different rules and regulations.

All of this will be part of the negotiations that start this week.

The fact remains that economic growth in all participating countries will be boosted by increased intra-regional trade. For Africa as a whole, intra-regional trade currently stands at only 12% of all cross-border trade, whereas in Asia the figure is rising toward 50%, and in the European Union towards 80%.

The FTA would also be an important building block towards achieving the vision of the founding fathers of the Organisation of African Unity in 1963 - a continent-wide African Economic Union.

The December talks may be the first concrete sign of Africa rising to take its rightful place in the world.

Source: Brand South Africa

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