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Will the Cape to Cairo free-trade zone work?

By Lerato Mbele
Presenter, Africa Business Report

image copyrightAFP

The deal to create Africa's largest free-trade zone has been hailed as an historic moment and brings to fruition a century-old dream to link the continent from the Cape to Cairo.

Explorers and freedom fighters alike, all shared the vision to integrate African economies.

The pact brings together the Southern African Development Community (Sadc); the East African Community (EAC) and the Common Market for East and Southern Africa (Comesa).

By merging these three regional organisations, the deal will establish a new labour and consumer market of 625 million people, who live across 26 countries, making it easier to move goods and conduct business.

On paper, this type of arrangement looks like a progressive step for a continent that has recently seen growth rates of 5% and foreign investment flowing in.

However before leaders pop the champagne corks at this weekend's African Union summit, there are a few caveats to consider.

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image captionKenya exports most of its flowers to the European Union, not its neighbours

First, the parliaments of all 26 countries need to endorse the treaty. Approval in 14 states will provide a simple majority that will give the deal legitimacy needed to proceed.

All of that could take time.

As will further negotiations - recent talks only focused on the broad vision of trade.

The nuts and bolts still need to be fine-tuned - like how to remove hurdles around trade and determine so called "non-tariff barriers".

This entails finding compromises in areas such as regulating which goods and services to trade freely, licensing businesses, finding common pricing systems and simplifying immigration laws.

Once individual governments start reading the fine print, the mood may change.

Many of them have small economies that produce few exportable goods A free-trade protocol would mean they would have to compete with larger industries that could threaten their economies and jobs.

Infrastructure is key

Trade experts argue liberalising service agreements within a trade pact would work best.

For example, in Sadc, where there is high-end manufacturing of cars, it might mean South Africa producing the body and engine with the leather upholstery coming from Botswana or Zimbabwe, which have large cattle ranches, and perhaps Rwanda making the plastic light shields.

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image captionZimbabwe, which has a large cattle herd, could benefit from liberalising service agreements in a free-trade zone

That would stimulate manufacturing elsewhere with more value-added products to sell within a free-trade zone, as well as theoretically reducing prices.

Regional trade integration is not a new idea in Africa - in fact the Southern African Customs Union was formed in 1910, decades before Europe even began talking about the European Union.

Over time nations across east, west, central and southern Africa have established regional bodies. According to the UN, there are now 14 regional blocs and it is said that each country belongs to at least one, sometimes even three organisations.

There is often a duplication of roles that has led to competition for funding especially in key areas like infrastructure.

And the irony is that despite so many regional bodies, trade has not benefitted. The UN says only 12% of Africa's total trade actually happens within the continent.

Most of that is in mineral and oil exports from countries along the coast.

The African Development Bank (ADB) has often said that the focus should be on infrastructure.

Without roads, railways and ports intra-African trade is difficult and expensive - with or without trade barriers.

image copyrightAFP
image captionAfrica needs better infrastructure for trade to flourish between countries

During previous AU summits, African leaders pledged $100bn annually towards the funding of infrastructure projects.

The ADB says an additional $40bn each year would make a difference.

However, so far there is a funding shortfall and those pledges seem to be just that.

So there needs to be a greater commitment towards infrastructure financing to support trade in Africa.

Nevertheless if it is implemented in a reasonable time-frame and there is sufficient political will to follow through, then the Tripartite Free Trade Area (TFTA) marks a new beginning for local trade.

But should governments become protective, restrict the movement of labour and hold back on financing big construction projects then it will be less of a watershed.

Ordinary Africans are most probably not holding their breath.

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  • Africa economy

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