Issues Affecting Intra-African Trade, Proposed Action Plan for boosting Intra-African Trade and Framework for the fast tracking of a Continental Free Trade Area
PART ONE: ISSUES AFFECTING INTRA-AFRICAN TRADE
I. Background and Context
- The January 2012 African Union Summit of Heads of State and Government focuses on the theme of “Boosting Intra-Africa Trade”. The choice of the theme is both appropriate and timely, given the challenges facing this trade, and the need to come up with strategies to improve the situation. The January 2011 AU Summit has also endorsed the recommendation of the 6th Ordinary Session of the AU Ministers of Trade held in Kigali from 29 October – 2 November 2010 to fast-track the establishment of a Continental Free Trade Area. It is against this backdrop that an Issues Paper has been prepared to highlight Africa’s overall trade flows and the potential for boosting intra-African trade by addressing key priority areas for moving the agenda forward. The priority areas will form the main elements of an Action Plan that Member States will be implementing in order to enhance the level of intra-African trade from current levels of about 10-13 %to 25 % or more within the next decade, and thereby make intra-African trade an important driver of development and regional integration in Africa as is the case in other regions of the world such as the EU and Asia.
- In this regard, it should be recalled that Africa is pursuing an integration agenda as a collective development and transformation strategy leading to the eventual creation of a continental market. Regional integration helps develop larger markets, foster greater competition and improve policy stance in many areas of the development agenda. And indeed, the pressure of globalization is forcing firms and countries to seek efficiency through larger markets and enhanced competition. A modern manufacturing plant will have to produce a larger output than the low level of domestic demand that a single underdeveloped country can absorb. Pooling economies and markets together through regional integration thus provides a sufficiently wide economic and market space to make economies of scale possible.
- To this end, African countries have established the African Union, created various Regional Economic Communities (RECs), and have held at heart the ideals of the Abuja Treaty establishing the African Economic Community and the Constitutive Act of the African Union. In this context, the RECs are pursuing integration through free trade, and developing customs unions and a common market. Eventually, these efforts are expected to converge to an African Common Market (ACM) and an African Economic Community (AEC), whereby economic, fiscal, social and sectoral policies will be continentally uniform. Through such an economic marketplace, Africa can strengthen its economic independence and empowerment with respect to the rest of the world.
- A major aim of these efforts is to expand intra-African trade by breaking down tariffs and non-tariff barriers and enhancing mutually advantageous commercial relations through trade liberalization schemes, because trade has made and will continue to make a tremendous contribution to the economies of many developed and developing countries. Trade enables countries to specialise and export goods that they can produce cheaply, in exchange for what others can provide at a lower cost. Trade also provides the material means in terms of capital goods, machinery and raw and semi-finished goods that are critical for growth. This is a driving force behind economic development. Consequently, if trade is a vehicle to growth and development, then removing the barriers that inhibit it can only help increase its impact. Thus, free trade is an important instrument for removing such impediments and promoting greater levels of trade among African countries.
- However, despite Africa’s determination to dismantle trade restrictions in order to create a common market within the framework of regional and sub-regional agreements, barriers to intra-African trade persist and have impacted on the level of this trade. On average over the past decade, only about 10 – 12 per cent of African trade is with African nations, whilst 40% of North American trade is with other North American countries, and 63% of trade by countries in Western Europe is with other Western European nations. Enhancing intra-African trade should help promote specialisation amongst African countries and develop regional value chains to enhance diversification and competitiveness. African countries therefore need to aggressively pursue comprehensive and harmonized regional trade policies as part of their collective development and transformation strategy in the context of regional integration.
- In order to address this trend, African leaders are making landmark commitments to boosting intra-African trade. First was the landmark decision by COMESA, EAC and SADC to establish a single Free Trade Area. The launch of this tripartite FTA initiative covering 26 African countries, representing more than half of AU membership, with a combined population of 530 million (57% of Africa’s population) and a total GDP of $630 billion or 53% of Africa’s total GDP has galvanised interest towards a much broader Continental FTA. Accordingly, AU Ministers of Trade, at their 6th Ordinary Session in Kigali in November 2010, after due assessment of the progress made in the implementation of FTAs and Customs Unions in the various RECs, recommended the fast-tracking of the establishment of an African FTA to unlock the trade potentials of the continent and position it adequately in the global trading arena.
- African leaders and stakeholders are optimistic that increased trade through initiatives such as the Grand COMESA-SADC-SADC FTA and other potential inter-RECs’ FTAs will quickly transform into a continental free trade area, the benefits of which could be enormous. It will enlarge markets for goods and services, eliminate the problem of multiple and overlapping memberships, enhance customs cooperation and broader trade facilitation, promote harmonization and coordination of trade instruments and nomenclature, and broader relaxation of restrictions on movement of goods, persons and services. The collaboration and cooperation of RECs through the Continental FTA should further improve regional infrastructure and consolidate regional markets through improved interconnectivity in all formsof transport and communication as well as promote energy pooling to enhance the regions’ competitiveness. Finally, the continental FTA will help fast track the realization of the Abuja Treaty’s vision of an African Common Market, and ultimately, the African Economic Community (AEC).
- As part of the preparations towards this 2012 January Summit on the theme of “Boosting Intra-African Trade”, a Technical Working Group comprising representatives/experts from the AUC, RECs, UNECA, AfDB and other partners has had a series of meetings that led to a decision to prepare and finalize, with inputs from the broad spectrum of stakeholders and other trade constituents, three separate papers to serve as an essential part of the background documentation for consideration by the Conference of Ministers of Trade, which has crystallised into appropriate policy recommendations for adoption and decisions by the AU Summit of Heads of State and Government in January 2012.
- It is thus the desire of the leadership of the African Union Commission to seize the opportunity of this African Union Summit, to help accelerate progress on intra-African trade through the three strategic background documents, namely:
This Issues Paper is the first of the aforementioned three documents. In preparing this Issues Paper, due cognizance is made of the fact that the challenges and constraints of intra-African trade are very much well known, discussed and analyzed in several reports and meetings, not least of which is the joint ECA/AUC/AfDB flagship publication on “Assessing Regional Integration in Africa (ARIA IV)”, which focused on the theme of Enhancing Intra-African Trade. The Issues Paper is therefore not intended to rehash the various constraints, but rather pinpoint some of the key priority issues and areas that require continued and closer attention, in order to make decisive progress on intra-African trade.
- An “Issues Paper” fleshing out key issues and challenges for enhancing intra-African Trade, including guidelines for fast-tracking the continental free trade area;
- A related “Action Plan” to be implemented by all concerned parties; and
- A Monitoring and Evaluation Plan to track progress in the implementation of the Action Plan.
- For brevity, the general thrust of the Issues Paper is to raise some key issues for consideration, and has avoided going into details, particularly with respect to results achieved, particularly within the framework of the RECs’ programmes and activities. The Issues Paper is not intended to be a progress report on regional integration, however, where necessary, some of the milestones, accomplishments or best practices under the key issues discussed are highlighted as an example. The Issues Paper also puts forward some recommendations under each issue area. But more importantly, in making the recommendations, it draws attention to existing relevant commitments or decisions made particularly at the level of the AU Summit, which are not being properly followed up and rigorously implemented by all concerned parties.
- Consequently, the Issues Paper is organized as follows:
- Section I is an introductory section setting out the background and context as described above;
- Section II provides a synopsis of Africa’s trade direction and composition over the last decade, and thus gives a sense of the level of intra- African trade;
- Section III is the core of the Issues Paper. It analyses key issues and priorities to address in order to boost intra-African trade, and provides some recommendations in that regard. In order not to reinvent the wheel, the recommendations contained in Section III, where applicable, make reference to commitments already made to pursue or implement certain actions at national, regional or continental level. An attempt is also made in the discussions to highlight some milestones or accomplishments as the case may be, particularly within the RECs.
- The “Issues Paper” ends with concluding remarks in Section IV.
13. Finally, this “Issues Paper” in general and Section III in particular, together with the Annex on the Architecture for establishing the Continental FTA, serve to provide the analytical background and a guide for drawing up the aforementioned “Action Plan” and the “Monitoring and Evaluation Mechanism” for boosting intra-African trade in the short, medium and long term.