African nations sign agreement to unify main trade blocs, but will it work?

Nigerian analyst, Bismark Rewane weighs in on the recently signed agreement by representatives from 25 African nations to create a free-trade zone linking three economic blocs that would unite 57 percent of the continent’s population. The deal would combine the Common Market for Eastern and Southern Africa (COMESA), the South African Development Community (SADC), and the East African Community (EAC).

SHARM EL-SHEIKH, EGYPT (JUNE 10, 2015) (EGYPT STATE TV) – Representatives from 25 African nations signed an initial agreement on Wednesday (June 11) to create a free-trade zone linking three economic blocs that would unite 57 percent of the continent’s population.

The deal, known as the Tripartite Free Trade Area (TFTA) would combine the Common Market for Eastern and Southern Africa (COMESA), the South African Development Community (SADC), and the East African Community (EAC).

The new agreement signed in Egypt aims to ease the free movement of goods across member countries.

The deal also intends to reduce trade barriers that will bring down prices, and boost economic activity between African countries, which has long been hampered by many factors including poor infrastructure.

“We are trying to put a set date plan to execute all points of the agreement. What we accomplished today will remain in our minds as a historic day and a decisive point to continue our hopes and ambitions of becoming regionally merged,” said Egypt’s president Abdel Fattah Al-Sisi at the signing.

The alliance would bring together more than 60 percent of the continent’s gross domestic product, valued at $1.2 trillion, including two of the most developed countries in Africa, South Africa and Egypt.

However, Nigeria, the continent’s largest economy and most populous will be kept out of the zone.

Although analysts say that the agreement looks like a progressive step on paper, they are sceptical of its success, as it will require negotiations and ratification by national parliaments.

With such diverse economies and some African countries having few exportable goods; a free trade agreement would mean they would have to compete with large industries that could threaten their economies.

“I think if you take African GDP of 1.2 trillion dollars, Nigeria’s GDP is already 35 percent of Africa’s GDP. If Nigeria is not part of this, then any African, economy story without Nigeria is totally incomplete. So it’ s a good objective, but it has to be approved by each of the countries, parliaments of each the countries. 54 African countries. It will be extremely difficult to see all of these countries passing it because it means free flow of goods, free flow of people, free flow of investments,” said economic analyst Bismarck Rewane.

Other factors to consider before implementing the deal according to analysts are language barriers, as well as the need to develop intra-African infrastructure, which is minimal and in a poor state.

“The challenges are that it is a very bureaucratic system. These countries, some of them are arabic speaking, some of them are English speaking, some of them are French speaking, I mean it cuts across, the infrastructure doesn’t support and faCilitate this, because you cannot drive a car or enter a train from Cairo to Cape Town, right? So, it’s a very very elegant concept but it’s going to take a long time to accomplish and not to talk of when you will see the benefits. The benefits will take much longer time to accrue for the participating countries,” added Rewane.

So far, Africa’s many regional blocs have not really improved continental trade or the free movement of people. However some analysts say that with adequate time frames to implement the new protocol and enough political will, the agreement could mark the beginning and significant time for local trade.

TFTA was widely welcomed by the world business community, with many praising the new protocol which would put in place a harmonised trade regime, that would also reduce the cost of doing business.

But with so many obstacles in the way before the TFTA is truly harmonised, some analysts suggest strengthening the smaller regional trade blocs that are already in existence, before adopting larger agreements which present far more challenging issues.

“Before you combine those three groups, it is first to make those intimate individual group of countries work first so they can see the benefits of combination rather try to combine 54 African countries. So if ECOWAS as a group can work towards an improvement in the economic conditions of West Africa, if the EAC, East African Community which is working very well can do that and improve quality of life and economic output in East Africa. Then if the SADC, the South African development area can do that then you have. Right now see what is happening in South Africa, they are already pushing foreigners away people pushing foreigners away. SO on one hand you are pushing foreigners away, the other hand you are saying you want to integrate. So there are some inconsistencies there,” said Rewane.

If the TFTA succeeds, trade within Africa would increase to 30 percent from 12 percent according to analysts.

It is hoped that the deal will be implemented by 2017.