Could ACFTA free trade deal be a new dawn for Africa?

The last blog post was discussing the World Bank report ‘Africa Can Help Feed Africa - Removing barriers to regional trade in food staples,’ on whether Africa can feed its population in the future. This post aims to elaborate on the arguments made in the previous post and discusses the trade agreement in East African Countries (EAC) to provide an example of intra-Africa regional trade agreements (RTA).

In the EAC states (Kenya, Uganda, Burundi, and Rwanda) and other developing countries, the agricultural sector is an essential factor for economic growth as the agricultural trade accounts for more than 40 percent of the total intra-regional trade which indicates that improving agricultural activities is expected to contribute significantly to economic growth and poverty reduction in the region. In 2010, The Common Market was introduced, in line with the EAC Treaty. Allowing for free movement of goods, persons, service, and capital. Ensuring the right to residency. (Eac.int, n.d.). Between 2013 and 2017 the EAC economy has had an average annual growth of 6.7 percent.  (MUGISHA, 2018)

Source: IMF: Direction of Trade Statistics, 2011.

Figure 1.2 shows the destinations of EAC exports. The leading importer of EAC products is EU followed by intra-regional exports whereas China is the least importing countries of EAC products. The figure also shows that the EAC exports have increased from 1985 to 2008 on average in the rest of the world and intra-EAC.

The EAC countries are collaborating to reach a goal of increasing the levels of interactions, transactions and gaining higher rates of economic growth and development.  This RTA is positive because most of the agricultural players are small-medium farmers in the developed countries and have challenges on entering the international market in the developed countries due to policies such as subsidization of local production and high standard requirements and tariffs.  The EAC trade agreement has strengthened the nations improving trade amongst themselves and gaining a better position and terms of trade in the world market. (Ouma, 2012)

 The study (Ouma, 2012) concluded that being a member of EAC had a significant effect on agricultural exports for Kenya and Tanzania, whereas the effect on Uganda, Burundi and Rwanda EAC membership on agricultural commodities was insignificant.  The study concluded that the effects of regionalism on agricultural trade of member states are not uniform across the members.

Kenya and Tanzania are the largest economies in the EAC region concerning GDP, production and population which can explain the growth in agricultural trading. However, there can be other factors such as the member states trade policy and the implementation stages. (Ouma, 2012)

 The EAC agreement shows that inter-regional trade is not always equal to growth.  It is, therefore, a complicated matter when discussing whether Africa can feed its population by increasing inter-regional trade.

 African Continental Free Trade Area (AfCFTA)

The main exporting countries in Africa are Egypt, Uganda, and Kenya, whereas the main importers are Libya and Egypt. (Ouma, 2012)

The intra-regional trade in Africa lies well below that of other regions, 18 percent of total exports, compared to 59 percent and 69 percent for intra-Asia and intra-Europe exports (Sow, 2018).

Forming a regional trade alliance has long been an essential aspiration for Africa yet, some progress in reducing tariffs within regional communities; the African market remains profoundly fragmented. A variety of non-tariff and regulatory barriers still raise trade costs and limit the movement of goods, services, people and capital across borders throughout Africa. (World Bank, 2015)

Currently, Africa is a step closer to realize a continent-wide trade deal. In 2018, eighty percent of African states signed the AfCFTA, which is said to be the most significant free trade agreement since the creation of the World Trade Organisation in 1995. The Agreement binds states to cancel tariffs on 90 percent of goods to encourage intra-African trade.   Nevertheless, the two biggest economies in Africa, Nigeria, and South Africa have not yet signed the AfCFTA agreement. There are possibilities for regional growth that are reinforced by the resolution of the long-standing political conflict between Eritrea and Ethiopia, which assures economic gain in the Horn of Africa.  There are critics of this agreement who are afraid that it will only benefit the elite in Africa. Moreover, why not consider the needs of people from lower social classes. Besides, experts warn that strong nationalist and protectionist stands could undermine the implementation of AfCFTA.

It is a complicated subject, and there are many aspects to consider when discussing whether intra-African trade can promote economic growth and improve food security. 

References:

  Eac.int. (n.d.). Common Market. [online] Available at: https://www.eac.int/common-market [Accessed 29 Dec. 2018].

MUGISHA, I. (2018). Nationalism in East Africa could derail AfCFTA. [online] The East African. Available at: https://www.theeastafrican.co.ke/business/Nationalism-in-EAC-could-derail-continental-trade-bloc/2560-4870596-td2h1x/index.html [Accessed 29 Dec. 2018].

Ouma, D. (2012). AGRICULTURAL TRADE AND ECONOMIC GROWTH IN EAST AFRICAN COMMUNITY ,2000-2012. Graduate Doctor of Philosophy. Economics of Kenyatta University.

Sow, M. (2018). Figures of the week: Africa’s intra- and extra-regional trade. [online] Brookings. Available at: https://www.brookings.edu/blog/africa-in-focus/2018/03/29/figures-of-the-week-africas-intra-and-extra-regional-trade/. [Accessed 29 Dec. 2018].

World Bank, 2012: available at http://siteresources.worldbank.org/INTAFRICA/Resources/Africa-Can-Feed-Africa-Report.pdf

World Bank. (2015). Deepening African Integration: Intra-Africa Trade for Development and Poverty Reduction. [online] Available at: http://www.worldbank.org/en/news/speech/2015/12/14/deepening-african-integration-intra-africa-trade-for-development-and-poverty-reduction [Accessed 29 Dec. 2018].