AFRICAN NATIONS are taking steps toward creating a free-trade zone with a combined size of $2 trillion, as heads of state meet in Johannesburg this week.
This comes after a potentially historic deal was signed in Egypt this week that created a common market that would span half the continent from Cairo to Cape Town. (Read: We have a deal: African leaders sign off on much-awaited common market ‘super bloc’)
Talks on removing the barriers to trade and the movement of people between the continent’s 54 countries will begin on June 15 at the African Union summit and conclude by the end of 2017, Fatima Haram Acyl, the AU’s trade commissioner, said in an interview on Thursday.
Progress on creating a continental trade bloc inched forward on Wednesday after an agreement on a free-trade area was signed in Egypt between three regional groups: the Common Market for East and Southern Africa, the East African Community and the Southern African Development Community.
The three groups cover a market of 26 countries with a combined economy of about $1 trillion, South African Trade Minister Rob Davies said on Thursday.
The Tripartite Free Trade Area (TFTA) deal, which must still be fine-tuned and ratified, caps five years of talks to set up a framework for preferential tariffs to ease the movement of goods in an area home to 625 million people.
Analysts say it could have an enormous impact on African economies, which account for only about two percent of global trade despite strong growth.
World Bank President Jim Yong Kim said the TFTA would allow Africa “to make tremendous progress and move the entire continent forward.”
“Africa has made it clear that it is open for business.” The TFTA has been widely welcomed by world business leaders, with experts pointing out that only 12% of Africa’s trade is between countries on the continent.
The Egypt agreement, which was first mooted in 2008, will now make the process of establishing a continent-wide free-trade zone easier, Haram Acyl said.
“They negotiated on goods, negotiated their schedule of liberalisation,” she said. “This is very good news for us, so we are not starting from scratch.”
Free-trade zones may have a limited effect on regional economic integration because of a lack of implementation and weak infrastructure, according to John Ashbourne, an economist at Capital Economics Ltd. in London.
“Practical barriers to trade make it unlikely that lucrative economic relationships will rapidly develop between the existing regional economies,” Ashbourne said in an e-mailed note on Wednesday.
“Poor infrastructure makes traveling across long distances difficult and costly.”
However leaders have in recent years actively sought to redress the infrastructure deficit, with the need to fix bottlenecks a resounding message at the recent World Economic Forum on Africa.
Concerns by investors on risk were also being addressed, leaders at the Cape Town summit said. Analysts project that the continent needs at least $100 billion a year to meet its substantial infrastructural needs.
Potential investors often cite high political risk, regulation and inefficiencies as among the greatest deterrent to funding public projects.
“Commitment from African leaders has never been so strong as now. We are giving political confidence to investors, our people are demanding for growth, and the opportunities in Africa are huge,” South Africa president Jacob Zuma said last week, adding that public-private financing was a win-win situation for all.