AU Wants to Double Intra-African Trade

Intra-Africa trade is only 12% of African trade

The African Union Commission wants to see intra-African trade double, from its current level of 10-12 per cent of the entire continent’s trade, to 20-25 per cent within the next decade.

A document from the Commission, provided as background to this weekend’s heads of state summit, at which boosting intra-African trade is the main agenda item, points out that greater trade between African countries “will develop larger markets, and foster greater competition which in turn will lead to poverty reduction, growth and poverty reduction”.

“Pooling economies and markets through regional integration will provide a sufficiently wide economic and market space to make economies of scale possible for African industries and to allow Africa to play its rightful role in the global market”, the document argues.

This will require “political commitment and leadership” from African heads of state in order to reform trade policies and harmonise rules and regulations across the continent. Measures should be taken to “reduce cost and time for the movement of goods and services, business, investment and labor mobility across borders”, and to diversify African production capacities “in order to add value to Africa’s primary commodities and boost regional and continental value chains”.

The document also calls for “increased access to trade financing and establishing the framework for a viable continental payments system through banking and export guarantee systems”.

The continent-wide free trade area that is the AU’s goal requires the elimination of tariffs between AU members and “the application of simple and transparent rules of origin”, which all goods must conform with, if they are to enjoy duty-free and quota-free access. The document insists that non-tariff barriers will also have to come down.

Such an all-Africa free trade area would create jobs in the public and private sectors, the AU claims, and would increase food security by reducing protection on trade in agricultural products between African countries. The AU commission also predicts “increased competitiveness of Africa’s industrial products through harnessing the economies of scale of a large continental market of about a billion people”.

The document proposes the creation of a High-Level African Trade Committee (HATCH) with responsibility for overseeing “the effective implementation of the Action Plan for boosting intra-African trade and implementing the continental free trade area”.

One of the obstacles to free trade in Africa has been government fears of losing the revenue from customs tariffs. The document, however, points out that “recent experiences at the regional levels shows that government revenue can actually increase with the removal of tariffs on intra-regional trade. This is applicable to both small and large economies”.

On its own, a free trade area is not a panacea, and so the AU Commission also calls for “intensive investment in manufacturing and processing industries that add value to Africa’s raw materials”.

Preparations for an all-Africa free trade area would also need increased competitiveness and productivity in the individual economies – and that would require “the enhancement of workers’ skills, the improvement of firms’ organizational and management structures and the development of supportive economic policies and infrastructures”.

The existing regional economic communities will be the building blocks of the proposed free trade area. This means that the tripartite SADC-COMESA-EAC free trade area must be functional by 2014, and that by that date the Economic Community of West African States (ECOWAS) should have completed its free trade area, ensuring that all ECOWAS members join.

These areas will be consolidated into the continental free trade area between 2015 and 2016 “with the option to review the deadline according to progress made”.