Free Trade
By Richard E. Mshomba
Continental Free Trade Area by 2017—Wishful Thinking
Last month, African leaders met at the African Union summit to focus on ways to boost intra-African trade. They agreed on a blue print to establish a Continental Free Trade Area (CFTA) by 2017. There seems to be something captivating about a five- or a ten-year period in planning. Suggesting a CFTA for Africa by 2017 is unrealistic. Although the integration process has been on-going among African countries since their independence, a meaningful CFTA in five years is unattainable. What is behind this apparent impatience? Would a CFTA necessarily increase intra-African trade?
Of all potential strategies for development for Africa, it is hard to find one that receives more wide-spread rhetorical support than that of strengthening economic integration and increasing intra-African trade. It is taken for granted that economic integration is important for African development. The positive impact of economic integration includes increased competition and thus increased efficiency in the allocation of resources, increased investment, economies of scale, political stability, and political and economic leverage. Given that this strategy is seemingly unquestioned and is accepted categorically, it is easy to understand why African leaders want the integration process to be accelerated. They believe that a CFTA would increase intra-African trade. Moreover, they see this as an important step towards their other highly ambitious goal of having an African economic union by 2027.
Intra-African trade is 12 percent while intra-regional trade in developing countries in Asia is almost 50 percent. Of course, increasing intra-Africa trade is not good in itself. If it were, it could be achieved quite easily by shutting off trade with the rest of the world. However, there are two important points to be made here. One is that given the plethora of regional economic blocs in Africa with virtually all countries belonging to at least two blocs and each bloc with its own ambitions and challenges, a true free trade area for the whole continent is a distant dream. Second, a free trade area agreement in itself will not increase intra-African trade that much. Trade barriers have been falling so they have become less important in explaining the low intra-African trade. Intra-African trade is limited mostly by high costs associated with trade – transportation costs, poor trade facilitation, corruption, armed conflicts, and a lack of transparency and predictability.
These costs will not necessarily go down simply by having a CFTA. The intra-regional trade in the Economic Community of West African Countries (ECOWAS) created by 15 countries in 1975 has stagnated at an average of 10 percent since 1990. High transportation costs within the region continue to be an important factor here. The transportation system in many African countries still reflects a disarticulated system developed during the colonial era. Railway lines and major roads were primarily built to facilitate trade with European countries. Thus, all railway lines and roads lead to ports on the coast. There were no ample links between African countries and no major regional linkages. No wonder studies suggest that while high trade costs affect Africa’s trade in general, their effects are higher on intra-African trade. Developing a coherent regional infrastructure must be a priority if meaningful intra-African trade is to take place.
In dealing with transportation costs, it is important not to compartmentalize the problem. Constructing paved roads is certainly a key part of the solution. However, in addition, traffic rules must be enforced to prevent roads from becoming death traps.
Many efforts are being made to facilitate trade through computerized systems. The United Nations Conference on Trade and Development (UNCTAD) reports that in Angola, for example, technological improvements of customs services have reduced processing “dramatically” and to emphasize the dramatic improvement, the report added in parentheses that “only 24 hours are needed now.” One must wonder how long it took before! In Ghana customs clearing time at the airport has been reduced from three days to four hours as a result of adopting efficient technology. There are similar examples from other countries.
These efforts must continue. However, it is important to note that some impediments to trade have nothing to do with limited technical capacity or inadequate infrastructure. There are many accounts of people who have given up on their goods at customs after getting too frustrated with the system. It seems that is precisely what some workers at customs hope to achieve so that they can end up with the goods. When it is routine for truckers to spend days at the border (even between countries with a free trade area arrangement) to obtain clearance, the key problem is not a lack of computerized systems or the lack of well-trained and experienced personnel. The root cause of the problem is corruption and a lack of strong and effective leadership.
Not too long ago, traveling from Arusha, Tanzania, to Nairobi, Kenya, our shuttle bus was delayed at the border because a customs official wanted to know why a British woman had bought six pairs of new khangas. It is not clear how six pairs of khangas are too many or what the limit should be. More importantly, Kenya and Tanzania are members of a “fully-fledged” customs union -- the East African Community. When many of us on the bus raised questions about the unnecessary delay, the driver warned us “to be quiet because these people can do anything” like deciding to inspect all the bags. Apparently, the driver had to give the customs official a bribe to prevent further delay.
Power shortage in some countries has added to the trade costs. On 14 August, 2011, The East African reported that “at the Kenya-Tanzania border post of Namanga, the period for clearing goods has increased from an average of two days to five days” due to a power shortage.
The time will come when the whole continent of Africa will be a free trade area. However, that cannot be achieved by 2017. Moreover, a CFTA will not necessarily increase intra-African trade. African leaders should focus instead on projects and institutions that would reduce trade costs. In doing so, intra-African trade will be enhanced and a CFTA will be a natural complement.
Richard E. Mshomba is Professor of Economics at La Salle University, Philadelphia, Pennsylvania, U.S.A. (mshomba@lasalle.edu)
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