As America Dithers, Africa Forges Ahead
June 22, 2015
Free trade is said to be like heaven: everyone wants to get there … but not too soon. That sentiment came to mind recently after watching the U.S. House of Representatives cast several votes on measures that proxy for support or opposition to free trade. The prolonged deliberations, which reflect widespread U.S. unease about trade liberalization and which allies have observed with consternation, have not been America’s finest moment on the global stage.
As the U.S. Congress tied itself in knots, a much more encouraging story was unfolding thousands of miles away in South Africa. At the African Union summit in Johannesburg last week, heads of state from across the continent agreed to the Tripartite Free Trade Area that will include 26 African countries stretching from Cairo to Cape Town (an area roughly the size of Russia), with a total GDP of $1.2 trillion. This agreement will help eliminate barriers between a number of overlapping—and sometimes conflicting—economic arrangements that have stifled economic integration.
But the tripartite agreement was just the warm-up act. At the summit, leaders also agreed to launch negotiations on a continental free-trade area (CFTA) that would slash tariffs and customs and create the world’s largest (by area) free-trade zone. This embrace of trade reflects a growing belief across Africa and other developing nations that, as former UN Secretary-General Kofi Annan once said, “the poor are poor not because of too much globalization but too little.”
The focus on trade in Sub-Saharan Africa builds on the region’s robust economic expansion in the 21st century. It has grown at a 5.2 percent rate since 2010, up from 4.3 percent in the 2000s and 2.9 percent in the 1990s. Faster growth reflects improvements including greater political stability and smarter macroeconomic policy, and greater trade openness—which the IMF has said accounted for nearly half of the higher annual economic growth rate. The region has also been attracting more foreign direct investment, which has quintupled since 2000.
The new trade agreements are a recognition across Africa that much more remains to be done to break down trade barriers. An IMF report published recently noted that, “sub-Saharan Africa remains the least integrated region in the world.” Today, just 10-12 percent of Africa’s total trade is between African countries. The comparable figures for the volume of intra-region trade are 40 percent for North America, 50 percent for developing Asia, and 70 percent for Europe.
A number of factors still fragment the economies of Africa. For starters, African countries impose higher tariffs on each other than they do on countries outside Africa. An African firm exporting outside the continent faces an average tariff of 2.5 percent, while the same goods exported within Africa would face an average tariff of 8.7 percent, according to the United Nations Conference on Trade and Development.
An even bigger issue is the poor state of the continent’s infrastructure. According to a 2010 UN report, only 30 percent of African roads are paved, and road density is much lower than in other low-income regions. As a result, moving goods within Africa can be more expensive than exporting them. The UN report noted that it would be more than three times as expensive to ship a car from Addis Ababa in east Africa to Abidjan in west Africa as it would be to ship the same vehicle from Japan to Abidjan. If the region could achieve the average level of infrastructure found in the rest of the world, the IMF projects a 42 percent increase in trade flows. “Infrastructure has to be the priority,” says Senegal’s president, Macky Sall. “Without it, trade between African countries will never be improved.”
Africa’s tripartite agreement sets the stage for this improvement. The wholehearted embrace of free trade is an inspiring contrast to Washington’s dithering. Ghana’s foreign minister, Hanna Tetteh, has described Africa’s continent-wide free-trade agreement as “a vehicle to empower our young people to create jobs and a better life for our people.” Well put. We hope wavering members of Congress reflect on her inspiring words.
Articles © 2015 Matthew Slaughter and Matthew Rees. All rights reserved.
Publication © 2015 Trustees of Dartmouth College. All rights reserved.