William Cho

TFTA: Africa’s Crucial Inflection Point

On June 10, 2015, at the 25th African Union Summit in Cairo, Egypt, African leaders signed the Tripartite Free Trade Agreement (TFTA). Prior to its signing, the agreement had been in negotiations for seven years.

Several bodies have existed in Africa to foster regional economic integration: the Southern African Development Community (SADC), the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), the Inter-Governmental Authority on Development (IGAD), the Economic Community of West African States (ECOWAS), the Community of Sahel-Saharan States (CEN-SAD), the Economic Community of Central African States (ECCAS), and the Arab Maghreb Union (UMA).

TFTA intends to unite three of these existing blocks, SADC, EAC, and COMESA, into one unified region. In doing so, the agreement renews the long-standing dream of an economically-integrated entity stretching from Cairo, Egypt to Cape Town, South Africa.

If ratified, the agreement will create the largest free trade zone in the continent’s history with a membership of over 26 African states, a population of 632 million, an area of 17.3 million square kilometers, total trade of US$1.2 trillion, and 60% of continental output.

TFTA also establishes a framework to bring in the Central and West African nations that are currently excluded from the agreement at a later date, which would create an even larger free trade zone across the entire continent.

Details of the TFTA

TFTA seeks to fulfill three main pillars: market integration, infrastructure development and industrial development.

In terms of intra-regional trade flows, Africa is the least economically integrated region in the world with intracontinental trade constituting around 10% of its total trade. In sharp contrast, within both Europe and Asia, intracontinental trade constitutes around 60% of the totals.

One of the primary reasons for the deal is the desire to ease the movement of goods across the continent. TFTA would benefit the organization’s member states, foreign investors, and African citizens by more readily harnessing the potential of the continent’s people both as a labor force and rapidly growing consumer base.

However, going forward, TFTA will confront a number of obstacles that have reduced the effectiveness of other free trade zones both within and outside of Africa. In order for TFTA to capitalize fully upon its potential, it must recognize these challenges and avoid falling victim to the mistakes of the past.

Challenges to Implementation

1. The Scale of the Effort

TFTA requires approval from three-fourths of the 26 states to enter into force. Furthermore, even after ratification, in order to be successful, the agreement has to bind together and unify drastically different economies and regulatory regimes. In this regard, the sheer scale of the task may prove troublesome.

The Free Trade Area of the Americas (FTAA), another ambitious, continent-spanning free trade zone, is all but defunct for similar reasons.

2. The Inertia of the Status Quo

The larger, more advanced economies of Africa possess industries and companies that would probably displace or absorb those of the continent’s smaller states. While this transformation would probably lead to a more productive reconfiguration of capital, it also requires large-scale economic disruption, at least in the short-term. This would be especially true for states with small economies that currently produce few exportable goods. Without addressing the free flow of people, this aspect of TFTA may sow the seeds for the type of economic resentment that is currently gripping the EU. Worse yet, this may herald the return of beggar-thy-neighbor policies that will not only set the ambitious trade agreement back, but also may trigger wider regional instability and resource crises.

Troublingly, periods of economic disruption, especially when exacerbated by the presence of inefficient, corrupt institutions and ethno-religious heterogeneity, can catalyze armed conflict and violence. For example, from the mid-1980s onward, East Asian imports decimated the mostly industrial economy of northern Nigeria and created conditions amenable to the rise of groups such as Boko Haram. Considering the economic and political risks involved with ratification, many parliaments may simply veto the TFTA treaty.

3. Non-tariff barriers to trade (NTBs)

Following the model of Africa’s previous free trade areas, TFTA intends to reduce tariffs between its member states. Fatima Haram Acyl, the African Union Commissioner for Trade and Industry, has recently cited the EAC as a model of tariff reduction for TFTA to follow.

However, many doubt that the tariff reduction that Africa’s regional blocs have undertaken has actually improved the intraregional trade of their members. In regard to the performance of the East Africa Community (EAC), Jeffrey Lamoureux, an expert on African economic institutions, states, “For every step toward liberalization made, an equal step is taken backward. So, for example, the reduction in headline tariff rates has been accompanied by, if anything, a retrenchment of non-tariff barriers to trade (NTBs).”

If TFTA members continue to overemphasize tariff reduction as a metric for institutional success, they will continue to suffer from the same myopia that has marred EAC and the other regional blocs.

4. Lack of Infrastructure

While African states have been attempting to pursue economic integration since the colonial period, the poor quality of interstate infrastructure has proved to be a persistent stumbling block.

In addition to being the largest free trade zone in Africa, TFTA would be the most geographically expansive free trade zone over contiguous land, creating an added burden to bring the region’s infrastructure up to par.

Hopefully, the advent of the new agreement will help spur much-needed infrastructure developments, including interconnected systems of roads, bridges, airports, and internet and electricity networks.

5. Institutional Weakness

The last major factor undermining EAC, SADC, and COMESA has been the lack of courts that are able to enforce effective compliance among their member states and the existence of active opposition to their establishment and jurisdiction.

While nearly all of Africa’s economic organizations possess a judicial body of some sort or another, they are unable to enforce their decisions. Moreover, the courts have seen their enumerated powers erode merely for levying politically unpopular decisions. For example, in 2010, following a series of unfavorable rulings against Zimbabwe’s government and its long-time president Robert Mugabe, SADC’s leaders suspended its Tribunal indefinitely.

While there has been significant talk of reconstituting the SADC Tribunal on a more limited basis, the fact that a regional strongman was able, with relative ease, to pressure other leaders to dissolve and dismember it does not bode well for the impartiality and strength of such institutions in the future. As Lamoreux states, “I don’t expect that the TFTA will have much of an ability to ensure compliance and I would think that would seriously undercut its effectiveness.”

Future of the TFTA Going Forward

Most predict that TFTA will take effect in 2017. At the same time, on June 15, at another AU meeting in Johannesburg, South Africa, African leaders initiated negotiations to expand TFTA to the West African states that it currently excludes.

On the heels of President Obama’s state visits to Kenya and Ethiopia, political commitment to TFTA can not only spur a wave of regional trade, but also it can accelerate the rate and permanence for foreign direct investment (FDI) to the region. As the continent is already the fastest growing FDI recipient, the story of Africa being merely a destination for extractive investors is beginning to change. Nairobi’s vibrant entrepreneurial and technical hubs and the advent of global African entrepreneurs are emblematic of this change.

Successful implementation of TFTA will solidify Africa’s role on the global economic stage.