The African Continental Free Trade Area; A game-changer or a dream

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AFCTA Meeting in Kigali

Even though countries in Africa are endowed with many natural resources, most of them are poor and are beset by numerous problems. They have not been able to find ways to transform their huge potentials into reality. Since the attainment of independence from the late 1950s to the present time, they have adopted and attempted various economic policies geared toward attaining growth in their economies and improving the standard of living of their people

However, more than 60 years later, all these countries are faced with a huge balance of payment deficits, massive foreign debt burdens, and social as well as political problems that together seem to make the prospects of development more elusive than ever. The numerous models that have been tried by the individual countries on the continent in their attempt to remove themselves from the horns of economic, political and social difficulties on which they seem to be impaled have not yielded the desired results and the search for that elusive method for development continues.

One such model, which has and is still being tried, is regional economic integration (The interesting thing is that the reasons given for our underdevelopment have not changed much for the past 50 to 60 years and neither have the proposed solutions).

The latest scheme that has been formed is the African Continental Free Trade Area. Given the many integration schemes on the continent, it is useful to examine why despite the less than expected results at the regional levels, integration at the continental is being proposed as a means to achieving or accelerating development in the partner countries when schemes such as ECOWAS has since its formation in 1975 has contributed so little to development in the region. Why should we expect anything different from a continental integration scheme which is the regional schemes writ large?

Perhaps the African Continental Free Trade Area will do things differently and will not be captured by international development agencies for the implementation of their policies nor muddle around as political institutions rather than following a clearly defined path for the restructuring of the economies of their members. The reasons given for the formation of such schemes now sound like a broken record. It is as if by simply stating the virtues of economic integration, will bring them to fruition.

Economic integration is an expensive venture. It costs resources that could be used for other things in the member countries. 0.5% is levied on all imports to Ghana as ECOWAS levy. Should the ECOWAS levy be on global imports? Shouldn’t it be on a percentage of import duties that would have been paid if there had not been regional free trade? What are the benefits that Ghana gets in return? It would be useful to undertake an evaluation of regional integration schemes to see whether they are achieving their objectives. This will be for two reasons; whether members are getting value for money and whether they can play the role being given to them as the building blocks for the continental scheme. The institutions of the various communities have become so self-encapsulated that they have become an end in themselves and unaccountable for their failure to deliver. A new approach to integration is required.

In this article and the ones that follow, I will look at whether the reasons given for integration as a tool for development are valid. The follow-on question will be that if they are valid, why is it that the regional integration schemes have failed to achieve their objectives after more than 40 years in existence. Is it to do with the institutional framework (the Treaties, institutional structures, the organizational structure, the method of hiring personnel, etc.), the process mechanisms or the theoretical framework?

In this article and the ones that follow, I will look at whether the reasons given for integration as a tool for development are valid. The follow-on question will be that if they are valid, why is it that the regional integration schemes have failed to achieve their objectives after more than 40 years in existence. Is it to do with the institutional framework (the Treaties, institutional structures, the organizational structure, the method of hiring personnel, etc.), the process mechanisms or the theoretical framework?

Reasons for setting up a Regional Integration Scheme

The rationale for regional economic integration schemes among African countries is, primarily, economic development. When one examines the objectives of the newly formed continental scheme, the same seems to be the case. The general objectives of the African Continental Free Trade Area, as stated in Article 3 of the Agreement are to:

The rationale for regional economic integration schemes among African countries is, primarily, economic development. When one examines the objectives of the newly formed continental scheme, the same seems to be the case. The general objectives of the African Continental Free Trade Area, as stated in Article 3 of the Agreement are to:

(a) create a single market for goods, services, facilitated by movement of persons in order to deepen the economic integration of the African continent and in accordance with the Pan African Vision of “An integrated, prosperous and peaceful Africa” enshrined in Agenda 2063;
(b) create a liberalised market for goods and services through successive rounds of negotiations;
(c) contribute to the movement of capital and natural persons and facilitate investments building on the initiatives and developments in the State Parties and RECs;
(d) lay the foundation for the establishment of a Continental Customs Union at a later stage;
(e) promote and attain sustainable and inclusive socio-economic development, gender equality and structural transformation of the State Parties;
(f) enhance the competitiveness of the economies of State Parties within the continent and the global market;
(g) promote industrial development through diversification and regional value chain development, agricultural development, and food security; and
(h) resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration from the above General Objectives, members see the scheme as helping them to “promote and attain sustainable and inclusive socio-economic development, gender equality, and structural transformation”. The General Objectives also expect the creation of a single market in goods and services facilitated by the free movement of persons leading to the creation of a continental customs union. Furthermore, the scheme is expected to increase the competitiveness of goods and services produced in the member states within the continent and in global trade. Industrialization, diversification, and enhancement of value chain development, as well as agricultural development and food security, are all aspects of development that the AfCFTA seeks to achieve.ion processes.

Clearly, leaders on the continent believe economic integration is relevant for development. Even though on the face of it, the continental free area is mainly for development purposes, there are political undercurrents that will decide whether it will be a success or not. Examples of how integration schemes have fared suggest that political considerations form the crucible in which

Article 3 (e), Agreement Establishing the African Continental Free Trade Area.

the process is catalyzed. Before we examine issues that may facilitate or twat the progress of this new initiative, it might be useful to look at what economic integration is about, what the process mechanisms are, what the theoretical conditions that may facilitate the process are, and what the political and social implications are for the members.

Economic Framework of Integration

Economic integration has been defined as a process and a state of affairs. Regarded as a process, it encompasses various measures abolishing discrimination between economic units belonging to different national states. Viewed as a state of affairs, it can be represented by the absence of various forms of discrimination between national economies.’ There are various degrees of economic integration and depending on the extent to which the partners are willing to work with each other, it can vary from a free trade area to total integration with supranational institutions.

Economic integration schemes are usually categorized into five levels or stages. The first of these is the Free Trade Area. Within a free trade area, members agree to remove tariffs against the products from each other’s countries. However, each member remains independent in setting the tariff level on goods imported from non-member countries (third parties).

The second stage is the customs union. The main features of this stage are; the elimination of tariffs of the imports from member countries and the adoption of a common external tariff on the imports from the rest of the world (non-member countries), together with the apportionment of custom revenue according to an agreed formula. There are two main differences between a free trade area and a customs union. The first of these is that whereas members of the former retain independence in fixing external tariffs, members of a customs union adopt a common one. Secondly, a free trade area is equipped with rules of origin designed to confine intra-union free trade to products originating mainly within the area. The rules of origin are meant to operate against trade deflection which might result from the redirection of imports through the country with the lowest tariff to partner countries to exploit the tariff differential.

The third stage of economic integration is the common market. In addition to the characteristics of the customs union, a common market allows for the free movement of the factors of production. Economic union comes next with all the preceding attributes together with the unification of monetary, fiscal, and other policies.

The final stage of the process is total economic integration and is achieved when a supranational institution is formed which takes binding decisions on behalf of members.

Theory expects these stages to be linear with the scheme moving from a relatively low level to higher levels as the process intensifies. The process mechanisms that propel things forward have economic, political, and social implications for the member states. No integration scheme has followed this lineal path on the continent nor anywhere else. Instead, policies have been adopted that eclectically pick components from various stages of integration for implementation. What sometimes results is that such cherry-picking creates a muddled approach and affects the progress of the scheme to the extent that conditions that the lower levels of integration ought to create for the higher levels to use as building blocks do not exist thus creating problems for the process mechanisms.

About the author
Douglas Zormelo.
He is the Managing Director of Zormelo and Associates,  a management and development consulting firm.

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