One continent under trade
The Niger river begins its 4,200 kilometre course in Guinea, runs up north through much of Mali, takes a sharp turn south into Niger Republic, narrowly avoiding Burkina Faso, runs along the border of Benin Republic, before entering Nigeria where it finally empties into the Atlantic Ocean through the oil rich Niger Delta. Yet this river – longer than the Volga, the longest river in Europe – has played almost no role in intra-African trade history. Aside from taking many sharp turns, the river’s gradient sharply decreases in Mali and loses two-thirds of its flow as a result. Not until it gets into Nigeria where it meets its most important tributary – River Benue – is the river’s volume restored. Only then does the river become navigable again and even at that, only for a few months a year.
Several reasons can be adduced for the lack of intra-African trade. Many African countries remain poor which means they hardly produce anything their neighbours might want. Then there’s the historical effect of geography, which, as the Niger River shows, has made it difficult to move goods inside the continent. To fully exploit the potential of Simandou, the world’s largest untapped deposit of rich iron-ore, a 650 kilometre rail line from the mountains in southern Guinea to the coast in Conakry will need to be built at a staggering cost of US$23 billion. Beyond the length of the line itself, the extremely difficult terrain of thick forests and mountains the rail will run through means that it will need 35 bridges and 24 kilometres of tunnels, thereby significantly pushing up the costs. A shorter, cheaper and easier route is available but it runs through Liberia to the port of Monrovia, making it politically unacceptable to Guinea.
The sum of all these factors is that intra-African is currently no more than 18 per cent, well below 59 per cent for intra-Asian and 69 percent for intra-Europe trade. In effect, 82 percent of exports by African countries is sent to another continent. While Cameroon exports US$680 million of stuff to China, it only sends US$42 million worth of goods to its next-door neighbour Nigeria, according to The Observatory of Economic Complexity. And so the continent is caught in a bad equilibrium – African countries do not trade much with each other due to poor infrastructure and the continent has poor infrastructure because they don’t have much to trade with each other.
It is into these formidable sets of challenges that the Continental Free Trade Area (CFTA) has been born. On March 21st in Kigali, Rwanda, 44 out of 54 African countries signed legal instruments to launch a free trade area that will take in 1.2 billion people and a combined GDP of US$3.4 trillion. While the challenges of taking this from words to an actual single market are enormous, the potential is exciting.
These days, rivers are not the only way to trade. In January, 23 African countries signed the Single African Air Transport Market (SAATM) as one of the 12 projects to deepen African trade and integration. The CFTA itself has a headline aim to eliminate tariffs on 90 percent of all goods traded within the continent. It also seeks to facilitate the free movement of ‘business persons’ and the elimination of non-tariff barriers. All of this will eventually lead to, it is hoped, a continent wide customs unions and boosting intra-African trade by more than 50 percent by 2022.
Even more tantalisingly, by coming together to form a giant free trade area, Africa starts to look very different to badly needed foreign investment. Whereas each country has to be considered on its own merit now, investing in a giant free trade area will be determined by the best location from which to serve the entire market – a signal to countries to improve their ease of doing business rankings to compete for investments. Most of all, by bringing all of Africa’s economic heft into one trade area, it allows the continent negotiate the terms of its economic engagement with other parts of the world from a much stronger position. The CFTA can thus create the economic incentives to overcome the geographical challenges that have made intra-African trade difficult.
But the road ahead has bumps and sharp turns. The biggest immediate headache is that Nigeria disappointingly pulled out of signing the agreement at the last minute after leading the negotiations and lobbying to host the CFTA secretariat in Abuja. The given reason is that the country needs more time to consult with manufacturers and labour unions but a new agreement is not going to be drafted to give comfort to Nigerian unions so it is unclear how the country moves things forward other than by signing the agreement as it is. There’s also the question of how this all plays out once the effects of free trade start to come in. How will a country’s leaders react when one of its major industries is exposed to more efficient competition from beyond its borders? The 10 percent of goods that each country will be allowed to keep out of the tariff deal might well become a tool to undermine free trade given the narrow range of goods most African countries buy and sell. And then there’s the bureaucratic expertise that will be needed to make it all work of which there is hardly any sign of yet.
None of all that should take away from what an important moment this is. A free trade area for Africa has been talked about since at least 1991 and now it is almost certainly happening. Trade has the power to reshape difficult environments and foster cooperation even between people with a long history of not getting along with each other. Africa will be no different if the CFTA can live up to its ambition of uniting a continent and its people. It can help to shift the equilibrium as well – Africans trading with each other because investments in infrastructure follow the trading opportunities.
History, after all, is not destiny.
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