27 November 2011

Africa: Free Trade Talks Kick Continent Into Future

As we mark Africa Industrialisation Day this Sunday, we should keep our eyes firmly on the first days of December. An important process which started three years ago will then begin to move forward decisively.

It promises to be an important instrument for the future of trade and industrialisation in Africa.

The first round of negotiations to establish a free trade area covering 26 countries in Southern and East Africa will kick off on December 8 in Nairobi. It is envisaged that the negotiations will be completed in 36 months.

The three trade blocs involved the Southern African Development Community (Sadc), the East African Community (EAC) and the Common Market for Eastern and Southern Africa (Comesa) decided in October 2008 in Kampala to move towards a free trade agreement.

The intention is to boost intra-regional trade because the market will be much bigger, there will be more investment flows, enhanced competitiveness and the development of cross-regional infrastructure.

Industrialisation, making goods to sell instead of selling primary products, is a possible and also necessary spin-off. Competition with older established and also bigger emerging economies might be a stumbling block initially, but the huge new market may make it possible for locally manufactured goods to compete with those imported from outside the FTA.

Close to 600 million people live in the FTA with a gross domestic product of US$1 trillion suddenly we are boxing in the same weight division as China, India, Russia, Brazil, the US and the EU.

Africa Industrialisation Day is exactly about switching the eyes of the world to this continent, to promote the need for building factories - but it is becoming easier because the continent is already being touted as the next economic frontier, as the place to be because the future is here.

For some confirmation of this, look at some figures: Africa's combined consumer spending in 2008 was US$860 billion and will be US$1,4 trillion in 2020

In 2040 there will be 1,1 billion Africans of working age with 43% now under 15.

Urbanisation enhances growth Africa already has 52 cities with more than a million inhabitants, more than Europe. In 2030 50% will be living in cities. Africa's returns on FDI are the highest in the world.

South Africa, with its advanced and sophisticated economy, is best suited to take advantage offered by such an expanded market. Already the World Economic Forum (WEF) has rated South Africa first in the world for the strength of our auditing and reporting standards and for the regulation of securities exchanges.

The soundness of our banks rated second in the world is an important asset in these troublesome days when banks everywhere else are shaky.

Add in the certainty offered by the recently announced National Development Plan, which sets out the country's path until 2030, and it is clear that South Africa's competitiveness will be enhanced.

We know that our fellow BRICS countries started their upward economic trend based on their huge domestic markets. With the establishment of the FTA, South Africa will now have a market which will be 12 times bigger than the 50 million customers it now has.

It is understood that the road setting up the FTA could be rocky. The Minister of Trade and Industries has pointed out that negotiations over industrial policy could be tough. South Africa has just set out to implement its Industrial Policy Action Plan (Ipap) and talks around the trade in manufactured goods will be of particular concern.

But South Africa does have an advantage. As the minister correctly pointed out, that unlike exports to the rest of the world, a high percentage of exports into Africa are already made up of value-added products.

Other problems would be the levels of protectionism between African countries, restrictive trade permit needs and very obvious economic disparities. Additionally, the fact that three existing trade blocs aim to merge into one is a stumbling block as they are at different levels of integration with different rules and regulations.

All of this will be part of the negotiations that start next month.

Fact of the matter is that economic growth in all participating countries will be boosted by increased intra-regional trade. For Africa as a whole at the moment, this stands at only 12% of all cross-border trade whereas in Asia the figure is rising toward 50% and in the European Union 80%.

The FTA would also be an important building block towards achieving the vision of the founding fathers of the Organisation of African Unity in 1963 a continent-wide African Economic Union.

The December talks may truly be the first concrete sign of Africa rising to take its rightful place in the world.

Matola is the CEO of Brand South Africa.

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