Africa free-trade pact gives hope amid bars to transport corridors
While opening up the continent will result in short-term tariff losses, but will deliver long-term benefits
We continue to hear much about “corridors” in Africa and how a focus on building and refurbishing roads and rail systems along these corridors will help focus investment into infrastructure where it will make the most economic impact.
A quick glance at any of the myriad maps showing actual or potential intra–African transport corridors will clearly show how these transborder economic avenues will link many of the landlocked African states to the coast, and the ports to inland markets.
Talk of such corridors breathes life into plans to have single-gauge railway systems, road and rail concessions, bridges carrying freight and people, and road-to-rail (and vice versa) distribution networks. Such are the pressures of overuse (especially roads) and an at times brutal climate, that the benefits of building adequate and reliable infrastructures are quickly diminished by the difficulties of maintaining them.
Operating and funding the infrastructure through private concessions and public-private partnerships has been severely hamstrung through the waning in desire for Africa’s commodities. Without a secure supply of freight, operating railways, for example, becomes near impossible. There still, however, appears to be considerable interest, and finance with strings of one sort or another, available for transport infrastructure development.
For the corridors, suitably endowed with the requisite roads and railways, to work, there needs to be an open-border policy that provides for the uninterrupted movement of goods along the road and rail routes and, we would suggest, a single legal regime governing the carriage of goods, whether by road or rail.
Such regimes are not uncommon — the international movement of goods by road and rail in Europe is governed by two long-established international conventions (the Convention on the Contract for the International Carriage of Goods by Road, and the Convention on Transport of Goods by Rail), which could fairly easily be adopted by the countries through which the corridors run.
Similarly, the international carriage of goods by air is governed by either the Warsaw or Montreal instruments. Though there has for many years been great interest in developing a suitable “freedom of the skies” approach to moving people and goods around Africa, the relevant bi- and tripartite agreements needed to make this a reality have not been forthcoming.
A glimmer of light can be found in the African Continental Free Trade Area agreement (AfCFTA), which has come into force having received 22 ratifications. Nigeria is the only significant economy that has not yet committed to joining AfCFTA, but it is anticipated they will eventually do so.
Removing the trade barriers on imports will reduce the import costs, in turn lowering consumer prices, and give consumers a larger variety of African products in a unified market
The agreement seeks to create the world’s largest free-trade area by allowing for the free movement of goods and people between member states. It does not replace existing regional free-trade agreements and is designed to transform African states’ economies.
The trade patterns of African states are dominated by resource exports to the developed and developing world combined with imports of manufactured goods. Intracontinental trade is limited either because the economies are underdeveloped or because of tariff barriers.
The agreement has been welcomed by the trading industries, but whether it achieves its desired goals remains to be seen.
A continent-wide free-trade area will give African countries specialising in particular goods a comparative advantage over those countries outside of Africa. Removing the trade barriers on imports will reduce the import costs, in turn lowering consumer prices, and give consumers a larger variety of African products in a unified market. Manufacturers and traders will stand to benefit with increased demand caused by lower prices.
African countries’ concerns over state sovereignty have always resulted in constrained access to neighbouring markets. Many African countries’ economies are dominated by a single product or resource, and lowering tariff barriers on that product or resource has a significant negative short-term impact on that country’s revenue flow. Given many of those countries do not have spare financial capacity to absorb the short-term loss of tariffs, they simply may not be in a position to lower those tariffs in the hope of achieving greater long-term economic success.
This reluctance affects the success of corridors. Even countries through which the goods simply transit derive financial benefit through road permits and other regulatory costs and will not want the revenue stream to disappear. This is regardless of whether it ends up in the hands of the fiscus or of the relevant official who has not been paid by the state for his or her services.
The other constraints on the free movement of goods, such as the differing legal systems, carriage regimes and liability regimes that may apply from country to country, are more of an administrative problem and can be resolved.
The real barrier that will require enormous political will and perhaps some outlying countries to prove its success relate to the short-term loss of revenue that dropping trade barriers causes.
• Robinson and Hartwell are directors at Norton Rose Fulbright SA.