The agreement by 44 African states on a African Continental Free Trade Agreement (AfCFTA) reached in Kigali on Wednesday is good news for everyone but particularly for SA, which has significantly grown its manufactured exports to the continent but has the potential to do much more.
When fully implemented, the signatories to the agreement will reduce tariffs on 90% of their tariff book, leaving 10% of products protected from continental competition. To reach its full extent will require many hours, stretching into years, of negotiation. Some trade economists think it will take as long as a decade. If the Southern African Development Community (Sadc) Free Trade Agreement, first signed in 1996 and fully implemented by 2012, is anything to go by, this is not inaccurate.
The scope for improvement of intraregional trade links is huge. Only 20% of Africa’s exports are sent to countries elsewhere on the continent. African countries tend to have stronger trade with their former colonial powers than with each other. The AfCFTA would rank as the biggest free trade area and would provide preferential access to 1.2-billion people. Although in value terms this would not come close to trade with the big overseas markets, it will be highly significant for certain products.
Already, due to other trade pacts, a continental free trade agreement is quite far along the way. The Tripartite Free Trade Agreement — which involves Sadc, the East African Community, the Common Market for Eastern and Southern Africa and Egypt — has now signed up 22 countries, with Botswana the most recent addition in February. The most difficult part does remain: West Africa is not part of it and neither is most of the North. It is these regions that will be brought in under the full free trade area.
When fully implemented, the signatories to the agreement will reduce tariffs on 90% of their tariff book, leaving 10% of products protected from continental competition
The first benefits of free trade from Sadc and the tripartite agreement are already being felt. Since 1994, when SA had very little trade with Africa to speak of, a third of total trade is now with the continent, mostly of South African manufactured goods, according to the Department of Trade and Industry.
Intra-African trade is increasingly in manufactured goods so a further opening of markets will give further impetus to this trend.
For many South African manufacturers, Africa can be the future. However, smaller countries in the AfCFTA will feel some immediate pain with the lifting of trade barriers, especially in the collection of revenues derived from tariffs. For this reason, changes to the tariff regime will be gradual and some countries are likely to be given more time to adapt than others. The big pay-off is economic development as countries build up their exports and create jobs in their own markets.
President Cyril Ramaphosa has assured SA and the world that the reason for not signing the agreement on Monday was legal requirements. This is indeed so, and global agreements need to be approved by Parliament before they are signed. He spoke approvingly after the summit on the need to ease the movement of people between countries and to "open our borders".
In part this was a reference to easing the movement of business people but Ramaphosa was also making a more general point that South Africans should not see the opening of borders as a threat but rather as an opportunity.
His comments point to one of two large problems with African free trade. Many of the barriers to trade are "nontariff barriers", which includes inefficient border controls and poor infrastructure, which can make it cheaper to import goods from the East or from South America than to haul them by road from an African neighbour.
The second is corruption and safety and security. Border officials are notoriously corrupt with scams that involve the relabelling of goods and the changing of rules of origin. Attached to that are criminal syndicates, which are highly organised.
Without some effort to change these two factors, tariff cutting will help but its impact will always be limited.