African Trade Deal Exposes Brexit Britain’s Myths

African Trade Deal Exposes Brexit Britain’s Myths

Joe Walsh explores how Africa is seeking closer economic integration with its regional neighbours, in contrast to the UK

As Brexit sends the UK lurching from one crisis to another, and while the Government still hasn’t fully implemented checks on EU imports for fear of economic disaster, another continent has taken a vital step towards full regional economic integration.

The African Continental Free Trade Area (AfCFTA) came into force one month before Brexit and has now reached an agreement to eliminate tariffs on nearly 90% of non-sensitive goods.

“It makes economic sense, as well as social and political sense, to integrate the continent,” says Stephen Karingi, director of regional integration and trade division of the UN’s Economic Commission for Africa.

The AfCFTA is the largest free trade area – by number of countries involved – in the world, comprising 54 African countries. Having been conceived in 2012, the deal was signed in 2018 and, like Brexit, came into force at the start of 2021. This year, an agreement has been made to eliminate 87.8% of tariffs on 8,000 products.

Contradicting the Conservative Party’s ‘Global Britain’ mantra, which claims that Britain has been restrained by close economic ties with its neighbours, the AfCFTA seeks to catalyse trade across Africa to the benefit of the whole continent.

The World Bank estimates that the economic gains from the agreement could lift 30 million people out of extreme poverty and 68 million out of relative poverty, with women being the prime beneficiaries.

“Under the AfCFTA, Nigeria stands to gain from increased access to cheaper goods and services from other African countries,” argues John Oseji, director of policy advocacy at the Nigerian Investment Promotion Commission (NIPC) – a Nigerian Government agency founded to encourage investment in Nigeria.

It is a sentiment that the UK’s Chancellor may well agree with, given his recent admission that a Brexit trade hit for the UK was always “inevitable”.

---

Sceptical Partners

Nigeria was initially hesitant about joining the AfCFTA, mirroring Britain in Europe. As Africa’s largest economy – though Britain was Europe’s second – it had concerns about rules of origin, commercial competition from cheaper foreign imports and from the other advanced African economies, primarily South Africa, Morocco and Egypt.

However, rather than resisting integration with its neighbours, Nigeria is attempting to maximise the economic benefits of the trade deal.

John Oseji highlights the potential for Nigerian businesses to expand across their borders, particularly banks, to facilitate cross-border transactions in multiple countries.

“[The AfCFTA] will also provide opportunities for Nigeria’s FinTech companies to provide technical services and consultancy for the continent,” he adds.

Currently, intra-African trade is extremely low compared with the rest of the world. Intra-African exports account for just 16.6% of total exports – a figure that rises to 68% for intra-European exports and 59% for intra-Asian exports. In addition, intra-Africa trade as a whole accounts for just 2% of its exports and imports, compared with 67% and 61% for Europe and Asia respectively.

A key goal for African trade negotiators is to increase the export of value added products and move away from Africa simply exporting raw materials to the rest of the world and then importing manufactured products, made from these same materials, back into the continent.

The economic expectations from this increase in regional trade are high. The World Bank estimates that the agreement could increase real income on the continent by $450 billion by 2035 and that its measures to cut red tape and simplify customs could alone increase income by $292 billion.

Oseji agrees that Nigeria sees its economic enhancement through boosting regional trade, as opposed to trading with far-flung countries.

He laments that, in 2018, Nigeria’s imports from other African countries constituted 3.2% of total imports, while the share of Nigeria’s exports to other African countries relative to total exports was 13.2%. “Moreover, in 2020, Nigeria’s main trading partner was actually China,” he adds.

---

Red Tape

Brexiters alleged that red tape would be slashed when the UK departed the EU. In fact, we have seen quite the reverse – as businesses across various sectors have been saddled with extra paperwork in order to carry on trading with the EU, causing an economic retraction even greater than the impact of the COVID pandemic, according to the Office for Budget Responsibility.

Lorry queues stretching through the Kent countryside, in no small part to additional customs requirements, is what Africa wants avoid as intra-continental trade grows.

In Africa, officials were very much aware that creating common markets and rules, eliminating borders and customs, reduces red tape rather than increases it.

“What the AfCFTA does is break down the barriers between African countries and the current regional economic communities,” says Stephen Karingi. “If you try to send a shipment from Accra, Ghana to Nairobi, Kenya, you’ll face tariffs, so the AfCFTA is breaking the barriers that still exist between regional economic communities.”

But the new agreement does more than just eliminate tariffs, red tape and trade barriers.

Though it is not yet a fully integrated economic community like the EU, mechanisms like the AfCFTA Investment Protocol will “make it easier to invest in an African country without having to worry about different rules when you want to expand in the continent,” says Karingi.

John Oseji goes further, arguing that the “AfCFTA will motivate reforms that boost productivity, job creation, and reduce poverty”. In addition, “AfCFTA’s implementation will also increase wages by 10%, with larger gains for unskilled workers and women. That is, AfCFTA is expected to address gender inequality in Africa by increasing employment opportunities for women and helping to lower the gender wage gap on the continent,” he suggests.

Karingi also observes how the agreement matches the desire of the continent to have a “bigger voice on shaping global trade rules”.

Just as the EU was not created overnight, but rather came into being over decades of incremental agreements, the AfCFTA is the first step towards integration involving common rules, investment, trade and competition policy.

When this is achieved, Karingi argues, Africa will be a far more influential actor on global trade – competing with the world’s largest trading blocs.

“It means that when you’re engaging as Africa with China, the US, EU, Turkey those partnerships will actually be partnerships of equals because, at the moment, they don’t seem to be partnerships of equals,” he adds.

Britain alone may well currently have a GDP comparable to Africa as a whole but, as the fastest growing region on the planet, Karingi expects the latter to grow from its current $3 trillion to $8 trillion in the next 20 years or so.

This vision for a common African voice on global trade may be some way off, but the statement of intent is there from Africa. For this large part of the world, regional economic integration is the future – while individual nations doing bilateral trade deals is a forlorn endeavour.