Hot on the heels of the successful Africa Forum at the Hogan Lovells London office earlier this year, Hogan Lovells South Africa recently hosted its first Africa Forum in Johannesburg. The...18 October 2016
Building Blocs to Free Trade in Africa
A number of African countries have consolidated to create regional trade blocs. Each trade bloc has its own goals and objectives, but in essence they all aim to achieve economic prosperity through regional integration.
Currently there are six key trade blocs in Africa:
- the Southern African Development Community (SADC);
- the Preferential Trade Area for Eastern and Southern African States (PTA) which was later replaced by the Common Market for Eastern and Southern Africa (COMESA);
- the East African Community (EAC);
- the Southern African Customs Union (SACU) which is one of the oldest trade blocs in Africa and its ally, the Common Monetary Area (CMA);
- the Economic Community of West African States (ECOWAS); and
- the Customs and Economic Union of Central Africa (UDEAC) which was later replaced by the Economic Community of Central African States (ECCAS) and the Economic and Monetary Community of Central Africa (CEMAC).
To view a more detailed summary of the different African trade blocs, click here.
Each trade bloc has its own goals and objectives, but in essence they all aim to achieve economic prosperity through regional integration. More specific objectives include the promotion of economic development and cooperation, international and regional investment, regional integration, free trade and free movement between all member states – in reverse of what we have seen happening between the UK and Europe recently - fair competition, peace and security, growth and the development of common policies and strategies, and the reduction of poverty. With such high ambitions, some may ask if this is achievable? For many of these organisations it is still early days, but let's take a look at their story so far.
Although much remains to be done by these trade blocs to fulfil their goals and objectives, most have been quite successful in reducing or eliminating customs tariffs, quantitative restrictions and other non-tariff barriers regionally and globally. The SACU members have been particularly good at maintaining a common external tariff, sharing customs revenue and coordinating policies and decision-making on a wide range of trade issues.
The impact of the progress made by the trade blocs to date includes:
- in 2008, the SADC established a free trade area which has led to more than 80% of intra-regional trade among the member states now being free of import tariffs;
- in June 2009, COMESA launched a Customs Union, but this has not yet been implemented as the member states are still finalising key legislation – once established, this will, amongst others, enable free trade amongst COMESA member countries and require a common external tariff to be imposed on imports from non-COMESA countries;
- in June 2016, the SACU members and Mozambique concluded an Economic Partnership Agreement with the European Union (EU), which gives the SACU members and Mozambique almost a 100% free access to the EU markets, with the SACU members and Mozambique, in turn, removing approximately 86% and 74% of custom duties on imports from the EU. What the implications of Brexit are on this agreement are still yet to be seen, with the UK alone reportedly accounting for 3% of exports to sub-Saharan Africa.
In 2008, the EAC, SADC and COMESA agreed to establish an expanded Tripartite Free Trade Area (TFTA) including the member states of all three organisations, with a combined population of 625 million people and an aggregate GDP of US$1 trillion. States are expected to reduce trade barriers among themselves by reducing export and import duties and waiving visa requirements.
One of the main benefits of the TFTA is a larger, integrated, and growing regional market that can increase the interest of foreign investment and provide a basis for enhanced intra-African trade. South Africa's Minister of Trade and Industry, Dr Rob Davies, has said that the underlying rationale for African economic integration is that African markets are small by global standards, and too small to support economic diversification and industrialisation of the individual countries. Therefore, in his view regional integration is critical to accelerated, inclusive and sustainable growth in Africa. This sounds great but the real question is whether these countries can work together to make this vision a reality.
The TFTA Agreement is still in the process of being signed and ratified by the tripartite member states with 2017 as the current deadline for implementation.
The Organization for the Harmonization of Business Law in Africa (OHADA), although not technically a trade bloc, has played an important role in regional integration and the harmonization of laws across many Francophone countries in West and Central Africa. OHADA is a system of business laws and implementing institutions (based on French law) adopted by 17 West and Central African states and was created in Port-Louis, Mauritius in 1993. OHADA's main objective is to create legal and judicial certainty in its member states by producing codified uniform laws. It has largely fulfilled this objective with the delivery of nine uniform acts which codifies almost all of the subject matters listed in the treaty. The OHADA treaty has also created a supranational court to ensure uniformity and consistent legal interpretations across member states.
Undeniably progress has been made by the African trade blocs and OHADA in breaking down the barriers between the different African countries to unite the continent and to achieve regional and global integration. Yet, as always, there is more that can be done. These organisations have a unique opportunity and can build on the progress made to unite the economies of many African countries. This will give them the benefit of economies of scale and greater productive efficiencies, access to larger export markets and a larger pool of human resources and capital which ultimately helps attract more foreign direct investment into Africa.
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