Open Skies, Open MindApril 20th, 2018
Africa is coming together. From the 55 diverse nation structure there is an emergent trade hub/network structure. The African Union started talks in 2015 to establish a 55-nation bloc that would be the biggest in the world, in a bid to increase intraregional trade, which sits at 15% of Africa’s total commerce.
Rwandan President Paul Kagame, host of an AU summit to conclude the initial negotiations, declared the meeting a success after 44 African nations signed up to establish the free trade bloc within 18 months.
We have been here before. There was the much trumpeted United States of Africa, then championed by the now departed Col Gaddafi of Libya that was ill conceived and not well though through and naturally fell like a pack of cards. The current agreement however holds a lot more promise despite seeming opposition from the two big powerhouses – South Africa and Nigeria.
With rhetorics like America First, trade wars and Brexit seemingly dominating world politics at the moment, what does Africa’s belated coming together bode for the continent:
1. The conclusion of the agreement will generate the impetus for the creation of similar arrangements in western Africa, bringing economic powerhouses such as Nigeria into a continental free trade area.
2. A much larger market whose free flow of goods and services will help to maintain economic growth at 6–7% per year. At this rate the combined GDP of Africa is projected to reach $29 trillion by 2050, which would be equal to the current combined GDP of the EU and the US. With additional policies, such growth will contribute significantly to spreading prosperity and reducing poverty
3. The agreement will serve as an impetus for investment in Africa’s cross-border infrastructure. It is estimated that Africa needs to invest nearly $100 billion annually in infrastructure over the next decade. Less than half of this target is met currently. One of the reasons for the low level of investment has been poor coordination across the different trading blocs. Building infrastructure will also create additional jobs and foster the development of engineering services.
4. The prospects for the larger markets and supporting infrastructure will spur industrial development. This will not only create jobs but it will also have the added advantage of diversifying Africa’s economies that are largely dependent on raw materials. The associated technological development will lead to the creation of new industries.
5. The signal of larger markets will also help to stimulate trade in services. The first beneficiary is likely to be the financial sector, which will be able to lend to larger industrialists seeking to benefit from economies of scale. Such financial services will reinforce the increase in cross-border investments by emerging African firms that are serving as regional champions of industrial development.
6. By being part of larger markets, small African countries will no longer be restricted to producing their traditional products. With better policies and human resources they can become the locus of new manufacturing operations that serve wider markets.
As the map above shows, Arica’s geographical size is often underestimated. Its operated as 50 plus independent economies for nearly 50 years and is yet to develop cross border coherent policies that deliver the benefits of scale. Here’s hoping the new trade agreement is the beginning of open skies and open minds on the continent. Onwards and upwards!