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African leaders plot Common Trade Zone

By | January 27th 2012

Nairobi, Thursday

Africa will be a free trade area in five years, according to the dream that African leaders will stamp in the next few days when they meet for the African Union Summit in Ethiopia.

The intention is to increase trade within Africa, to have a soft landing ground just in case Africa’s main trading economies of the United States, Europe, China and India slow down, affecting their ability to sustain commodity imports from Africa.

While this possibility was not thought much about before, the debt crisis in Europe and the financial crisis triggered by loan defaults in the US in 2008 have intensified the need for Africa to depend on her own markets to caution her economy from external shocks.

"The options for Africa are limited. The uncertainties facing Africa’s traditional export markets in Europe and the US further exacerbate the risk to the region’s development prospects if growth in the emerging market economies of China and India were to slow down significantly," said Stephen Karingi, the Director of Regional Integration in the Infrastructure and Trade Division of the UN Economic Commission for Africa.

In a joint briefing early this week with Professor Mwangi Kimenyi, a Senior Fellow at The Brookings Institution, they said ongoing harmonisation of trade among some of Africa’s trading blocs offers success models that the continent can replicate.

The numerous regional economic trading blocs have created severe trading barriers within Africa, in some cases making it easier to import goods from Middle East or Europe instead of the neighboring African country because of the high taxation as a result of belonging to a different trading bloc.

As a result, intra Africa trade accounts for 12 per cent of total Africa trade, a very small proportion compared to European Union’s 60 per cent trade being internal, according to recently released data by the African Development Bank.

Intra Africa trade

But this reality appears to have dawned on the continent with concerted efforts for example currently ongoing to dissolve several blocs to allow larger trading formations.

For example, negotiations are ongoing to merge Common Market for Eastern and Southern Africa (Comesa), East Africa Community and South Africa Development Community into a free trade area.

Dominique Njinkeu, a trade facilitation expert at the World Bank, said having a continent free trade area places Africa at an advantage to attract larger foreign investments.

The decision by the African Union to have a continental free trade area comes at a time when evidence is emerging that some of the major global investors are looking at Africa as their next frontier for investment.

A report released on Tuesday by the Economist Intelligence Unit said that global institutional investors intend to make their first significant step into Africa over the next five years because of the continent’s growing middle class.

The report was commissioned by fund manager Invest AD.

The report is based on a survey done on 158 senior executives at institutions such as pension and endowment funds and insurance companies.

"Many of the investors surveyed don’t have any allocations in Africa, yet looking out over the next five years, the bulk of the investors will have an allocation into Africa and about a third will have more than five per cent allocation," said Invest AD in a statement.

The marginal increase of intra-Africa trade is, however, credited with being one of the factors that saw the continent not become overly affected by the global financial crisis, enabling it to post growth ranging five to six per cent.


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