By clubbing together, African countries acknowledge how hard it is to go it alone in a turbulent global economyby Guy de Jonquières / April 10, 2019 / Leave a comment
As President Donald Trump takes an axe to traditional US trade relationships and Britain prepares to exit the world’s biggest free trade area, Africa is moving smartly in the opposite direction. This month, Gambia became the 22nd country to ratify the Africa Continental Free Trade Area agreement, bringing into being a grouping intended eventually to create a single market encompassing 55 nations and 1.2bn people with a combined gross domestic product of $3trn.
The formation of AfCFTA is a bold vote of confidence in the value of international economic integration at a time when trade conflicts around the world are multiplying, trade barriers are rising and the future of the World Trade Organisation is under threat. It is all the more striking because African countries have often remained on the sidelines of global trade liberalisation initiatives in the past.
AfCFTA commits members to eliminating tariffs on 90 per cent of goods imports, opening up trade in services and tackling a wide range of non-tariff barriers to trade. The United Nations Economic Commission for Africa estimates that, if fully implemented, it will increase regional trade by more than 50 per cent. Further gains could be made from separate plans to free up movement of persons, residence rights and air transport competition.
Much remains to be done to achieve that goal. More than 30 countries have yet to commit themselves fully to AfCFTA and Nigeria, Africa’s biggest economy is still balking at doing so. Governments must brave inevitable domestic resistance to cutting trade protection, particularly non-tariff barriers, and invest in infrastructure and adopt policies needed to boost trade. And wide differences in levels of economic development between AfCFTA’s members mean the grouping may struggle to move much faster than the slowest among them.
However, two factors are spurring the project on. One is the contribution of economic integration to the—albeit uneven—recovery in African growth so far this century. Aided by a patchwork of smaller regional trade arrangements, intra-African exports rose from 10 per cent of the region’s total exports in 2010 to 17 per cent in 2017. That is still low by European and US standards but suggests that further integration offers plenty more gains to be had.
The second factor is a belief in safety in numbers. African countries have long complained about being bullied and pushed around by the US and EU. By joining forces, they reckon they stand a better chance of fighting their corner and resisting pressure from economically bigger and stronger powers.
These lessons appear to have been lost on Brexit Britain, as it strives to sever the numerous ties that have bound it increasingly closely to the EU—the world’s most deeply integrated single market—and venture forth alone on storm-tossed global economic waters.
It is a proven rule that the closer countries are geographically, the more they trade with each other. That is why almost half of Britain’s exports are to the EU (and why Canada and Mexico are by far the biggest buyers of US exports). Those trade flows are underpinned by complex and highly sophisticated supply chains that move finished products and components across national borders so seamlessly that deliveries arrive within 30 minutes of the time they are needed.
By erecting tariffs and an array of bureaucratic checks and controls at EU borders, Brexit would throw grit into that finely-tuned machine—so much that Airbus and a large number of other manufacturers say it could place the future of their UK plants in serious jeopardy. Meanwhile, Britain’s services industries, from banking and insurance to legal services, consultancy and transport, could see their freedom to operate in the EU severely curtailed.
The government insists that, liberated from EU policies, Britain will be free to forge new trade agreements with other countries around the globe. Yet research suggests that the losses from Brexit will vastly exceed any potential gains from new trade agreements. The independent Office for Budget Responsibility estimates that a deal with the US, one of the government’s prime targets, would add at most 0.3 per cent to Britain’s GDP.
On its own, Britain, accounting for less than 3 per cent of world exports, will have far less negotiating leverage than the EU. It will therefore be less well-positioned to extract better trade terms from its partners and to resist pressure from them to make concessions. The US, for example, has already made clear that it will press Britain to submit to its agricultural regulations and abandon price controls on pharmaceuticals products. Both demands are likely to prove highly controversial in the UK.
Meanwhile, Britain is making heavy weather of trade negotiations underway with countries with which the EU has trade agreements. Of 40 deals that Liam Fox, trade secretary, promised to have “ready to go” by 29th March, barely half a dozen have been completed.
On the evidence to date, the prospects for “Global Britain” do not look too promising. Indeed, it is tempting to conclude that it is pushing ahead with efforts to forge its own trade deals, not because they offer worthwhile economic or commercial benefits, but simply because they symbolise the national independence that supporters claim Brexit will achieve.
Twenty-two African countries have abandoned such beliefs and concluded that clubbing together is the best way to enhance prosperity. Maybe it is time for Britain to start learning some hard truths.