In Egypt, 16 out of 26 involved African states signed the agreement establishing the Tripartite Free Trade Area (TFTA). Creating a trade zone that stretches from Cairo to Cape Town, the agreement could become the continent’s next stride, though major difficulties lie ahead. The stakes are high: a well implemented TFTA would bring Africa closer to a Continental Free Trade Area and eventually an African Customs Union.
The TFTA could become Africa’s blueprint for a Continental Free Trade Area and later an African Customs Union. The agreement emerged between three regional economic communities: the Southern African Development Community (SADC), the East African Community (EAC), and the Common Market for Eastern and Southern Africa (COMESA). Successful implementation of the TFTA could significantly expand markets, making the African continent more attractive to businesses and investors. Malte Liewerscheidt, Senior Analyst Africa at risk analytics company Verisk Maplecroft, reviews the developments for Club Africa: “Particularly for small countries, opening up borders is expected to attract an increasing share in foreign direct investments. This could in turn lead to industrialisation, job creation and sustained long term economic growth.”
The TFTA is considered a potential blueprint as successful implementation would boost confidence in future integration, as well as create a policy and legal foundation for such integration. In the short term, however, governments of the countries concerned fear additional unemployment due to increased exposure to regional competition and reduced revenues from customs. Ten out of 26 countries have not yet signed the agreement, with economic heavyweight South Africa amongst them. Should the agreement enter into force, trade borders will be dismantled and revenues gained from customs tariffs lost. This is expected to make ratification by parliaments of countries that have already signed the agreement, a rocky process. In addition, implementation of the TFTA would expose Africa’s smaller economies to competition from both inside and outside the continent.
Fears not unfounded
“These fears are not unfounded”, says Malte Liewerscheidt. “Yet they can be addressed and solutions are at hand. A compensation fund could be set up by wealthier members of the TFTA, which could offset customs revenue losses in other member states. And rather than abolishing all custom tariffs at once, ‘cash cow taxes’ (on items that generate large tax revenues, ed.) can be kept intact and dismantled at a later stage. But more fundamentally, countries could start collecting other forms of tax revenue if they had the administrative and technological means for it. Customs revenue is a relatively easy tax to collect. With the help of a compensation fund, tax procedures could be modernised and governments may collect value-added taxes, income taxes and company taxes more easily, making them less dependent on customs revenue.”
Africa pushed to the margins?
According to Malte, a well implemented TFTA would benefit Africa: “Whereas Africa contributed 8 per cent of global trade at the end of World War II, this figure has gone down to a mere 3 per cent today. With a number of international trade agreements currently negotiated – such as TTIP, the Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership (RCEP) – Africa can get pushed to the margins even further if it cannot benefit from regional integration. Particularly the Trans-Pacific Partnership and RCEP could direct trade away from Africa, legitimising African leaders’ pursuit of a continent-wide free trade zone. If the TFTA matures well, a thorough foundation will have been laid for the further establishment of a Continental Free Trade Area and eventually an African Customs Union.”
Story by Maurice van der Spek