Africa's Free Trade Dream

 

At a time when international cooperation is under threat, Africa is sending a message to the entire world that it is committed to multilateralism and global interdependence. In the latest newsletter, our editor Kyrill takes a look at the European example and what Africa stands to gain, or lose…

Receive this newsletter in your inbox

 
Photo:  Government ZA
 

At a time when the very idea of multilateralism and international cooperation is under threat (not just by rising powers such as China, but within Europe and the U.S. too) Africa is sending a message to the entire world that it is committed to multilateralism and global interdependence. Earlier this week, 54 of the 55 African nations signed the African Continental Free Trade Area at the African Union Summit in Niger, thus vowing to create the world’s largest free trade area.

Nigeria, the continent’s largest economy, was the last to sign, marking a milestone after 17 years of negotiations. It’s a giant leap forward in the continent’s efforts to create the world's largest free trade zone—a 55-nation bloc worth $3.4 trillion, with a population that will reach 2.7 billion by 2050, or a quarter of the world’s total working population. Crucially, 70 percent of this population is under the age of 30, which means Africa will be much more immune to the problems caused by ageing populations in developed economies.

The ‘Monnet Method’
The rationale behind free trade agreements is mostly economic, and this one is no different. But beyond the bucks there lies the promise of peace achieved through interconnectedness. In other words: the more we depend on each other for our goods and services, the less likely we are to wage war.

The EU’s ‘founding fathers’, Jean Monnet and Robert Schuman, also believed that political integration would eventually be achieved through economic interdependence, via a process called spillover: “There is no real peace in Europe, if the states are reconstituted on a basis of national sovereignty. (…) They must have larger markets,” said Monnet.

The result of the ‘Monnet Method’ has been 70 years of peace, and relative prosperity, in Europe—a historic first. In a similar vein, a united African trade area could promote peace on a continent ridden with political and sectarian conflict. There are also real economic gains to be made: intra-African trade currently accounts for a measly 17% of exports (in comparison, 65% of all trade in Europe was conducted within the EU, that is, with other European countries). However, the African Union estimates that implementing the free trade area will lead to a 60% boost in intra-African trade by as early as 2022.

Obstacles along the way
But simply slashing trade tariffs won’t be enough. Even after costs are reduced, Africa's exporters will still have to face other obstacles to trade, such as corruption and poor infrastructure between nations. What’s more, as in Europe, and unlike in the U.S., the African continent lacks a common language to trade in. More important is the absence of a common currency. That’s why, to help lower transaction costs, the African Union wants to set up a pan-African payment system at the summit in Niger's capital (on that note, the BBC recently examined whether Facebook’s digital currency, the “Libra”, will be good for Africa).

Another key challenge will be how to manage price dumping and unfair labor competition. There is the real risk of companies in less-developed African countries immediately moving their operations to more prosperous and stable countries, causing workers and talent to move along with them.

A warning from Europe: stop the brain drain
In Europe, the problem of ‘dumping’ is one of the main reasons for the anti-immigrant sentiment that fueled Brexit and the rise of illiberal autocrats in Hungary and Poland. Indeed, poorer countries in southern and eastern Europe have paid a hefty price for their inclusion in the EU’s free movement area and single market, in the form of ‘brain drain’.

As Ivan Krastev writes, “Emigration is damaging Bulgaria. We need our brightest to change the country—instead, they leave.”

Last year, we dedicated an entire issue to the unique challenges, but also opportunities, posed by free movement in Europe. Priyanka Borpujari reported for us from Bosnia, which is losing highly educated, ambitious young people to other European countries. What goes into a decision to upend your life and move to another country for economic reasons? And what does it mean for the people that brain drain leaves behind? Find out here.

And, last summer, our team traveled to Moldova to document the crisis of democracy and the effect the brain drain was having on the country's economy and social fabric. You can read the multimedia story, which was nominated for the European Press Prize, here.