Africa to decide on free-trade zone: what’s at stake?

Reuters | African leaders will decide on Sunday which nation will host the headquarters for a continental free-trade zone that aims to eventually unite the continent’s 1.27 billion people and its US$3.4 trillion nominal gross domestic product (GDP).

Leaders at the African Union (AU) summit in Niger will also set a date for trading to begin in the African Continental Free Trade Area (AfCFTA), a deal that 52 of the continent’s 55 states have signed, although only 25 have ratified it. The bloc aims to ultimately remove trade barriers and tariffs between members.

Which counries want the headquarters?

Under the Addis Ababa-based African Union’s rules, all of its 55 members may bid to host the headquarters. Swaziland (eSwatini), Egypt Ghana, Kenya and Madagascar and are all in the race. Ethiopia and Senegal have pulled out.

Those in the race represent the continent’s main regions: Kenya from the east, Ghana from the west, eSwatini for southern Africa, Madagascar for the Indian Ocean islands and Egypt representing the north.

Egypt holds the AU presidency this year and has been promoting itself as a linchpin for African trade.

“Egypt is one of the oldest members of the African Union and enjoys strong relations with African states,” said an official from Egypt’s trade ministry. “We have all the requirements.”

What are their chances?

Egypt and Kenya already host head offices for other international bodies and are well connected by established national airlines.

Egypt hosts the headquarters of the Africa Export Import Bank. Kenya hosts the headquarters of the U.N. agencies for the environment and for urban development: UNEP and UN-Habitat.

“Nairobi is a very natural location for such a body. It is easy to reach any part of this continent (from here),” Peter Munya, the Kenyan Cabinet Secretary of trade, told reporters.

Tiny eSwatini, has secured the backing of its regional trade bloc, the Southern African Development Community (SADC).

Why does it matter?

Whoever hosts the headquarters gains prominence and prestige. The winning country will also secure jobs for citizens at the secretariat, and get a cash boost to its travel and tourism industries.

The AU wants to boost annual intra-continental trade to 25-36 percent of all African commerce within 5 years, from just 18 percent currently, and attract large, long-term investments from firms like global carmakers.

“Hosting the headquarters would ensure that eSwatini becomes Africa’s commercial hub. The country will become a hive of business activities,” Mancoba Khumalo, eSwatini’s minister of commerce and trade, told local media.

What next?

After African Union heads of states and governments pick the host country on Sunday, they will unveil regulations governing issues like trade liberalization, rules of origin, removal of non-tariff barriers and the development of a payments and settlements system.

They will also set a date for trading to start in the bloc. The deadline should allow time for firms to make adjustments and states to prepare new trade documents.

Nigeria, the continent’s biggest economy, said this week it will sign up on Sunday.

The bloc must figure out how to avoid member states exporting or smuggling raw material outside the continent that was traded tariff-free under the guise of intra-African trade, said Anzetse Were, a Kenyan development economist.

“Given Africa’s underdeveloped manufacturing and propensity to export raw commodities, without co-ordinated policy change, the (bloc) may entrench and enable this dynamic,” she said.

Will the bloc work?

Past attempts at economic integration have created an alphabet soup of competing and overlapping trade zones – the Economic Community of West African States (ECOWAS) in the west, the East African Community (EAC) in the east, the Southern African Development Community (SADC) in the south and the Common Market for Eastern and Southern Africa (COMESA) in the east and south.

Albert Muchanga, the AU’s commissioner for trade and industry, said implementation “will be very, very difficult but I think we have the capacity”.

“The status quo is not good for Africa. You have got 55 fragmented states, which traditionally are small and weak in the global system,” he told reporters by phone.

But the continent has a combined US$3.4 trillion gross domestic product, he said.

“As long as we maintain the status quo, Africa really will have very low development prospects.”