Capital Markets

Africa steps up merger of three top trading blocs

Imported sugar from Comesa is off loaded at the port of Mombasa. Three African market blocs have plans to merge in two years. Photo/FILE
Imported sugar from Comesa is off loaded at the port of Mombasa. Three African market blocs have plans to merge. Photo/FILE 

Eastern and Southern African states have stepped up plans for the establishment of Africa’s biggest economic bloc with the opening of negotiations that may culminate in a Free Trade Area spanning Cape to Cairo by May next year.

A project of the African Union, the new trading bloc that aims to merge the Common Market for Eastern and Southern Africa (Comesa), Southern Africa Development Corporation (SADC) and the East African Community (EAC), has been on the cards since last year in what is seen as Africa’s latest effort to build the muscle it needs to compete globally.

Renewing hopes

The three trading blocs have instructed their secretariats to get the legal documents ready for signing in the first half of next year, renewing hopes in a project that has been in limbo since its launch last year.

Trade experts say Africa needs to improve how it trades with itself even as it pursues avenues of growing its share of global commerce with the signing of pacts such as Economic Partnership Agreements (EPAs) and the Doha round of the World Trade Organisation.

Though seen as representing Africa’s best chance of raising its stature on the global platform, the proposed merger of Comesa, EAC and SADC has been moving at a snail’s pace shackled by concerns over its possible impact on weaker economies who fear being swamped by cheaper goods from the low cost producers in Southern and Northern Africa.

A free trade area is the second stage of economic integration in which member countries undertake to eliminate tariffs, quotas and preferences on goods and services traded among them.

It usually comes immediately after the preferential trading area and is followed by the custom union, common market, and a monetary union.

The merger of the three trading blocs is seen as the best way to tame Africa’s thriving black market whose lifeline is the smuggling of goods to evade official barriers to trade.

“It should produce positive results if the three trading blocs harmonise their rules and apply them transparently within an expanded FTA,” said Mr Chris Onyango, a regional integration analyst at the Kenya Institute for Public Policy Research and Analysis.

A working document on the project, to be approved by the heads of state, says the new FTA should be the product of the existing COMESA, EAC and SADC FTAs.

A Comesa secretariat statement issued on Tuesday also confirms that establishment of the FTA will be top on the agenda of the next tripartite heads of state Summit to be held in April or May.

The project aims at integrating the economies of 26 African countries to create a 527 million people market (57 per cent of total African population) and control a combined wealth of $ 624 million (58 per cent of African Union’s combined GDP).

The new impetus to merge the regional blocs comes barely a week after a meeting of the chief executives of the three secretariats in Dar es Salaam that cleared the documents for the proposed FTA for delivery to the member states for consideration in readiness for the next year’s Tripartite Summit meeting.

To the EAC countries that just signed a protocol establishing a common market in the region last week, the rollout of yet another pan-African free trade area entails going back to the drawing board in the crafting of new strategies to protect sensitive industries.

“Some countries might wish to consider shielding a few sensitive products while trading with big partners. For this reason, provisions have been made for countries to request for permission to maintain some sensitive products for a specified period of time,” says the Comesa statement.

Market protocol

That provision borrows from the path the EAC has taken in the journey to the common market stage that saw Kenya —the most advanced economy of the region — accept to fully open its borders for Tanzania and Ugandan goods on a non-reciprocal basis.

Even after signing the common market protocol, Uganda is still fighting to be allowed to import some 135 industrial inputs from outside EAC without attracting the region’s common external tariff on raw materials of 10 per cent in line with her economic policy of protecting weak industries from external competition.

Among the 26 members of the expanded FTA will be South Africa and Egypt, the two countries whose low cost products already dominate the region even without a formal preferential trade arrangement.

Experts however reckon that getting into an expanded bloc will open wide doors for negotiation, making it easier for countries already separated economically by the virtue of being members of different economic blocs to negotiate favourable trading terms.

“The spirit of the tripartite arrangement is to provide a wide platform for negotiation that will eventually eliminate the unnecessary competition among African states,” says Mr Onyango.

Unlike a customs union or a common market, members of a free trade area do not have a common external tariff (same policies to regulate trade deals with non-members) meaning cheaper goods and raw materials from external sources could easily find their way to the FTA.