By Joel Sam, Contributing Analyst
The launch of the of The Tripartite Free Trade Area (TFTA) on June 10, 2015 formally Integrated the economies of 26 African nations from across the continent’s three largest regional economic communities – the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC), and the Southern African Development Community (SADC). Conceived and developed independently of the framework of the African Union, but welcomed by it as a decisive step toward the broader objective of continental economic integration, the TFTA agreement comprises 45 Articles and 10 Annexes detailing new protocols toward the creation of a trillion-dollar single market with free movement of goods, services, and business people.
Details and roadblocks: Three pillars or vectors define the substance of the multilateral agreement. The first, market integration, is focused on harmonising the trade regimes of the regional economic communities (RECs), liberalising tariffs and eliminating non-tariff barriers (NTBs), such as import quotas, subsidies and customs red tape. As NTBs have been a sticking point for cooperation within Africa’s RECs in the past, a tripartite sub-committee on NTBs has been added to the institutional framework, along with processes for identifying, categorising, reporting, monitoring, and resolving disputes.
The second pillar, infrastructure development, will see members prioritise projects in the energy, transport and telecoms sectors, particularly as these remain the basis of common bottlenecks to production and trade on the continent. To put the scale of this challenge in context, the African Development Bank estimates that Sub-Saharan Africa currently experiences an annual infrastructure funding shortage of more than $50 billion, which, it claims, reduces productivity by as much as 40 percent. Arguably the need for institutional infrastructure is equally as important, including trade-related infrastructure, trade finance, trade information and, crucially, governance.
Finally, industrial development takes account of the need for many of the smaller TFTA economies to position themselves in potentially new supply chains in order to benefit from inter-regional trade. Closely associated with the challenges of infrastructure development, improving industrial capacity is a sound strategy for countries which cannot rely on income from commodity exports, particularly as new opportunities will arise in manufacturing, assembly and logistics sectors.
Outlook: Investors can take heart from the steady progress of African economies and policymakers on the path toward regional integration. As the official communique states, signatory parties are confident that the agreement will yield increased investment flows, regional infrastructure development, and a boost to the share of intra-regional trade in total exports (which currently stands at approximately 25 percent). For the combined population of 625 million across the twenty-six countries, TFTA ushers in new economic realities – the opportunity and challenge of structural shifts in employment and the likelihood of lower-cost goods and services. But policymakers will be watching carefully. The success or otherwise will impact the much more ambitious targets of establishing a Continental Free Trade Area (CFTA) by 2017 and a continental customs union by 2019.