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    What the two most powerful economies – America and China – can learn from Africa about the potential of “free-trade”

    April 2018

    Free trade is not exactly the dish du jour in todays world. Currently the US and China are busily slapping tariffs on each other’s steel, pork and wine and no one knows what further action will be taken by both nations. Free trade agreements, such as Nafta, are being revisited. And the political backlash against globalization is so fierce that the idea of completing the Doha round of global trade talks is as dead as any duck, imported or otherwise. But one region of the world is bucking the trend: Africa.

    Last month, 44 African nations signed up to a continent – wide free trade agreement that will cut tariffs to zero on 90% of imports, phase in lower tariffs on “sensitive items” and liberalize trade in service. Though the principles of free trade are under ideological attack in many parts of the world, in Africa the case for more intra – regional commerce is overwhelming.

    Africa needs free trade for many reasons. The most important one is to remake history. Colonialism left Africa in bad shape to develop. It broke the continent into more than 50 pieces, few of which today have the scale to attract sufficient investment or ramp up manufacturing. The whole of Africa has gross domestic product of about 2.5 Trillion US-Dollar, roughly the same as the UK. Just imagine for a second it Britain were broken up into 54 units, each with its own politics, language, regulatory environment and hard border – quite a chaos. No fewer than 16 African countries are landlocked. Worse, they are dropped in a history of extraction. For colonial powers, African colonies were supplies of raw materials. What little infrastructure there was connected mines haft to port, and port to colonial metropole. That purely extractive arrangement left an indelible legacy. To this day, physical and cultural links between some African neighbors are weaker than with the farmer colonial power.

    Even if they tried, many post – colonial African governments were unable to break the basic pattern of trades ship raw materials out and bring manufactured goods in. Diversification and economic complexity are the foundations of development. Yet with the exception of South Africa, Egypt and a few others, most African economics are stuck as supplies of basic commodities.

    Trading with each other is a way out of that bind. But intra – African commerce is still low. In 2016, intra – African exports made up 18% of total exports, according to the Brookings Institution, compared with 59 and 69% for intra – Asia and intra – Europe exports, respectively.

    Most African countries are missing out on the classic benefits of trade: economies of scale, specialization, access to cheaper inputs and, for consumers, more affordable products. According to the United Nations Conference on Trade and Development, medium and high technology manufactures account for 25% of intra – African trade, but only 14% of African countries’ exports to developed countries. Trading with each other is a way of moving up the value chain.

    Firestone for example has supplied the whole world with Liberian rubber since 1926. In all that time, not a single tire has been produced in the West African country of 4.6 million people. Conceivable, if it were part of a genuine free trade area spanning a continent of 1.2 billion people, the mathematics of manufacturing might change. Chiedu Osakwe, Nigeria’s chief trade negotiator sees continental trade as nothing less than a way to “reverse the colonial inheritance of fragmented and polarized African economies.”

    Getting from here to there will not be easy. For a start, countries must build the intercontinental road and rail links, install the regular power and enforce the frictionless customs needed to convert lower tariffs into actual trade and production.

    Just as important is political buy-in. Nigeria, Africa’s biggest economy, is yet to sign the free trade agreement because of opposition from domestic unions, which have warned against what they call a “radioactive neoliberal policy initiative”. Such opposition cannot simply be dismissed. The cause of free trade has suffered worldwide because, an any arrangement, there are losers as well as winners. In aggregate, people may gain. But all politics is disaggregated, which is to say, local.

    Still, something is already happening. Intra – African trade, while still low, has raised 11 fold since 1990, according to Renaissances Capital. While trade with the US and Europe has slowed or even reversed, trade with the likes of China, India, Russia, Turkey and Indonesia has ballooned.

    That brings the possibility of a new kind of trading relationship, more complex and more beneficial to Africa. The pattern of trade has not altered nearly enough. But it is changing. It is imperative that it changes more.