by Miriam Mannak

Trade blocs block African growth

Experts say barriers have opposite effect

Africa would experience greater prosperity without trade blocs.
blocs.jpg

Africa is a continent of extremes.

On the one hand it is blessed with vast deposits of very valuable natural resources, and on the other it remains one of the world’s poorest regions to date.

The statistics do not leave much to the imagination. In 2008, according to the United Nations just under half of the population of sub-Saharan Africa lived on $1.25 (R11.31) a day or less.

This is linked to a persistent lack of jobs, which translates to high unemployment rates: the African Economic Outlook estimates that over 20% of Africa’s youths, who form 65% of the continent’s population, are without jobs.

Lack of education and schooling opportunities play a big role, the report states, indicating that 50% of African youngsters are illiterate.

Despite all of this, the continent interestingly enough seems to be doing quite well on the macro-economic growth front in light of the global economy, particularly compared to traditionally wealthy regions such as Europe and the United States.

While the world’s economic growth rate for 2013 is estimated at 4.1%, the International Monetary Fund has set the growth in Sub-Saharan Africa at 5.6% this year and at 6% in 2014.

Some 18 countries in the region will see their economies expand by 6% or more.

This is in stark contrast with the US economy, which is expected to grow by 1.9% in 2013 and 3% in the consecutive year.

Europe’s GDP is expected to contract slightly this year followed by a meagre 1.1% expansion between January and December 2014.

While this is without doubt a great achievement for Africa, the region’s growth is not sufficient to catch up with the First World in the short run.

Despite being one of the fastest growing economic regions – and incredibly rich in terms of natural treasures such as gold, diamonds and oil – it remains the world’s least developed continent ravaged by poverty and other socio-economic ills.

Boosting economic growth beyond these current challenges, on a global scale shows impressive levels often singled out as some of the key solutions to Africa’s plethora of challenges.

After all, the better the economy performs, the better businesses can flourish, the more jobs can be created.

The question is what is holding back a region like Africa, which is blessed with an abundance of key and much-wanted natural resources such as oil and coal – drivers of economic development and growth elsewhere in the world.

While there is no one-faceted answer to this, fingers are often pointed in direction of the some 14 regional trade blocs – known as Regional Economic Communities (RECs).

Of the African trade blocs, 11 are the pillars of the African Economic Community, of which the main ones are the Community of Sahel-Saharan States; the Common Market for Eastern and Southern Africa; the East African Community; the Economic Community of Central African States; the Economic Community of West African States; the Inter Governmental Authority on Development; and finally the Southern African Development Community, to which South Africa belongs.

Then there are five RECs that do not participate in the African Economic Community, namely the Greater Arab Free Trade Area (GAFTA, which includes some Middle East countries), the Economic Community of the Great Lakes Countries, the Indian Ocean Commission, the Liptako- Gourma Authority and finally the Mano River Union.

Like trade blocs elsewhere in the world, the RECs in Africa were established with the objective to promote trade within a certain sub-region, defend its members against global competition and enhance economic growth within the group’s borders.

“While the existence of numerous agreements within the region in itself is not a problem – although it does mitigate the benefits to be obtained from integration – overlapping membership between the groupings has the potential to cause conflict and certainly imposes greater transaction costs on the business communities and governments,” Richard and Simon Hess, managing director and research economist of Imani Development, wrote in their paper A Pending Crisis of Overlap which was published on the website of the South African Institute of International Affairs.

“As these regional groupings move toward deeper trade and economic integration, these problems become more severe.”

If it were up to the Minister of Finance, Pravin Gordhan, this overlapping quilt of trade blocs could not be abolished soon enough.

“Countries that are part of more than one regional trading bloc must choose where they want to belong,” he said in 2010 at the African trade conference that formed part of the IMF World Bank annual meeting in Washington DC.

The minister added that abolishing multi-memberships should be the start of a new African trade order: “Eventually, Africa should be one free trade area with a common customs union”.

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