With a relatively well-developed economy, Egypt stands to gain a lot from the new FTA (Free Trade Area) pact, which covers a population of 625 million in the eastern and southern parts of Africa.
On 10 June, Egypt along with 25 African nations signed in Sharm El Sheikh an agreement to form a single free trade area that would cover a 625 million population in eastern and southern Africa, integrating three existing trade blocs -the Southern African Development Community (SADC), the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA).
The plan is intended to ease the movement of goods across member countries, which represent more than half of Africa’s GDP ($1.3 trillion), and boost investment within a common market.
Prof. Yomn M. El Hamaky, Professor of Economics at Ain Shams University, welcomed the FTA agreement as an important step for Africa which will take advantage of the wider market base of 26 member-states, and use its own resources.
She pointed out that Africa’s natural resources have been unfairly exploited by foreign multinational companies for years, with no effort to process those same resources in Africa.
‘’With the creation of a free trade area, there’s a potential for Africa to use resources efficiently by their people for their people,’’ Professor El Hamaky noted.
According to Dr. Ayman Shabana, Professor of Political Science at Cairo University’s Institute of African Studies, the FTA deal will boost intra-African trade – at the lowest rate, compared to any other region – by opening up trade relations among African countries which, he estimated, accounts today for as little as 2% to 5% of African trade as African countries mainly trades with former colonial states.
Dr. Shabana believes a common market will make it easier to trade goods across Africa, allowing African products to enter the continent’s market. Likewise, he thinks that access to such a large-sized market will benefit Egypt, helping it to look beyond Europe, the US and Asia, and push its trade into Africa.
‘’The free trade zone will enable Egypt to market itself in food production, textile and petrochemical manufacturing’’, the political scientist added, ‘’Also, African products like coffee, tea, timber, gold and other metals will enter the Egyptian market.’’
Shabana is positive that Egypt will particularly benefit from investing in infrastructure, construction, banking communications in Africa, having already companies like Mobinil and Arab Contractors established in some African countries.
Egypt is one of the most dynamic African markets, and enjoys a privileged geographical position making it an ideal hub for Africa.
El Hamaky is confident Egypt can act as a bridge between Africa and the world, and also offer a base to sell in the other 25 African countries and vice versa which, she stressed, will translate in mutual benefit once the FTA is created.
With the formation of a single trade zone, it is hoped to reach an 85% reduction in tariffs within three years and non-tariff trade barriers.
“By reducing or doing without tariff and non-tariff barriers to trade, you can export more easily, produce more, cut down costs, then you become more competitive,’’ the economist argued.
In El Hamaky’s view, Egypt has a great deal to gain from the FTA plan in all sectors, from agriculture to manufacturing and the service sector.
Over the years, Egypt has signed several multilateral and bilateral trade agreements that give the country access to the world’s largest markets.
Shabana and El Hamaky agreed that the establishing of the FTA will not conflict with or affect Egypt’s existing commercial deals with other countries. Instead, it will encourage both Egyptians to invest in African countries and Africans to come and invest in Egypt.
Enhancing profitable investment will in turn create opportunity to generate growing trade. The FTA is aimed at raising Africa’s share of global trade, which currently stands at just 2%.
During the FTA pre-launch summit, COMESA Secretary General Sindiso Ngwenya said the deal will ensure that jobs are created as companies involved in the production of goods and service across borders will be established in the region.
Mr Ngwenya added that the FTA will allow for businessmen and women to trade freely and cheaply, noting that multiple trade protocols usually result in expensive business deals while a one and harmonized trade protocol will allow for cheap business deals.
He said free movement of people across borders will stimulate business development and investment opportunities for the three economic regions.
What hurdles could this agreement face along the way?
There is still a long way before the pact goes into force in 2017. First, the parliaments of all member-states – Egypt’s parliament is yet to be elected – need to ratify the treaty. Besides that, although many African countries had signed up to previous trade bloc agreements, in practice they didn’t really mean anything.
For Shabana, political will is one well-known challenge. Whether there is among the 26 countries sufficient will to follow through implementation. In part, the political science professor explained, that has to do with the fact that there are those who would profit as well as those who would lose out from this deal due to unequal economic standards among these countries. The mixed group encompassed by the trade pact, ranges from big, populated countries with large economies like South Africa and Egypt, to countries with smaller economies and less well established manufacturing sectors such as Somalia or Djibouti.
The other key issue is infrastructure. With or without trade barriers, the poor state of roads, railways, airlines and ports makes intra-African trade difficult and expensive. Only greater commitment towards better infrastructure can support trade in Africa.
Dr. Shabana mentioned another constraint is similar production which could leave out few trading options between African countries, known to be exporters of raw materials with a very low amount of manufactured goods.
He added the continued commercial relations with former colonial states, dominating various African markets, and the instability caused by armed conflicts in Africa are two other factors that could hinder the FTA’s implementation.
Prof. El Hamaky pointed to institution capacity-building as one key aspect to Africa’s trade integration, along with coordination efforts among the FTA members geared to make the trade deal work out on a win-win basis.
‘’It’s important to identify who’s going to benefit, who’s going to lose from this integration and compensate these states fairly,’’ the economics professor said.
El Hamaky emphasized that the FTA’s drive is to find the comparative advantage, enhance industrialization and to upgrade the human resources.
Provided that the finances, the physical infrastructure, technology transfer and manpower skills are there, the success of Africa’s FTA will depend on how the resources will be used efficiently, enhance competitiveness and create potential for African businesses.
Alessandra Bajec is an Italian/French bilingual freelance journalist based in Cairo. To see more of her articles go to http://www.alessandrabajec.com/ [2].
Originally published in International Financial Magazine on 15 July 2015.