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African free trade area by 2017?

African leaders are now calling for a continental free trade area, a measure which is backed by a new World Bank report which shows that African countries are losing out on billions of dollars in potential trade earnings due to high trade barriers with neighbouring countries. The Bank found that it is easier for Africa to trade with the rest of the world than with itself.

Reduction of trade barriers can enhance growth, development and poverty reduction within Africa.

The new report, with the catchy title, De-Fragmenting Africa: Deepening Regional Trade Integration in Goods and Services, says: “while uncertainty surrounds the global economy and stagnation is likely to continue in traditional markets in Europe and North America, enormous opportunities for cross-border trade within Africa in food products, basic manufactures and services remain unexploited.”

There are currently one billion people living in Africa, which has an overall economy worth about $2 trillion. But unfortunately trade and non-trade barriers remain significant and these are falling most heavily upon poor traders, most of whom are women.

The report says that while exports have grown strongly over the last decade, and the region’s trade has recovered well from the global crisis, the impact on unemployment and poverty has been disappointing in many countries. Unemployment remains around 24 percent in South Africa. In Tanzania, extreme income-poverty appears to have remained broadly constant at around 35 percent of the population. This shows that export growth has typically been fuelled by a small number of mineral and primary products with limited impacts on the wider economy and that formal sectors remain small in many countries.

To escape the current straightjacket of trade fragmentation, the report says that African leaders, need to pursue changes in three key areas.

  • Improving cross-border trade, especially by small poor traders, by simplifying border procedures, limiting the number of agencies at the border and increasing the professionalism of officials, supporting traders associations, improving the flow of information on market opportunities, and assisting in the spread of new technologies such as cross-border mobile banking that improve access to finance.
  • Removing a range of non-tariff barriers to trade, such as restrictive rules of origin, import and export bans, and onerous and costly import and export licensing procedures.
  • Reforming regulations and immigration rules that limit the substantial potential for cross-border trade and investment in services.

Although Africa in general has seen a fairly rapid rise in growth in recent years, it needs to avoid the impact of continuing European sluggishness by finding other ways to grow. Intra-continental trade growth within Africa is one obvious way of doing this.

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Posted in Africa, International Trade

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