Taking Africa into the future

The first round of negotiations to establish a free trade area (FTA) covering 26 countries in Southern and East Africa will begin on Dec 8 in Nairobi. It is envisaged that the negotiations will be completed in 36 months. It promises to be an important instrument for the future of trade and industrialization in Africa.

The three trade blocs involving the Southern African Development Community (SADC), the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA) decided in October 2008 in Kampala to move towards a free trade agreement.

This will create a bigger market that will boost intra-regional trade, increase investment flows, enhance competitiveness and push the development of cross-regional infrastructure.

It will also boost industrialization, the making of goods to sell instead of the selling of primary products. While competition with older established and also bigger emerging economies might be a stumbling block initially, the huge new market may make it possible for locally manufactured goods to compete with those imported from outside the FTA.

Close to 600 million people live in the proposed FTA with a gross domestic product of $1 trillion, which means we would suddenly be boxing in the same weight division as China, India, Russia, Brazil, the US and the European Union.

Africa Industrialization Day is about attracting the eyes of the world to this continent and promoting the need for building factories, something that is becoming easier because the continent is already being touted as the place to be because the future is here.

It is easy to see why:

Africa's combined consumer spending in 2008 was $860 billion, but it is expected to grow to $1.4 trillion by 2020.

In 2040 there will be 1.1 billion Africans of working age.

Urbanization enhances growth. Africa already has 52 cities with more than a million inhabitants, more than Europe. It is predicted that fifty percent of the population will be living in cities by 2030.

Africa's returns on FDI are the highest in the world.

South Africa, with its advanced and sophisticated economy, is best suited to take advantage of such an expanded market. Already the World Economic Forum (WEF) has rated South Africa the best in the world for the strength of our auditing and reporting standards and for the regulation of securities exchanges. The soundness of our banks, rated second in the world, is another important asset at a time when many banks elsewhere are shaky.

Add in the certainty offered by the recently announced National Development Plan, which sets out the country's path until 2030, and it is clear that South Africa's competitiveness will be enhanced.

We know that our fellow BRICS countries started their upward economic trend based on their huge domestic markets. With the establishment of the FTA, South Africa will have a market that will be twelve times bigger than the fifty million customers it now has.

Setting up the FTA will not be easy, South Africa's minister of trade and industries has admitted that negotiations over industrial policy could be tough. South Africa has just set out to implement its Industrial Policy Action Plan and talks around the trade in manufactured goods will be of particular concern. But South Africa does have an advantage, as the minister correctly pointed out: a high percentage of its exports into Africa are already value-added products.

The levels of protectionism between African countries, restrictive trade permit needs and very obvious economic disparities are other problems that need to be overcome. Additionally, merging three existing trade blocs into one will be a difficult process as they are at different levels of integration with different rules and regulations.

All of these will be part of the negotiations that start next month.

But clearly economic growth in all participating countries will be boosted by increased intra-regional trade, for Africa as a whole, this stands at only 12 percent of all cross-border trade at the moment, whereas in Asia the figure is rising toward 50 percent and in the EU it is 80 percent.

The FTA would also be an important building block towards achieving the vision of the founding fathers of the Organization of African Unity in 1963 - a continent-wide African Economic Union.

The December talks may truly be the first concrete sign of Africa rising to take its rightful place in the world.

The author is the CEO of Brand South Africa.

(China Daily 11/28/2011 page8)