African Continental Free Trade by 2017 to overcome Global Economic Crisis!

Is Africa really free if it continues not to trade with itself?

After 60 years of independence and 50 years of African Union, the continent is not yet united?  How can you spend 50 years of meeting every year in Addis and you only have the Ethiopian Airlines flying between African cities.

If there is no air, sea, land and cyber communication, how can you have free trade.  Now the EU is going bankrupt, Africans are looking within for trade and investment.

This is by far too late and need to be accelerated!   Who is causing the trade barrier?  Africans or Europeans.  The recent AU Commissioner election was marred by the  old Monrovia and Casablanca group or the English and French speaking Africans feud.   Surely, Africa has over 800 languages and why not choose Amharic the Ethiopian national language and you do not have this same stupidity flaring again after 50 years !

The time is now to connect with African roots, business and enterprises.  Africa needs to connect with Asia, America and the Euro-Asia regions of the word too.  The time is now ready for Africans to move outside their little villages to the Global community for trade, investment and sustainable development.
Do we still  need the World Bank to fund and organize this new vision?

Please read on

Belai Habte-Jesus, MD, MPH
www.GlobalBelaiJesus.com


Trade barriers cost Africa billions: World Bank

A new World Bank report shows how African countries are losing out on billions of dollars in potential trade earnings every year because of high trade barriers with neighboring countries, and that it is easier for Africa to trade with the rest of the world than with itself.
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OPEN BORDERS: SA, together with three of Africa’s economic communities, will meet next month to discuss the creation of a free trade area from Cape to Cairo. Picture: SUNDAY TIMES
Articles

Barriers blunt trade within Africa says World Bank

According to the new report, "De-Fragmenting Africa: Deepening Regional Trade Integration in Goods and Services", regional fragmentation could become even more costly for the continent with new World Bank forecasts suggesting that the economic slowdown in the eurozone could shave Africa's growth by up to 1.3 percentage points this year.

The authors said: "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."

The report said this situation deprives the continent of new sources of economic growth, new jobs, and sharply falling poverty, factors which accompanied significant trade integration in East Asia and other regions. The cross-border production networks that have spurred economic dynamism in other regions, especially East Asia, have yet to materialise in Africa.

African leaders have called for a continental free trade area by 2017 to boost trade within the continent.

Regional integration in Africa has long been recognised as essential to address the issues of the small economic size of many countries and the often arbitrarily drawn borders that pay little heed to the distribution of natural endowments. But, as is often noted, Africa trades little with itself, at least to the extent that is recorded in official customs statistics.

"It is clear that Africa is not reaching its potential for regional trade, despite the fact that its benefits are enormous - they create larger markets, help countries diversify their economies, reduce costs, improve productivity and help reduce poverty." said Obiageli "Oby" Ezekwesili, The World Bank's Vice President for Africa, and a former Nigerian Minister of Extractive Industries.

"Yet trade and non-trade barriers remain significant and fall most heavily and disproportionately on poor traders, most of whom are women. African leaders must now back aspiration with action and work together to align the policies, institutions and investments needed to unblock these barriers and to create a dynamic regional market on a scale worthy of Africa's one billion people and its roughly US$2-trillion economy."

The report noted that until the onset of the financial crisis, most sub-Saharan African (SSA) countries grew rapidly and often at much higher rates than the world average. Economic growth in these countries was robust and driven by the boom in commodity prices, which led to very high growth in export values, especially for minerals, to new fast-growing markets such as India and China.

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% in SA. In Tanzania, extreme income-poverty appears to have remained broadly constant at around 35% of the population. This shows that export growth has typically been fueled 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.

As a result, the report suggests that Africa will have to diversify its exports from depending solely on precious metals and other commodities and encourage more people to trade goods and professional services in accounting, law, education and healthcare, among others. The region's large number of young people also calls for significant numbers of new jobs, intensive trade, and growth.

"Imagine the benefits of allowing African doctors, nurses, teachers, engineers and lawyers to practice anywhere on the continent, but responsibility for making this happen lies with countries first and foremost," said Marcelo Giugale, the World Bank's Africa Director for Poverty Reduction and Economic Management.

"The final prize is clear: helping Africans trade goods and services with each other. Few contributions carry more development power than that," he said.

To escape the current straightjacket of trade fragmentation, the report says that African leaders, most of whom will attend this week's regional integration summit in Ethiopia hosted by the African Union, need to pursue changes in three key areas.

1. Improving cross-border trade, especially by small poor traders, many of whom are women, 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.

2. 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

3. Reforming regulations and immigration rules that limit the substantial potential for cross-border trade and investment in services.

Trade and regional integration are core elements of the bank's new Africa strategy, launched in March 2011, to help countries create opportunities for their transformation and sustained growth. The bank has doubled its investment in regional integration from US$2.1 billion in 2008 to US$4.2 billion in July 2011, and it will rise to $5.7 billion by July 2012.

Barriers include trade permits, export taxes, import licenses, and bans, all of which are persistent.

While there has been some success in removing import duties within regional communities, a range of non-tariff and regulatory barriers still raise transaction costs and limit the movement of goods, services, people and capital across borders. The end-result is that Africa has integrated with the rest of the world faster than with itself.

Effective regional integration is of particular pertinence now. 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.

Such trade is essential for welfare and poverty reduction, since poor people, and especially women, are intensively engaged in the informal production and trading of the goods and services that are actually crossing African borders. Allowing these traders to flourish and gradually integrate into the formal economy would boost trade and the private sector base for future growth and development.

There are enormous opportunities from trade in services in Africa that are not dependent on a common external tariff being in place.

Countries can work to improve trade facilitation at the border and to remove non-tariff barriers with neighbors while free trade agreements are being designed and implemented.

Countries that are not members of the same free trade agreements can work to disseminate information on market prices to producers and traders.

Examples of intra-Africa trade barriers
A new World Bank report has shown how African countries are losing out on billions of dollars in potential trade earnings every year because of high trade barriers with neighboring countries, and that it is easier for Africa to trade with the rest of the world than with itself.

For example, the share of intra-regional goods trade in total goods imports is only around 5% in the Common Market for East and Southern Africa (COMESA), 10% in the Economic Community of West African States (ECOWAS) and 8% in the West African Economic and Monetary Union (UEMOA).

This compares with over 20% in the Association of Southeast Asian Nations (ASEAN), around 35% in the North American Free Trade Agreement (NAFTA) and more than 60% in the European Union (EU). In Latin America, intra-regional trade in the Common Southern Market (MERCOSUR) is about 15% of total imports and less than 8% in the Central American Common Market (CACM).

Barriers include trade permits, export taxes, import licenses, and bans, all of which are persistent.

World Bank trade research shows that Shoprite (SHP), for example, spends US$20,000 per week on securing import permits to distribute meat, milk, and plant-based goods to its stores in Zambia alone.

For all countries it operates in, approximately 100 (single entry) import permits are applied for every week; this can rise up to 300 per week in peak periods. As a result of these and other documentary requirements there can be up to 1,600 documents accompanying each truck Shoprite sends with a load that crosses a Southern African Development Community (SADC) border.

Lack of coordination across government ministries and regulatory authorities also causes significant delays, particularly in authorising trade for new products. Another South African retailer took three years to get permission to export processed beef and pork from SA to Zambia.

High trading costs also lead to significant price differences between countries. World Bank research shows that maize in Juba is about three times more expensive than in Ugandan cities, while beans in Juba are about twice as expensive as in Ugandan cities.

With beans, for example, trading costs build up as a ton of beans is transported from a market in Kampala to a market in Juba. Transport and logistics costs (US$145 per ton; with $93 inside Uganda and $52 inside South Sudan) as well as duty and other official charges ($218.33 per ton) are the categories in which a substantial portion of the total trading cost is accrued.

For other products, which are similarly regionally produced and traded, such as maize, water, beer, and cement, the size of trading costs is similarly significant.

Kinshasa-Brazzaville, currently the third largest urban agglomeration in Africa, and predicted to become Africa's largest city by 2025, has an international border running right through it. This regional hub of economic activity is the obvious focal point for cross-border exchanges between the two Congos. Despite their size, proximity and status as regional trade hubs, both formal trade and passenger traffic between the two cities is pitifully small. Only 1.12% of all imports recorded by the Republic of Congo (RC) come from the Democratic Republic of Congo (DRC). Passenger traffic is around five times smaller than that between East and West Berlin in 1988 - well before the dismantling of the wall!

The volume of passenger traffic, scaled to city sizes, is also just a half of one percent of the size of river-crossing passenger traffic in Kisangani, another conurbation straddling the Congo River, but not crossed by a national border. The cost of crossing the Congo River at the Malebo Pool jumps out as the main culprit. The average cost of a return trip is estimated at US$40, equivalent to between 40% and 80% of the average monthly income earned by Kinshasa residents.

If residents travelling between San Francisco and Oakland (which are separated by a similar distance) had to pay pro rata the same level of fees as people crossing from Kinshasa to Brazzaville they would pay between $1,200 and $2,400 for a return trip! The costs of formally shipping goods across the pool are also exorbitant.

These absurdly high prices largely result from lack of competition in river crossing services in the form of the duopoly granted to the two national operators, ONATRA (in the DRC) and CNTF (in the RC) and their lack of investment that has limited transport capacity.

Cumbersome customs procedures are also costly and cause long delays for both passengers and the transportation of goods. For example, only four agencies are mandated to be present at the Kinshasa border crossing, yet up to 17 agencies operate there, raising fees from traders and travelers without offering any corresponding services.

While there has been some success in removing import duties within regional communities, a range of non-tariff and regulatory barriers still raise transaction costs and limit the movement of goods, services, people and capital across borders. The end-result is that Africa has integrated with the rest of the world faster than with itself.