Africa's New Free-Trade Deal

by Mais Af July 10, 2019

‘This could be an economic game changer for the continent’.

While superpower number one and two are battling it out on the world stage with a trade war, 55 Africa states have been on the march in the opposite direction. On Sunday 7^th of July in Niamey, Niger, the Africa Continental Free Trade Area was signed by all member states of the AU. In case you aren't aware, this is the largest trade bloc since the World Trade Organisation was set up in 1994.

The essence of this agreement is to foster more 'inter-connectivity' between African states, to boost regional trade and economic integration.

The AfCFTA is expected to impact not only trade but by extension industrial development, tourism and economic growth. Intra-trade alone is expected to increase by 10% by 2040 according to IMF reports.

Early stage jitters

There was an initial resistance to sign as the agreement requires all participant states to remove tariffs on 90% of goods and services, as well as the free movement of goods and services. Tariffs are big revenue generators in African economies, however, delving deeper, it was identified that inter trade between African states only accounted for 15% of goods and services, while European trade accounted for 65% of trade, perhaps a result of legacy relationships built with former colonies.

seth meyers shrug GIF by Late Night with Seth Meyers

I personally am curious to see what this free trade agreement could mean for the retail / fashion space. The effect of this new 'inter-connectivity' between participant states within the creative sector appear mixed.

Standardisation

Trade integration should promote better quality standards and standardisation amongst states. Homogeneity is one area where the AfCFTA could significantly improve the retail space. One example is in standardising. Standardising is used as a proof of quality and plays an important role on an industry’s competitiveness – especially one such as African fashion and design which is strongly focussed on export. Whether member states agree to adopt the European, British or American sizing structures (or even creating Africa’s own), having internationally recognised parameters will reduce the ambiguity and guarantees a certain level of quality in a product – aspects which can fundamentally alter the perception of goods from the continent, making them more internationally competitive.

Workers within the fashion, retail, art and manufacturing world tend to be paid lower wages. The creation of a free trade area would create a migration of workers in lower skilled jobs to move to regions in the continent who pay a higher wage for similar jobs.

Collaborative Potential

Another benefit for the fashion, art and design space would be the potential ease for creatives to collaborate with better exchange of knowledge and information. With freer movement of goods and people, fashion retail will be able to develop and specialise in particular goods and over time, improving competitive advantage and economies of scale.

Already there have been several intercontinental collaborations. The free movement of people (which is still to be fully ratified) would promote faster and quicker means of collaboration from underfunded industries and help promote their work more internationally. With freer movement of goods and people, fashion retail will be able to develop and specialise in particular goods and over time, improving competitive advantage and economies of scale.

(Trevor Stuurman collaboration with Ivorian brand Laurence Airline)

Winner Takes It All?

Certainly, these gains will not be achieved easily; gains in one area may result in diminishing returns in another. Each of the 55 states is autonomous in its trade policy setting. Active participation in the AfCFTA will come at a cost that not every member state will want to accommodate.

If wages become significantly higher in factory and garment making in Dakar, Senegal, this could create a convergence of skills and experience into one industry, while depriving another, say pottery and manufacturing.

The benefits of the AfCFTA will not be evenly distributed (they never are). There will be countries who will gravitate towards freeloading and reap the benefits of the free trade agreements without proactively trying to apply the new agreements of the AfCFTA at their borders.

In order for there to be a more equitable distribution of benefits across all participant states, adjustment costs will need to be factored in. There are fundamental structural characteristics to African economies which all governments involved will need to proactively engage in for the AfCFTA to be effective.

Structural characteristics such as high tariffs, protectionist policies, underdeveloped infrastructure, poor credit lines and the convergence of low skilled individuals have been the undercurrent for most African economies and will have to be addressed as complementary initiatives to adequately support the goals of the AfCFTA.