New Intra-African Trade Deal In The Works

By Global Tax Weekly

In what can also be described as something of a breakthrough for Africa’s future economic prospects, ministers agreed on December 2 – possibly around the same time as the US Senate was burning the midnight oil over tax reform – to form the Continental Free Trade Area (CFTA).

The CFTA is being touted as a massive opportunity for Africa. One of the main reasons cited for the region’s slow pace of economic development isn’t so much it’s lack of trade with the rest of the world, but its well-known inability to trade with itself. As Marc Yombouno, Minister of Trade of the Republic of Guinea, observed at the end of the talks in Niamey, Niger, intra-African trade represents only about 16 percent of the continent’s total trade, whilst in Asia and Europe, intra-regional trade is more like 50 to 60 percent.

This isn’t because African countries aren’t producing things that other African countries don’t want to buy. The problem is rooted in high trade barriers. According to the World Trade Organization (WTO), an African company faces an average tariff of 8.7 percent when selling within Africa, against 2.5 percent elsewhere. In fact, the WTO has said that the cost of moving goods within Africa is twice the global average.

Non-tariff barriers also remain a significant problem, and traders are said to encounter numerous issues when importing and exporting goods and services. These include: outdated regulations; lack of competition in the transportation market and poor services; export bans; unnecessary permits and licenses; costly documentation requirements; and standards that, rather than facilitating trade, often create a barrier for small producers.

And as if the unstable and unpredictable tax regimes of many African jurisdictions weren’t enough of a deterrent to doing business, companies also face unofficial “taxes” in the form of bribery and corruption by public officials. A 2012 study conducted jointly by Transparency International and Trade Mark East Africa gave an indication of how endemic this problem was in Tanzania, for instance, where bribery costs per year had amounted to about 18.6 percent of the total value of the goods transported.

It is to be hoped that the CFTA does a better job of reducing these barriers and boosting intra-African trade than the numerous regional free trade agreements that have been concluded in recent years. Indeed, that so little progress appears to have been made towards increasing trade within Africa is not an encouraging sign. It is also an indication that there is much ground to be made up, which is why the target date for the completion of an integrated African economy is a distant 2063. That’s a double marathon, if you like. And you thought US tax reform and Brexit was hard!

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