IS SLEEPING GIANT AWAKENING?

The last month was rich in events, which will eventually reformat international economic relations in the near future. While it all began with actual declaration of war to free market relations, the outcome will most likely be exactly the opposite – the countries of all continents have demonstrated their commitment to the ideals of free market economy.

Just a week after Washington has sharply increased customs tariffs for a number of industrial products, eleven countries signed the Trans-Pacific Partnership (TPP) Treaty, which is against any customs duties. A year ago, the American president refused to be a part of this project as it did not correspond to the economic interests of the U.S. The nearest neighbours of the U.S. – Canada, Mexico, and Chile think differently. Even Britain does not mind joining the TPP, albeit it does not have access to the Pacific Ocean.

But there is a continent, which many still regard as a homestead of the great powers, that can have the strongest impact on protectionism and the existing world economic order.

Without any influence from the World Bank, IMF and other supranational regulators, the African states have decided that they were able to solve their problems on their own. On March 21, 44 of 55 countries of the continent agreed in Kigali, Rwanda to establish the African Free Trade Area (AfCFTA). The remaining 11 countries did not reject the idea but only asked for extra time for deliberation. The free trade zone does not include Botswana, Namibia, Lesotho, Zambia, Burundi, Eritrea, Benin, Sierra Leone, and Guinea-Bissau, as well as the two largest economies of the region - Nigeria and South Africa.

It is most likely that the number of AfCFTA signatories increases during the next assembly of the African Union planned for July 2018. The treaty will become effective after it is ratified by 22 member states. Potentially, AfCFTA can become the largest free trade zone in the world by coverage and the second after the WTO by the number of participants. The African free trade zone covers a population of 1.2 billion people with almost a $3t-worth GDP.

Traces of the colonial past

By and large, the economic underdevelopment of Africa is a result of its recent colonial past, which is still tangible today. This includes widespread separatist movements due to artificially created borders, the lack of experience in institutional development, transport infrastructure that would meet the needs of the local population rather than serve to export mineral resources from the continent and so on.

The majority of Africans lives below the poverty line. Despotic regimes, endless military conflicts, and natural disasters cause famine, which makes a huge number of Africans suffer. According to the UN report, armed military conflicts caused a famine in 18 countries in 2017, including 11 in Africa, where the terrorist organisations such as the Islamic State, Boko Haram, Al-Shabab, Al- Qaida, Al-Murabitun, and others are still active. Numerous droughts have caused food crises in 23 countries, two-thirds of which are African. Only 35% of the African population has access to electricity, while 23% of residents do not have access to clean water.

Foreign financial injections and other economic support are mainly focused on the extraction and export of cheap raw materials and lending to exports of their own agricultural and industrial products.

The lack of own consolidated funds to stimulate economic growth, underdeveloped network of highways and railways, high customs tariffs, bureaucracy, and corruption led to a situation where it is more profitable for African countries to buy goods outside the continent than to produce their own or to buy from neighbours. Even the delivery of goods from one part of the country to another one is much more expensive than imports from Asia or Europe.

As a result, the volume of intra-African trade is ridiculously small and reaches just slightly over 10% of the total trade volume (19% in Latin America, 51% in Asia, 54% in North America, and 70% in Europe).

At first glance, the external economic cooperation of African countries seems to be quite profitable. For example, trade volume with the EU in 2017 reached €262b with a positive balance of €28.6b. However, these trade relations are mainly based on the export of raw materials, and import of consumer goods. Apparently, this does not stimulate long-term industrial and agricultural development of the continent. According to UNCTAD (United Nations Conference on Trade and Development), with 27% of the total arable land in Africa, 37 countries of the continent are net importers of food and 22 countries are net importers of agricultural raw materials.

Africa is still considered an exclusive source of raw materials for developed economies. It has more than 30% of the world's natural resources, including 83% of world production of platinum, 55-60% of cobalt, coltan, manganese, 46% of diamonds, 43% of palladium, 42% of chromium and 40% of gold and bauxite.

At the same time, Africa also serves as a dump for old weapons, as endless military conflicts are utilizing the trash well. For many years, African arms market has been one of the most dynamically developing in the world. Its volume over the past 15 years has increased by 2.4 times - to $40b per year.

Equal rights

Pan-African ideas have appeared long before the fall of the last bastion of colonialism, the Apartheid regime in South Africa. In 1963, the heads of 31 independent countries established the Organisation of African Unity (African Union since 2002). One of its key initiators, the then President of Ghana, Kwame Nkrumah, said the words that were cited 55 years later at the signing ceremony of AfCFTA: "No independent African state today by itself has a chance to follow an independent course of economic development. This position will not change unless we have a unified policy working at the continental level."

However, political differences, interethnic conflicts, including armed conflicts, hampered the centripetal tendencies. Over the years, many local trade blocs have been established, many of which have remained underdeveloped for various reasons. In 2015, three of these blocs united as an alliance of 27 member states (TFTA). In the same year, it was announced that consultations had begun on the establishment of All-African Alliance. It took only three years to agree on the terms of AfCFTA, which satisfied the vast majority of continental countries. Another 27 countries signed the Convention on Free Movement of People within the continent, granting their citizens right for visa-free border crossing, housing, and employment.

AfCFTA aims to deepen economic integration in Africa - the development of agriculture and industry, the elimination of duplicate membership in various regional associations, the transformation of the mainland into a territory with free movement of people, capital, goods, and services. The member states believe that these terms should be prerequisites for reducing excessive dependence on foreign participation in infrastructure projects.

In particular, according to the agreement, the member states are obliged to abolish customs tariffs for 90% of goods. Consultations on the remaining 10% of "sensitive goods" will be held later. It is also planned to identify the terms for the introduction of a single currency.

The UN Economic Commission for Africa expects that by 2020, AfCFTA will increase intra-African trade by 50% thanks to eliminating import duties and will double the trade turnover if non-tariff barriers (bureaucracy, bribery, etc.) are withdrawn.

AfCFTA will strengthen Africa's position in world trade, turning it into one of the largest economies in the world, capable of competing with other international economic blocs. We already can witness the first signs of this interaction. India stated that it was ready to sign an agreement with AfCFTA on free trade.

Through the barriers to unity

Sceptics say that the treaty focuses too much on reducing tariffs without considering different production capacities of African countries. The most advanced African countries have an advantage thanks to their more advanced production capabilities. Freedom of actions in sales of their goods and services to the less developed countries of the continent could undermine industrial development.

For example, the manufacturing sector of Zimbabwe is suffering from an inflow of cheap imports. The opening of borders and the removal of trade barriers will exacerbate Zimbabwe's economic situation. Therefore, the critics recommend considering the impact of the treaty on competition between large and small economies, as well as resolving issues related to compensating and providing budget support to those who will face the loss of revenue caused by the free trade agreement.

Presidents of Nigeria and South Africa did not sign the agreement, as they would like to once again study its weak and strong sides. So, the business community of Nigeria is afraid that cheap imported products will pour into the country. The Nigerian Producers Association urged the federal government not to accept the terms of trade that could impede economic growth.

For example, AfCFTA does not contain clear requirements for determining the country of origin of the goods. When the goods arrive in an African country, they can be repackaged, the labels Made in Europe or Made in China changed to anything else and the goods spread across the continent for pennies, thus killing local production.

According to African economists, political tensions, conflicts, and violence can also weaken the potential of African countries in interregional trade. These factors result in low rates of economic growth, destruction of infrastructure, as well as interregional disintegration. Another problem of Africa is a reluctance to obey supranational bodies and a failure to fulfil the commitments taken at the level of regional economic communities.

African Free Trade Zone is a central part of the ambitious long-term program for the development of Africa until 2063 (Vision 2063), when the African Union celebrates its centenary.

"Africa is a sleeping giant that will not be able to wake up if the continent is divided. It is time to accelerate the pace of integration because international competition does not leave any chance for the weak," was the statement voiced at the signing ceremony of one of the world's largest economic unions. Now it is time for this territorial giant to prove its worth.