Britain’s exit from the EU has brought into question the benefits of intra-regional trade, with some commentators suggesting that it could sound a warning for Africa’s regional integration project.
Advocates of Brexit pointed to a decline in Britain’s trade with its EU partners as an indication that a focus on intra-EU trade is no longer a priority for Britain. It is worth noting that since 2012, Britain’s trade with the rest of the world has overtaken its trade with the EU. This is in part because emerging economies have shown higher growth than Europe and have thus offered more opportunity. Brexiteers also argued that Britain’s EU membership has hindered the growth of the UK’s trade with non-EU nations (including with its former colonies), with insufficient benefit gained from trading with EU member states to compensate.
It is notable that the EU itself recognises the importance of trade with the world’s emerging, faster growing economies. The EU advocates an active free trade policy towards emerging market economies and a policy of active engagement with non-EU partners through free trade agreements. Nevertheless, Brexit campaigners maintain that EU tariffs can hinder trade with non-EU countries and tend to divert trade back within the EU.
Intra-African trade is an important part of the African Union (AU) agenda. The Abuja Treaty cites amongst the implementation processes for achieving the AU’s objectives: the establishment and strengthening of Regional Economic Communities (RECs), liberalisation of trade between Member States and establishing free trade areas within the RECs.
The AU’s Agenda 2063, the framework for the continent’s socio-economic transformation over the next 50 years, includes amongst its goals the fast-track of a Continental Free Trade Area by 2017, doubling of intra-African trade by 2022 and strengthening of Africa’s “common voice and policy space in global trade negotiations”.
That the AU is focusing on increasing intra-regional trade is not surprising given its many potential benefits. Greater intra-regional trade encourages the development of larger markets. This enables firms to take advantage of economies of scale and fosters greater competition, which in turn should lead to greater specialisation and efficiencies.
Consider for example Britain’s position as the leading financial centre in Europe. While London’s place as a centre for banking pre-dates the UK’s entry into the European Union, there is no doubt that its status has been enhanced by becoming the gateway to a larger market through the regulatory single passport regime.
However, there are also numerous barriers to intra-regional trade. In the African context, a lack of productive capacity, an emphasis on raw commodities and limited diversification in the goods and services provided across the continent mean that traders and businesses in one African country are not able to meet the demands for value-added products of other countries in the region – favouring imports from outside Africa.
The plethora of trading arrangements between African countries and growing emerging economies such as China, point to a continued preference for bilateral negotiations, rather than the leveraging of collective bargaining power – albeit that arrangements at the REC level are increasing.
The lack of connecting infrastructure can also be a hindrance to greater trade within Africa, with much of the existing infrastructure (and that under development) reflecting a focus on transport corridors for external export markets. Inflated costs of intra-regional trade resulting from higher transportation costs, as well as tariff and non-tariff barriers, can make imports from outside the continent more competitive than those from within.
Nevertheless, looking at the well-documented gains to be made from increasing intra-regional trade, it would be worthwhile confronting these challenges.
As for whether Brexit should encourage a slow down in Africa’s regional trade integration project, with the uncertainty surrounding Britain’s trading position post-Brexit, the jury is surely still out. The reality is that the EU is still Britain’s largest trading partner. Before 1973, one third of UK trade was with the European Economic Community. By 2014, 45% of the UK’s exports and 53% of imports were with the EU. The British Government has openly recognised the importance of agreeing a good trade deal with the EU post-Brexit and there are concerns in some quarters about Britain’s ability to negotiate effective trade agreements with non-EU countries.
All of which highlights the risks for Britain, a developed economy, moving away from intra-regional trade with its nearest neighbours. Brexit does not negate the fundamental benefits of intra-regional trade, which are arguably amplified in the African context. With the fruits of closer regional integration yet to be realised across Africa, and the full impact of Brexit yet to be tested, African nations should be cautious about treating Britain’s stance as a model to be followed.
Frances Okosi, Partner, Baker McKenzie in Johannesburg