Wednesday, February 22, 2012

Africa: Africa Plans Free Trade Area

By Jerome Mwanda
Courtesy IDN-InDepth NewsReport

NAIROBI (IDN) - Aware that lack of political will rather than funding is slowing down implementation of vital regional infrastructure projects and standing in the way of intra-African trade, the region's 54 nations have decided to establish a continental free trade area by 2017, speed up infrastructure development and put related policies and laws in place to boost the integration process.

"The Continental Free Trade Area (CFTA) should be operationalized by the indicative date of 2017, and enhanced intra-African trade and deepened market integration can contribute significantly to sustainable economic growth, employment generation, poverty reduction, inflow of foreign direct investment, industrial development and better integration of the continent into the global economy," according to the Declaration on the Program for Infrastructure Development in Africa.

The document was endorsed at the 18th African Union (AU) summit January 23-31 in the Ethiopian capital with adoption of a series of agreements concerning region's economic, political and security issues.

The AU has made a three-step plan to prepare for the ultimate CFTA target: The first step is to finalize the tripartite agreement among the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), and the Southern African Development Community (SADC) by 2014.

The second is to urge other trade blocs to follow the experience of the tripartite agreement and reach a parallel agreement between 2012 and 2014. The third is to consolidate the tripartite and other regional free trade areas into the CFTA initiative between 2015 and 2016.

The African grouping said it recognizes "the vital role of infrastructure and related services in the political and social-economic development, and physical integration of the continent," especially given the population growth and economic demand.

The member states are asked to increase public financing of infrastructure, implement major power projects such as hydroelectricity, oil refinery and gas pipelines, accelerate the construction of missing links and modernization of railways, and increase the capacity of ports.

African countries should also develop new and renewable energy resources to provide clean, reliable and affordable energy as well as nuclear energy for peaceful use, the declaration said. The summit also recommended developing regional and continental broadband networks and submarine cables to promote Africa's digital economy. At present, Africans have a low-level connectivity of infrastructure networks and poor access to energy and information services, the declaration said.

To achieve such targets, the summit appealed to international institutions such as the United Nations Economic Commission for Africa (UNECA), the African Development Bank (AfDB) and the World Bank to support the implementation of those projects and plans. The declaration said the infrastructure needs will reach about USD 60 billion in the next 10 years.

Intra-African Bridges

However, it is not little what the African countries can do by themselves. African Development Bank president Donald Kaberuka gave the example of the Gambia Bridge, to link The Gambia and Senegal, as one AfDB project that had been delayed for many years due to political reasons. Following AfDB's intervention, however, construction of the bridge is expected to begin soon.

He also mentioned the Kazungula Bridge in Southern Africa as an example of another vital project that has been delayed by slow inter-country cooperation. Funding for the bridge, which will link Zambia and Botswana across the Zambezi River, has now finally been secured and construction is to begin on it soon.

The Kazungula Bridge, which will replace a ferry service, will have a major impact on trade in Southern Africa, as it enhances the flow of goods and people in the region. Transit times for goods traded between the landlocked countries of Zambia and Botswana could be cut to just six hours on the bridge’s completion. It now takes from 30 hours to as long as a month at peak times.

Kaberuka said good inter-country cooperation could lead to the timely execution of infrastructure projects that enhance increased intra-African trade and boost the continent’s economic growth. He gave the example of the recently completed Ethiopia-Djibouti Power Interconnection Project, which now allows Ethiopia to export electricity to Djibouti. The African Development Bank contributed USD150 million to this project. It will provide a further USD 300 million to the Ethiopia-Kenya Power Interconnection Project, which will boost the supply of power to Kenya and the East African Power Pool by some 2,000 megawatts.

Kaberuka cautioned that the economic downturn that has ravaged the developed countries could weaken demand for African exports and dampen earnings. He explained that this could, in turn, undermine the ability of commercial banks in Africa to provide trade finance. He said that as a safeguard, AfDB was looking at ways it could help cover this shortfall in Africa’s trade finance. The infrastructure financing gap, he noted, will also require innovative financing, including public private partnerships and climate funds.

African heads of state at the Addis Ababa summit endorsed the launch of the Programme for Infrastructure Development in Africa (PIDA), a multi-billion dollar initiative to end in 2040. PIDA is based on a joint study by the African Union, the Economic Commission for Africa, the AfDB, and the Planning and Coordinating Agency of the New Partnership for Africa’s Development. The AfDB is the executing arm of this initiative.

On the margins of the summit, the AfDB and the World Customs Organization (WCO) signed a memorandum of understanding, under which the two organisations will work together to enhance the capacity of customs administrations in Africa. This improved capacity of Africa’s customs authorities is designed to help boost intra-African trade.

"Under this partnership, AfDB's regional infrastructure financing and WCO's technical customs expertise will complement each other and improve the efficiency of our efforts to facilitate trade," said Kaberuka. "Coordinated efforts by both institutions to improve border management will help many companies in Africa conduct cross-border trade. This will in turn further deepen regional integration in the region," he added.