African Free Trade Zone Is Good News — If Properly Implemented

According to the South African newspaper Mail and Guardian, “African leaders on Wednesday signed a potentially historic, 26-nation free-trade pact to create a common market spanning half the continent, from Cairo to Cape Town. The deal on the Tripartite Free Trade Area (TFTA) is the culmination of five years of negotiations to set up a framework for preferential tariffs easing the movement of goods in an area that is home to 625-million people…. The deal will integrate three existing trade blocs – the East African Community, the Southern African Development Community and the Common Market for Eastern and Southern Africa (Comesa) – whose countries have a combined gross domestic product (GDP) of more than $1-trillion.”

“Potentially historic” is the right term for what could be a greatly beneficial agreement. African parliaments will have two years to ratify the agreement – and that is the easy part. Proper implementation and enforcement will be much more difficult in countries with deeply underdeveloped institutions of rule of law and protection of private property. Still, the TFTA is a step in the right direction, for it signals an important ideological shift on the part of the African elite. Historically, African governments have been deeply skeptical of free trade and capitalism. Instead, they preferred protectionism and state-led development. To the extent that they were interested in trade, the African governments emphasized access to Western markets, while eschewing liberalization of their own. The consequences were catastrophic. As I wrote in a 2005 Cato paper,  

[T]rade liberalization in the developed world as a cure for world poverty is often overemphasized. Simply abandoning developed-world protectionism would not substantially change the lives of the people in the poorest parts of the developing world. That is particularly true of sub-Saharan Africa (SSA), where the main causes of impoverishment are internal. SSA is not poor because of lack of access to world markets. SSA is poor because of political instability and because of a lack of policies and institutions, such as private property rights, that are necessary for the market economy to flourish.

Despite substantial declines in applied and bound tariffs throughout the world, protectionism [in SSA] is still very much alive. Developing countries’ average tariff rates are more than three times higher than those of developed countries… According to the WTO, only 10 percent of African (including sub-Saharan African) exports were intraregional (i.e.: traded to other African countries). In contrast, 68 percent of exports from countries in Western Europe were exported to other Western European countries. Similarly, 40 percent of North American exports were to other countries in North America.

It is hypocritical for African leaders to call for greater access to global markets while rejecting trade openness at home. It is also self-defeating, because domestic protectionism contributes to perpetuating African poverty. Research shows that countries with the greatest freedom to trade tend to grow faster than countries that restrict trading. SSA governments have complete control over the reduction of their own trade barriers. If they are truly serious about the benefits of trade liberalization, they can immediately free trade relations among SSA countries and with the rest of the world. They should do so regardless of what the developed world does.