Arab leaders and citizens do not often look at Africa for inspiration. For decades, the “Dark Continent” has been beset by civil wars, military coups, famine and recurrent outbreaks of endemic diseases. Millions of lives have been lost and economies destroyed. But Africa is weaking up and moving forward and for the first time in decades achievements have been secured and growth sustained in many of the continent’s 55 nations.
In July this year something remarkable happened that in our opinion promises to change the fate of African nations for good. At the African Union’s summit in Niger, Nigerian President Muhammadu Buhari gave the African Continental Free Trade Area a major boost by signing the continent’s largest economy onto the deal. With Nigeria joining the pact the world is now seeing the birth of the world’s largest free trade zone – a 55 – nation bloc worth 3.4 trillion Dollar. The Pact aims to create a single market for goods and services, facilitate free movement of people and investments, and eventually introduce a single-currency union. Even more remarkable the leaders launched a Pan-African payment system aimed at reducing the use of third currencies – US Dollars and Euros – in bilateral trade settlement across Africa saving nations between 5-7 billion US Dollar, according to Okey Oramah, president of the African Export – Import Bank.
There are efforts to push for the creation of an African Monetary Fund to help African states engage more actively in regional trade and intra-regional trade. The purpose is to help supplement what IMF (International Monetary Fund) provides to countries facing balance of payments problems. Once operational it will have a capital subscription of up to 22 billion US Dollar, but for the fund to exist a treaty that was agreed on in 2014 must be ratified by at least 15 nations.
Coming into effect by 2020 analysts believe the bloc will become the world’s largest free trade zone by cutting trade tariffs and barriers between 1.2 billion people. Aside from improving the continent’s infrastructure and bilateral trade, leaders hope that the free zone will have positive geopolitical impact by bringing in stability and preserving peace.
Raising the income of citizens and improving their living standards will help in the fight against terror groups in the long run, according to observers. UN Deputy Secretary General Amina Mohammad was quoted as saying that the AU’s goal of achieving peace across Africa by 2020 was attainable, adding that “we must work hard to silence weapons.”
The continent-wide trade agreement took 17 years to negotiate and approve but its rewards will be felt within a few years, according to observers. African countries currently trade only about 16% of their goods and services among one another, compared to 65% with European countries. But by agreeing to reduce tariffs on 90% of goods and services the AU estimates it will give a 60% boost in intra-African trade by 2022.
In addition the agreement is expected to increase the positive flow of direct foreign investments into many countries in Africa. With more than 75% of Africa’s external exports raw materials, such as oil and minerals which have stripped the continent of its natural wealth for centuries, the new pact will attract foreign investors who are in our opinion invest in the manufacturing sector, thus creating a new wave of industrialization.
Yet the deal will have to go through a teething phase that includes tough negotiations on removing barriers and providing for fair competition. Also the deal faces in our opinion some legal and stereotypical challenges in the form of existing World Trade Organisation (WTO) agreements that may hinder Africa’s collective negotiations on free trade with the rest of the world.
But overall the perception is in our opinion very positive and exciting and this is why we at Calvin • Farel are planning to start operational activities through our platform soon in Africa as well. The Arab world in our opinion, of over 300 million citizens, should have moved to integrate its economies and create a viable free trade zone long ago. Ironically, the legal frameworks and agreements within the Arab League charter and beyond do exist and references to intra – Arab free trade have been made since the mid 1950s. But a quick look at intra – Arab trade reveals that it only makes less than 10% of total external Arab trade estimated at 1.75 trillion dollars.