Egypt and the Emerging African Continental Free Trade Area

AHMED GHONEIM [AGHONEIM@GMX.DE], 18 May 2018
AHMED GHONEIM [AGHONEIM@GMX.DE]

On March 21st, the members of 44 African nations, out of a total of 55 African nations, signed the African Continental Free Trade Area (CFTA) signaling the birth of the largest FTA in the world. The CFTA is still at its infancy, where the number of its legal instruments (protocols, annexes, etc) are still under negotiation, not to mention that it still needs to be approved by at least 22 nations. However, would such an agreement prove beneficial for Egypt, and on which fronts?

 

There are several aspects that need to be considered when answering such question, and it is important to pinpoint that if the evaluation is undertaken on pure static economic terms (welfare gains), the benefits are likely to be meagre in the short run since there are a range of obstacles that are yet to be addressed. Hence, adopting a wider lens shows that by joining this agreement, Egypt will gain at the geopolitical front.

 

The track record of Egypt’s engagement in the African FTAs shows that Egypt - despite meager trade gains - has decided to be part of any regional agreement, probably for political economy and geopolitical reasons including mainly the cooperation on Nile river-related issues. Egypt is a member of the Common Market for Eastern and Southern Africa (COMESA) since 1999 despite the fact that trade within COMESA members reached only 1.6% of its total trade and never surpassed the 4% after Egypt joined COMESA, where a large part of such increase is attributed to Libya joining COMESA in 2005, who had already substantial amount of trade with Egypt. Egypt has been among the countries which inaugurated the Tripartite Free Trade Area (SADC, COMESA, and EAC), in which CFTA was built on. The challenges associated with the membership of Tripartite agreement remains valid for Egypt in the case of CFTA, yet with a twist. For example, there was fear of South Africa displacing Egypt in specific markets such as the South African Development Community (SADC) members[1] This fear remains true in the case of CFTA, even though so far South Africa has not joined CFTA, but it will happen soon as signaled by President Ramaphosa.

 

In the case of CFTA, there are additional challenges associated with the presence of several large powerful economies including Kenya and Nigeria, and while the latter has stepped back, it is still expected to join soon. Moreover, the engagement of North African countries (e.g. Morocco and Tunisia), besides Libya, adds a more convoluted dimension to the geopolitical situation. The engagement of Morocco and Tunisia could entail potential benefits but pose challenges in the near future. The potential benefits would emerge from extending the European Union initiatives with the Mediterranean countries through the Agadir agreement and Neighborhood Policy to reinforce the idea of neighbors of neighbors, which has been brought up lately linking the EU with South Mediterranean countries (e.g. Egypt, Morocco, and Tunisia) with Sub Saharan Africa. Mechanisms as a cumulation of rules of origin as well as regional and global value chains could be explored where the potential is vast especially in agro-industrial products.

 

Yet, the conventional challenges of competing for the same markets - given that the export structure of Egypt, Morocco, and Tunisia is highly similar - could imply a potential risk; especially considering the modest success of these countries in deepening integration within the frameworks of existing regional initiatives such as the PAFTA and Agadir agreement. However, such a risk remains minimal for Egypt due to the high orientation of Morocco and Tunisia trade towards the EU, which captures around 60-70% of their total trade, and their weak cooperation within Africa. However, the interest of Morocco and Tunisia in Sub Saharan Africa is increasing rapidly on both trade and investment fronts, which might pose a challenge for Egypt in the near future.

 

Moreover, the large number of countries involved in such an agreement, with diversified economic structures, living standards, economic, political, and geographical conditions will probably entail hurdles in finalizing the details. The fear that with such diversified conditions, exceptions will become the norm, and if this happens then the CFTA will be pre-empted.  Hence, the prudential pragmatic approach must be adopted in the negotiations to avoid any setbacks on such initiative.

 

On another front, it is worth noting that the vast virgin African market is not likely to enhance Egyptian exports at the envisioned pace. The reality of COMESA reveals that the market, despite being vast and huge, suffers from large number of market failures associated with poor infrastructure, limited transport facilities, landlocked countries, modest banking systems, proliferation of non-tariff barriers, rendering the vast geographical market to a humble effective economic market when modest standard of living of many African countries is considered. The enthusiasm for the Tripartite agreement and the serious steps undertaken by Egypt, as well as other countries to negotiate its modalities was a good sign, yet aborting it before its birth for the sake of CFTA should be revisited.

 

It is important to note that the CFTA or any other regional integration agreement is not likely to add much if market failures are not adequately and effectively addressed. The CFTA does include several modalities aiming to overcome market failures, including a dispute settlement mechanism, and different protocols on several issues as rules of origin, investment, etc. But it is too early to judge whether these mechanisms will become operational given that their details are not yet clear and the modalities of negotiations are still not set; though a few experts view that these will follow a single undertaking approach. However, at this stage, it would be fair to say that it will not be an easy task.

 

To conclude, joining the CFTA for Egypt makes a clear message that Egypt is at the heart of Africa. However, whether economic gains would follow suit is pending the finalization of the agreement and its operational modalities, in addition to addressing some of the market failures.

 


[1] Angola, Botswana, Democratic Republic of Congo (DRC), Lesotho,  Madagascar,  Malawi, Mauritius,  Mozambique, Namibia, Seychelles, Swaziland, United Republic of Tanzania, Zambia and Zimbabwe.

 


Ahmed Ghoneim is a professor of economics in the Faculty of Economics and Political Science at Cairo University. He is a research fellow at the Economic Research Forum for Arab Countries (ERF) in Egypt, and at the Center for Social and Economic Research (CASE) in Poland. 

 

 

The views expressed here are solely those of the author in his/her private capacity and do not in any way represent the views of neither the Arab Development Portal nor the United Nations Development Programme. 

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