This study evaluates the economic impact of the proposed Tripartite Free Trade Area (TFTA) on consumption, industrial production, and trade, across the 26 African countries. The study focuses on how the TFTA could impact on the economic geography of the region.

Introduction

Negotiations for the formation of a Tripartite Free Trade Area (TFTA) between three existing regional economic communities – the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), and the Southern African Development Community (SADC) – have now been ongoing since the first TFTA summit held in Kampala in October 2008. In a decisive move forward at a meeting held in June 2015 in Egypt, the member states of the three blocks agreed to move forward to the establishment of a TFTA.

The implications in economic terms for the countries involved are potentially enormous – the TFTA involves 26 (almost half of all African) countries, spanning the whole Eastern side of the continent from the Cape to the North African coast. If fully implemented, it would create Africa's largest free trade area. The TFTA area currently has a total population of 683 million people and a combined Gross Domestic Product (GDP) of USD 1.2 trillion at market exchange rates of 2015. This represents more than half (54.3%) of the Africa's total GDP, and 58% of Africa's population.The TFTA thus constitutes a very significant market by any standards and collectively places the block as the 14th largest economy in the world.

As with most regional integration schemes, the underlying economic rationale of the agreement is to provide greater opportunities to reap economies of scale, greater competition, a more attractive internal market for investment (both foreign and domestic), and an acceleration of intra-regional trade. As stressed by the EAC (2014) on the TFTA, “in opening our markets to each other, the development of regional value chains will be enhanced. We would increase intra-Africa trade, stimulate economic growth and lift people out of poverty”. Beyond that, the agreement also has a great symbolic importance – the TFTA is expected to serve as the basis for the completion of a Continental Free Trade Area (ostensibly to be completed by 2017), with the aim of boosting trade within Africa by 25-30% in the next decade, and ultimately establishing a continental-wide African Economic Community.

It needs stressing that the current levels of intra-regional trade are low – in COMESA, intra-regional trade has oscillated in recent years between just 5-10% of total trade, and for SADC, intra-regional trade was actually declining in the early 2000s (from around 15 to 11 percent) (principally due to the sharp rise in commodity exports from the SADC region to the rest of the world). The EAC has been more successful in maintaining a relatively high level of intra-regional trade (between 18 and 20% of total trade since 2008), but pointedly the share has not been growing significantly over the last decade. By 2014, intra-regional trade within the TFTA accounted for just 16.7% of total trade of the 26 TFTA members.

Compared with an integrated area like the European Union, where intra-regional trade already represented around two-thirds of total trade at the onset of the European Single Market in 1993, it can be appreciated that, regardless of the differences in geography (above all, the much larger geographic span of the TFTA) and the constraints to trade because of serious infrastructural deficits, there is the potential for a significant increase in the volume of intra-regional trade under the TFTA.

A particularly pertinent question is what will be the economic geography implications of these changes. At the time of implementing the European Single Market in the early 1990s, there was a rush in academic interest in how it might impact on different member states and the implications for the location of industry across the integrated block. This reflected concerns that the Single Market might result in a concentration of industry in the ‘core’ countries of the EU (Germany, France, Belgium, Luxembourg, and the Netherlands) to the detriment of the more peripheral countries like Spain, Portugal, Ireland and Greece.

Such concerns are equally legitimate within the TFTA – not only does it span an enormous geographic area, but the existing economic geography is highly uneven. GDP within the block is not evenly distributed – indeed, the two largest economies (Egypt and South Africa) together account for more than 50% of the TFTA's total GDP. The seven largest economies (South Africa, Egypt, Angola, Sudan, Ethiopia, Kenya and Tanzania) together account for more than 80% of the GDP of the total area, the remaining 19 countries accounting for just one-fifth.

Perhaps even more striking from an economic geography perspective is the extent to which manufacturing capacity is unevenly distributed across the TFTA. Two thirds of manufacturing value added produced within the TFTA are accounted for by South Africa and Egypt alone. At a time when industrialisation has risen sharply up the agenda of priorities for African states, this raises fears that the free trade area could result in a polarisation of the benefits at the two geographical extremes, at the expense of the relatively weak and undeveloped manufacturing sectors in rest of the TFTA.

Compounding such concerns is the fact that average productivity differences (as reflected in average GDP per capita) between the richest and poorest members of the TFTA are enormous. The richest TFTA member in 2015 (Seychelles) had an average GDP per capita more than 56 times that of the poorest member (Burundi). South African and Egyptian per capita GDP was 20 and 13 times larger than Burundi's. If we compare these differences with those existing in the EU-12 at the time of the formation of the Single Market Programme (SMP) in 1993, it will be noted that the scale of the gap is several multiples in the TFTA.

Another key challenge in the establishment of the TFTA is the elimination or reduction of Non-Tariff Measures (NTMs). Trade costs within the TFTA have been declining over recent decades, with tariffs falling as a result of multilateral, regional and bilateral trade liberalisation. However, NTMs have not declined at the same pace as tariffs and consequently countries in the region have not the realised the full benefits of integration. Some NTMs are employed as tools of trade policy (e.g. quotas, subsidies, and export restrictions), while others stem from non-trade policy objectives (e.g. technical measures). The TFTA has a relatively high incidence of such non-tariff measures, even when compared to the rest of Africa. According to what must be admittedly incomplete WTO data, TFTA countries account for as much as 87% of (recorded) NTMs within Africa. Again, however, the geographical distribution of NTMs within the TFTA is uneven. Technical barriers and phytosanitary measures to trade are the most common NTMs, with four countries – Uganda, Kenya, South Africa, and Egypt –accounting for 86% and 72% of reported NTMs, respectively.

Against this backdrop, the purpose of this paper is to evaluate the economic effects of the proposed TFTA on industrial production, trade, and consumption across the member states. It focuses on the effects of the TFTA on the economic geography of the region. While several studies have explored the welfare effect of trade integration in Africa, very few specifically study the impact of integration on economic geography. The paper aims to improve our understanding of the economic impact of the TFTA in the region, as well as the distribution of benefits among member countries. The results have important implications for regional trade and industrial policy.

The paper is organised as follows: the second section provides an overview of the theoretical literature regarding industrial geography focussing on recent contributions collectively know as the ‘new economic geography’ and discussing its possible implications to the TFTA. The third section reviews the relevant empirical literature studying the impact of regional integration within the African continent. The fourth section describes the computable general equilibrium (CGE) model and methodology used for the simulations. The fifth section presents the results of the simulation and discusses the results. The final section makes some concluding observations.

Andrew Mold and Rodgers Mukwaya are from the United Nations Economic Commission for Africa.

This article has been published (In Press) in the Journal of African Trade. It is an open access article funded by Afreximbank under the CC BY-NC-ND license.