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As Africa becomes more integrated into global value chains, existing trade agreements are not enough to fulfill the increasing foreign investments because they are complex and obscure. With the hope of creating easier access to global market for local businesses, the three largest trade groups in Africa came up with the idea of the “African Free Trade Zone,” which aims to create a single trade union in Africa. The idea has been evaluated since 2008 and finally it will be realized later this month.
The single free trade union will create new opportunities for Africa’s manufacturing sector. Africa was known for exporting manufacturing goods in the early 20th century, but it began to lose the competitiveness in the late 90's when Asian countries executed economic reforms and foreign investors found cheap labor forces there. With the single free trade agreements, it is easier for foreign investors to deal with multiple trading partners in Africa than in Asia. For example, if an auto company wants to find different manufacturers for the different parts of its products, the company would be more likely to find trading partners in Africa than in Asia because the company does not have to deal with numerous trade regulations, which increases the productivity and saves costs.
One set of trade regulations will also help countries find their strengths in manufacturing and encourage innovations. Currently, industrial free zones in West Africa are governed by a “take all” approach of poorer countries. This means that the African industrial industry lacks sector specialization and each country manufactures a little bit of everything. This happens mainly because each country has its own trade policies and foreign investors are reluctant to find different suppliers for its products due to time pressure and costs. The single free trade zone will alter this situation by offering a common trade policy, so that foreign investors will have time to find the country specializing in the manufacturing of a particular product. This will push the country to be specialized in one area of manufacturing and encourage the country to innovate technologically to fulfill different customers’ needs.
In all, the impacts of the single African free trade zone will be phenomenal. It will spur Africa’s manufacturing industry and help boost small economies in Africa.
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