Business

Prowling lions and corrupt officials block roads to African trade

2020-02-08 08:00

Nyoni Nsukuzimbi drives his 40-ton Freightliner for more than half a day from Johannesburg to the Beitbridge border post with Zimbabwe.

At the frontier town – little more than a petrol station and a KFC – he sits in a line for two to three days, in temperatures reaching 40°C, waiting for his documents to be processed.

That’s only the start of a journey Nsukuzimbi makes maybe twice a month. Driving 885km north gets him to the Chirundu border post on the Zambian frontier. There, starting at a bridge across the Zambezi River, trucks snake back kilometres into the bush.

“There’s no water, there are no toilets, there are lions,” said the 40-year-old Zimbabwean. He leans out of the Freightliner’s cab over the hot asphalt, wearing a white T-shirt and a weary expression. “It’s terrible.”

By the time he gets his load of tiny plastic beads – the kind used in many manufacturing processes – to a factory on the outskirts of Zambia’s capital, Lusaka, he’s been on the road for as many as 10 days to cross just 1 609km.

Nsukuzimbi’s trials are typical of truck drivers across Africa, where border bureaucracy, corrupt officials seeking bribes and myriad regulations, varying from country to country, have stymied attempts to boost intra-Africa trade.

The continent’s leaders say they’re acting to change all that. Fifty-three of its 54 nations have signed up to join the African Continental Free Trade Area; only Eritrea, which rivals North Korea in its isolation from the outside world, hasn’t.

The African Union-led agreement is designed to establish the world’s biggest free-trade zone by area, encompassing a combined economy of $2.5 trillion (R37.28 trillion) and a market of 1.2 billion people.

Agreed to in May last year, the pact is meant to take effect in July and be fully operational by 2030.

“The African Continental Free Trade Area,” President Cyril Ramaphosa said in his weekly letter to the nation, “will be a game-changer, both for South Africa and the rest of the continent.”

It has to be if African economies are going to achieve their potential.

Africa lags other regions in terms of internal trade, with intracontinental commerce accounting for only 15% of total trade, compared with 58% in Asia and more than 70% in Europe.

Politically it sounds good; practically it’s going to be a nightmare to implement and I expect resistance.

As a result, supermarket shelves in cities, such as Luanda in Angola and Abidjan in the Ivory Coast, are lined with goods imported from the countries that once colonised them, Portugal and France.

By lowering or eliminating cross-border tariffs on 90% of African-produced goods, the new regulations are supposed to facilitate the movement of capital and people and create a liberalised market for services.

“We haven’t seen as much institutional will for a large African Union project before,” said Kobi Annan, an analyst at Songhai Advisory in Ghana. “The time frame is a little ambitious, but we will get there.”

President Nana Akufo-Addo of Ghana and other heads of state joined Ramaphosa in hailing the agreement, but a number of the businesspersons, who are supposed to benefit from it, are sceptical.

“Many of these governments depend on that duty income. I don’t see how that’s going to disappear,” said Tertius Carstens, the chief executive of Pioneer Foods.

“Politically it sounds good; practically it’s going to be a nightmare to implement and I expect resistance.”

Under the rules, small countries, such as Malawi, the central government of which gets 7.7% of its revenue from taxes on international trade and transactions, will have to forgo much-needed income, at least initially.

By contrast, relatively industrialised nations, such as Egypt, Kenya and South Africa, will benefit from the outset.

“The African Continental Free Trade Area will require huge trade-offs from political leaders,” said Ronak Gopaldas, a London-based director at Signal Risk, which advises companies in Africa.

“They will need to think beyond short-term election cycles and sovereignty in policymaking.”

Taking those disparities into account, the free-trade area might allow poorer countries, such as Ethiopia, 15 years to comply with the trade regime, whereas South Africa and other more developed nations must do so within five years.

To further soften the effects on weaker economies, Africa could follow the lead of the EU, said Axel Pougin de La Maissoneuve, deputy head of the trade and the private sector unit in the Directorate-General for International Cooperation and Development.

The EU adopted a redistribution model to offset potential losses by Greece, Portugal and other countries.

There might also be structural impediments to the free-trade area’s ambitions. Iron ore, oil and other raw materials headed for markets, such as China, make up about half of the continent’s exports.

“African countries don’t produce the goods that are demanded by consumers and businesses in other African countries,” said Trudi Hartzenberg, the executive director of the Tralac Trade Law Centre in Stellenbosch in the Western Cape.

Trust and tension about illicit activity are also obstacles.

Beginning in August, Nigeria shut its land borders to halt a surge in the smuggling of rice and other foodstuffs. In September, South Africa drew continent-wide opprobrium after a recurrence of the anti-immigrant riots.

This could hinder the trade area’s provisions for the free movement of people.

Considering all of these roadblocks, a sceptic would be forgiven for giving the trade area little chance of success. And yet there are already at least eight trade communities up and running on the continent.

Although these are mostly regional groupings, some countries belong to more than one bloc, creating overlap.

The free-trade area won’t immediately replace these regional blocs; rather it’s designed to harmonise standards and rules, easing trade between them, and to consolidate the smaller associations eventually under the continent­-wide agreement.

The benefits of the comprehensive agreement are plain to see.

It could, for example, limit the sort of unilateral stumbling blocks Pioneer Foods’ Carstens had to deal with last year: Zimbabwe insisted that all duties be paid in US dollars; Ghana and Kenya demanded that shippers purchase special stickers from government officials to affix to all packaging to prevent smuggling.

The African Export-Import Bank estimates intra-African trade could increase by 52% in the first year after the pact is implemented and more than double during the first decade.

The free-trade area represents a “new pan-Africanism” and is “a pragmatic realisation” that African countries need to unite to achieve better deals with trading partners, said Carlos Lopes, the former executive secretary of the UN Economic Commission for Africa and one of the architects of the agreement.

From his closer-to-the-ground vantage point, Olisaemeka Anieze also sees possible benefits.

He’s relocating from South Africa, where he sells secondhand clothes, to his home country Nigeria, where he wants to farm fish and possibly export them to neighbouring countries. “God willing,” he said, “if the free-trade agreement comes through, Africa can hold its own.”

In the meantime, there are those roads. About 80% of African trade travels over them, according to Tralac.

The World Bank estimates the poor state of highways and other infrastructure cuts productivity by as much as 40%.

If the trade area agreement can trim the red tape, at least driving the roads will be more bearable, said David Myende (38), a South African trucker resting after crossing the border post into South Africa on the way back from delivering a load to the Zambian mining town of Ndola.

“The trip is short, the borders are long,” he said. “They’re really long when you’re laden – and customs officers can keep you waiting for up to four or five days to clear your goods.”

Bloomberg


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March 29 2020