Summary: A Singaporean Free Trade Agreement (FTA) in Africa may be possible soon, and the benefits could be significant if the risks and opportunities are understood. Technical assistance could be an interim measure if partners are not ready.

As the BRICS Summit concluded in Xiamen, China, one may have noticed an odd characteristic: of the ten countries attending – five BRICS members and five guest countries – three were from Africa: South Africa, Egypt, and Kenya. Stranger too, one notices, is that Nigeria, having briefly taken the mantle of Sub-Saharan Africa’s largest economy from South Africa, was not present among these giants of the Global South.

The inclusion of three African states is no coincidence: It is now the fastest growing region after East Asia, and while the commodity downturn has hurt some of these export-oriented economies, there are arguably richer opportunities to be found now. China was strategic in inviting Egypt and Kenya, key partners in any push for the African part of the Belt and Road Initiative (BRI).

Could Singapore consider it time for an FTA that provides an entry into Africa? If there are any objections that trade volumes are insufficient to begin thinking this through, consider that Singapore currently has FTAs with Jordan, Costa Rica, and Peru. Part of the purpose of FTAs is precisely to encourage and expand trade, particularly if these are economies that will be significant global players in the near future. This article discusses the background, options, opportunities, and risks of such a free trade proposal.

Background

Africa, as most Africans will remind you, is not a country (it is made up of 54). The stark irony, however, is that if some hands at the African Union (AU) could have their way, it would be. African statesmen have long recognised the benefits that integration could offer in facing the external world, and the Continental Free Trade Area (CFTA) is an integral part of their Agenda 2063, which aims at a host of other integration projects – not just economic, but even political and social.

Africa’s regional integration has been a talking point ever since African states broke free from the shackles of colonialism in the 1960s. The prominent Pan-Africanist, Ghanaian President Kwame Nkrumah, argued that a simple merger of the Francophone and Anglophone former colonies of West Africa was all that was needed, and the rest would follow. This was not some gross oversimplification: the French had ruled ‘French West Africa’ as an administrative unit from Dakar (capital of modern day Senegal), a territory covering the entire sub-Saharan belt reaching Sudan, and the British colonies sat along its edges like spokes around this giant territory.

The Organization of African Unity, founded in 1963 as the continent’s regional body, reflected this strong desire in its very name. Nevertheless, for various reasons, the Pan-African experiment came to an end, and in recent years, it has been East and Southern Africa that have proven more successful at regional integration than the Western part. Nevertheless, the long-term goal of federalism still sits at the top of Africa’s Agenda 2063.

What stands out is that, against the populist anti-globalist tide in parts of the West, Africa as a region remains committed to integration, and regardless of the hurdles, is slowly working to remove internal barriers. Its growing middle class, wealthier and better educated than at any other time in the past, are putting great pressure on African states to open up. In 2015, 26 states adopted the Tripartite Free Trade Area (TFTA), ostensibly linking three large regional groupings – The Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC), and the Southern African Development Community (SADC), in a single “Cape to Cairo” trade area. In August 2017, talks in Durban were held for the even more ambitious CFTA, which would cover the entire continent.

Singapore's Opportunity

This widespread thinking of the necessity for such arrangements provides an opportunity for Singapore. It has the technical know-how to assist the continent’s own integration efforts, and a Singaporean FTA in Africa could become a benchmark for other such deals, but only if it can get further than other past attempts that have tended to flounder. Of course, the catch is in implementation. A Singapore FTA with any of these groupings, large or small, would face the same barriers that have afflicted Africa’s own attempts at integration. But that may not be sufficient reason not to try.

Singapore first explored the idea of an FTA with the Southern African Customs Union (SACU), about ten years ago. For a number of reasons, negotiations did not pass the exploratory phase. However, the recent flurry of regional infrastructure and trade projects may indicate conditions have changed. The turning of the corner with the commodity downturn suggest too that their economies are more resilient and self-sustaining than outsiders have generally presumed, but the uneven growth has left openings for nimble firms with know-how to fill.

Singapore enjoys tremendous soft power on the continent. In my travels around Africa, people seem more curious to ask me questions than answer mine: Why did Singapore grow so fast? How did it develop? How did Singapore rid itself of corruption? There is tremendous interest in the “Singapore model”, even if one must start every answer with the caveat that Singapore is an exceptional island that was tremendously fortunate to have the right constellation of geography, leadership, openness, and peace that may make it difficult to transplant the lessons elsewhere. With even Britain lauding the “Singapore model” on trade, the questions about what Singapore could offer African states have only widened. Singapore could be in a good position to seize such opportunities for lasting mutual benefit.

However, African states are likely to seek some immediate, tangible benefits too. Singapore’s smaller, nimbler firms tend to put in place impressive work regimens and decent levels of technology transfers. At the same time, a typically high preference for near-term exit strategies suggest they are less likely to be gunning for market dominance, a fear often associated with major multinational firms that create local resistance. Its position as a major investor in China should assuage fears of the Singapore model of enterprise being neo-colonial.

Bilateral or Multilateral

Two options may be possible for a pioneering FTA. Firstly, a bilateral deal, presumably with a large economy with which Singapore enjoys some levels of trade already, such as South Africa or Nigeria. Secondly, a more ambitious multilateral deal, perhaps with the more integrated regional economic communities, such as the EAC or SADC.

A bilateral agreement seems, at first hand, more attractive. It is far more likely to be implementable, and not likely to wait for ratifications. It would be less complicated, with a single pair of laws to deal with, and less harmonization required to rationalise conflicting areas. A simple agreement that only commits to tariff reductions would be eminently achievable if both sides are committed.

Yet there are also downsides: Protectionism can still rear its head, particularly if the negotiations become politicised. The complex and often intractable domestic politics in many African states can make risks extremely political, such as when regimes change hands and all foreign contracts are “reviewed”, with attendant costs on businesses. The dependence on a very narrow set of officials for it to be seen through, may also make its implementation uncertain.

The multilateral agreement offers some ways to depoliticise risks. Operating at a higher level, it may provide more mobility for companies, especially those who might want to do business in land-locked countries like Rwanda, for example, that requires access through the EAC to reach ports in Tanzania or Kenya. The opportunities for nimble companies may also be easier to seize.

On the other hand, it will not be entirely immune to protectionist sentiment either. Nigerian firms’ concerns about the EU’s Economic Partnership Agreements (EPAs) opening the floodgates to European firms, may have killed off the EPA with its regional community, the Economic Community of West African States (ECOWAS). Singapore must also understand that a lot of multilateral undertakings in Africa are aspirational, rather than projects that will be implemented in rigid step-by-step fashion – one might think the same of ASEAN thirty years ago. Overambitious goals should be treated with caution.

Conclusion

Perhaps the main purpose of considering the free trade agreement is to signal to businesses that the opportunities are there to be had. Singaporeans will find the informal, but very relationally-based way of doing trade, familiar. The rapid growth in the region may be the world’s last foreseeable surge, and cannot afford to be missed.

Whereas African states may not be in a position to implement all agreements straight away, this is something Singapore is familiar with. When the Mekong cluster of states joined ASEAN in the 1990s, they too did not have the technical means to implement and enforce trade agreements, but Singapore patiently set about training officials with its technical assistance programmes and continues to do so today. With Singapore’s strong soft power in Africa, this task may be worth examining for the long-term relationship-building in the world’s last frontier markets. Technical assistance would provide a highly-desired skill set to African states, and hopefully put Singapore in a prime position to work on trade agreements when African states reach that critical constellation of factors, including the desire and capacity to implement them.

Indeed, with Africa’s growing influence in trade relations, having attracted mammoth infrastructure projects such as the Indian-Japanese collaboration for an Asia-Africa Growth Corridor, the question of an FTA in Africa will increasingly become a matter of when rather than if. At the BRICS summit, the giants are already perched at the ready. Singapore may stand to gain by being ahead of the curve.

This article was originally published in the Business Times on 18 October 2017.

Published:26 October 2017

 

 

 

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