Into Africa

As the UK looks to enhance its reputation as a ‘global leader in free trade’ after Brexit, the International Trade Secretary, Liam Fox, has argued that Britain should look to strike free trade deals with emerging countries. So far, much of the focus has been on deepening trade relationships with India and China – but Africa too has been cited as a potential trade opportunity for Britain. Yet the lazy assumption that emerging countries will automatically queue up for trade partnerships with Britain could exasperate post-colonial tensions. To move beyond this, the government will need to rethink its whole approach to international trade and explore free trade agreements that can balance liberalisation alongside social protection. And in Africa, this will mean establishing a pathway towards reciprocity that understands and recognises the national interest of African countries as well as our own.

Africa’s market of 1.2 billion people holds huge promise in terms of boosting UK trade. First of all, Africa has enormous potential for growth – in 2017, nine of the fastest growing economies in the world were in Africa. Secondly, the emergence of an African middle class, a key potential source of demand for manufactured goods, is an untapped opportunity for British exporters. The growth of African markets will also increase the demand for UK services exports. For example, The City of London is already exploring how the UK fintech industry could be at the forefront of developing innovative solutions to make mobile banking widespread for a continent where nearly 80 per cent of adults do not have access to formal banking services. For instance, WorldRemit, a London startup, is already facilitating online money transfer for millions of people across the continent –  providing a crucial lever for financial inclusion in Africa.

Of course Africa is also known to test investor patience, with political instability and the lack of infrastructure amongst the key barriers to trade. Also, the political context is rarely favourable for deals to be struck between African nations and their former colonial powers. Moreover, trade-wise, African politics is currently focused on encouraging intra-African trade, with a 55 country continental free trade agreement – the Continental Free-Trade Area (CFTA) – expected to be signed early next year. The actual implementation of this agreement will take years but it is still a powerful message sent to the rest of the world. For Britain, it shows that old-fashioned, bilateral trade interests may not be welcomed with much enthusiasm.

Furthermore, regional powers like Nigeria or South Africa worry about losing control over their industrial policy. Trade taxes are also a significant and reliable source of revenue, something that governments would not give away, especially given their difficulty collecting other taxes.

To navigate these tricky waters, the UK government should begin by boosting trade with African countries in net terms. The first step to achieving this would be to ensure EU trade preferential agreements with African countries – either covered by Generalised Scheme of Preferences (GSP) or by Everything but Arms (EBA) for the least developed countries (LDCs) – remain in place beyond Brexit. These agreements allow developing countries to pay fewer or no duties on exports to the EU contributing to their growth by giving them access to the EU market. Beyond that, the UK could consider lowering its standards and rules of origin. This may encounter domestic resistance – but it would enable African countries to align their own standards, increasing their exports to the UK and, perhaps, slowly raising standards in Africa too.

In potential negotiations for a free trade agreement (FTA), the government should also consider Africa’s development goals. Under a traditional FTA or reciprocal agreement, a country is required to lower its import duties and other trade barriers – to liberalise its market in return for similar concessions. However, this type of relationship only works between equal partners. Reciprocity between a developed country and a developing country can lock the latter into its dependency on its primary exports and cheap developed world imports, thus preventing economic diversification. In this scenario, cheaper finished goods from Britain would flood the continents, precluding industrialisation for African countries.

One response to this would be an agreement that keeps higher tariffs on a certain number of goods that African states can protect, a concept named as ‘relative reciprocity’. Keeping some tariffs would then help African countries to drive structural transformation and allow the development of local industries. In turn, this would generate tax revenues and strengthen African economies. Lastly, trade liberalisation must go hand in hand with an increase in development aid targeted at capacity building, custom reforms and technical support to African governments in their implementation of trade agreements.

Trade is an exciting way to look at development. However, the UK will only be able to access African markets by aligning – and in some cases subordinating – its commercial interests to Africa’s developmental objectives. This is an alternative approach to free trade, yes. But it is the only approach that can support the gradual integration of African economies into global markets and establish a strong UK-Africa trade relationship for the long-term.