New free-trade area will benefit both

Pact will unite three existing trade blocs and unleash the potential of 26 countries with half of African GDP

Last month, the African Union held its 25th summit in Johannesburg, South Africa, where the launch of a Tripartite Free Trade Area, or TFTA, was reviewed. The pact is to unite three existing regional trade blocs - the Southern African Development Community, the East African Community and the Common Market for Eastern and Southern Africa.

TFTA will become the largest free trade zone in Africa, covering 26 countries and accounting for more than half the continent's GDP. It is generally accepted that the zone would unleash the countries' potential to enhance intracontinental trade. It also would increase the attractiveness of these countries to international investors.

Integration has always been at the top of the agenda at African summits since the establishment in 1963 of the Organization of African Unity, which was renamed the African Union in 2002. African nations started to collaborate with each other more actively and speak as one when dealing with international affairs. Its economic integration essentially kicked off when the New Partnership for Africa's Development was incorporated into the AU, becoming a formal organ of the continental organization.

Individually, countries such as South Africa, Ethiopia, Tanzania, Nigeria and Rwanda are all deepening domestic reform and trying to "look east" to strengthen ties with China while maintaining relationships with other international players. They have achieved different levels of economic development, which has been praised by many international organizations such as the United Nations Economic Commission for Africa and the African Development Bank.

In some cases, some member states of subregional organizations overlap with one another, so it's necessary for such organizations to unite. In February last year, Uganda, the Democratic Republic of Congo and Ethiopia, which belong to EAC, SADC and Intergovernmental Authority on Development, respectively, signed an agreement in Kinshasa to announce their entry into COMESA, which was a result of relatively a stable domestic political situation and growing trade and investment volume in recent years.

Their participation in COMESA is key to facilitate the TFTA. In August last year, they announced the free trade zone would be signed this year, a year before it is scheduled, to realize greater mobility in commodities, capital and talent.

African integration is concurrent to the deepening relationship between China and the continent. The Chinese government's Belt and Road Initiative provides a boost to the relationship. It has established a special fund for the initiative worth $40 billion, while the Asian Infrastructure Investment Bank - with an initial total capital of $100 billion - will complement it. Then there is the BRICS Bank, all aiming to transfer China's quality excess capacity.

These moves have had a huge impact on African countries. To attract Chinese capital and industry transfer, Africa should play a more active role. Two influential African countries, South Africa and Egypt, have joined AIIB as founding members, which will enhance African integration. Africa can accelerate its regional integration and create a better business environment to attract more Chinese investment.

As far as we can see, the TFTA is expected to be operational in 2017. Its goal is quite explicit, which is to reduce transaction costs, expand intracontinental trade and attract outside capital and investment.

So here is the key question: How China can make best use of the new trade platform?

In fact, Chinese companies are already well prepared. When the Belt and Road Initiative was announced, Chinese companies got a second wind in Africa. Based on more than a decade of dealing within the continent, Chinese companies are well informed.

China's overseas trade zones and Africa's investment areas have become one of the most discussed topics among entrepreneurs. In December, a national conference on business affairs said China must optimize global resources and increase the capacity of integrated manufacturing and service industries. The Belt and Road Initiative should be prioritized and trade zones built in major countries.

In the conference, a special proposal on China-Africa industrial partnership was raised to build collaborative manufacturing and industry demonstration centers based on the Chinese development zone mode. Also the investment will be combined with financing to launch a program worth $100 billion by 2020 to increase investment in highways, railways, water transport, harbors, airports, and logistics centers.

There are three main models of Chinese overseas trade and industry zones. The first is created by a manufacturing enterprise, in which the company makes products in an overseas facility. The process is then expanded to research and development.

The second focuses on resources and facilities. For instance, a Chinese company is building an economic zone in a mining area in Zambia to develop upstream and downstream industries.

The third is reflected in Tianjin Technological Development Area's Suez Economic and Trade Cooperation Zone in Egypt, which attracts all kinds of companies. The last one is more likely to enhance industry transfers, increase exports, and accelerate the host country's development. TEDA is now copying this model in Kenya's Mombasa free trade zone, which is expected to cooperate with the unified free trade zone.

The author is a researcher with the Western Asia and Africa Studies Institute of the Chinese Academy of Social Sciences. The views do not necessarily reflect those of China Daily.

(China Daily Africa Weekly 07/03/2015 page10)