African leaders launch a continental free trade zone

Nigerian President Muhammadu Buhari signs an agreement ahead of the lauching of the African Continental Free Trade Area (AfCFTA), during African Union summit in Niamey, Niger July 7, 2019. (Reuters)
Updated 07 July 2019

African leaders launch a continental free trade zone

  • Measure expected to create a $3.4 trillion economic bloc
  • Members have committed to eliminate tariffs on most goods

NIAMEY: African leaders met on Sunday to launch a continental free-trade zone that if successful would unite 1.3 billion people, create a $3.4 trillion economic bloc and usher in a new era of development.
After four years of talks, an agreement to form a 55-nation trade bloc was reached in March, paving the way for Sunday's African Union summit in Niger where attendees will unveil which nation will host the trade zone's headquarters, when trading will start and discuss how exactly it will work.
It is hoped that the African Continental Free Trade Area (AfCFTA) - the largest since the creation of the World Trade Organization in 1994 - will help unlock Africa's long-stymied economic potential by boosting intra-regional trade, strengthening supply chains and spreading expertise.
"The eyes of the world are turned to Africa," Egyptian President and African Union Chairman Abdel Fattah El-Sisi said at the summit's opening ceremony.
AfCFTA "will reinforce our negotiating position on the international stage. It will represent an important step."
Africa has much catching up to do: its intra-regional trade accounted for just 17% of exports in 2017 versus 59% in Asia and 69% in Europe, and Africa has missed out on the economic booms that other trade blocs have experienced in recent decades.
Economists say significant challenges remain, including poor road and rail links, large areas of unrest, excessive border bureaucracy and petty corruption that have held back growth and integration.
Members have committed to eliminate tariffs on most goods, which will increase trade in the region by 15-25% in the medium term, but this would double if these other issues were dealt with, according to International Monetary Fund (IMF) estimates.
The IMF in a May report described a free-trade zone as a potential "economic game changer" of the kind that has boosted growth in Europe and North America, but it added a note of caution.
"Reducing tariffs alone is not sufficient," it said.
DIVERGENT INTERESTS
Africa already has an alphabet soup of competing and overlapping trade zones - ECOWAS in the west, EAC in the east, SADC in the south and COMESA in the east and south.
But only the EAC, driven mainly by Kenya, has made significant progress towards a common market in goods and services.
These regional economic communities (REC) will continue to trade among themselves as they do now. The role of AfCFTA is to liberalise trade among those member states that are not currently in the same REC, said Trudi Hartzenberg, director at Tralac, a South Africa-based trade law organisation.
The zone's potential clout received a boost on Tuesday when Nigeria, the largest economy in Africa, agreed to sign the agreement at the summit. Benin has also since agreed to join. Fifty-four of the continent's 55 states have signed up, but only 25 have ratified.
One obstacle in negotiations will be the countries' conflicting motives.
For undiversified but relatively developed economies like Nigeria, which relies heavily on oil exports, the benefits of membership will likely be smaller than others, said John Ashbourne, senior emerging markets economist at Capital Economics.
Nigerian officials have expressed concern that the country could be flooded with low-priced goods, confounding efforts to encourage moribund local manufacturing and expand farming.
In contrast, South Africa's manufacturers, which are among the most developed in Africa, could quickly expand outside their usual export markets and into West and North Africa, giving them an advantage over manufacturers from other countries, Ashbourne said.
The presidents of both countries are attending the summit.
The vast difference in countries' economic heft is another complicating factor in negotiations. Nigeria, Egypt and South Africa account for over 50% of Africa's cumulative GDP, while its six sovereign island nations represent about 1%.
"It will be important to address those disparities to ensure that special and differential treatments for the least developed countries are adopted and successfully implemented," said Landry Signe, a fellow at the Brookings Institution's Africa Growth Initiative.
Regulations governing rules of origin, removal of non-tariff barriers and the development of a payments and settlements system are expected to be unveiled at the summit.


Struggling WeWork mulls bailout deals with SoftBank, JP Morgan

Updated 14 October 2019

Struggling WeWork mulls bailout deals with SoftBank, JP Morgan

TOKYO: Under-pressure start-up WeWork is considering two huge bailout plans including a cash injection that could see Japanese investment titan SoftBank take control of the firm, according to reports.
The office-sharing giant had been on course for a massive initial public offering until last month when questions began to be asked over its governance and profit outlook.
The firm’s valuation plunged from $47 billion in January to less than $20 billion in September and the listing plans have been dropped, while co-founder Adam Neumann stepped down as chief executive.
With New York-based parent company We Co. not expected to push for the IPO this year, the cash-strapped firm is looking for a financial lifeline.
The Wall Street Journal, New York Times and Bloomberg News cited unnamed sources close to the talks as saying SoftBank — the US firm’s biggest shareholder — had drawn up a proposal that gives it full control of WeWork.
The move would dilute the voting power of Neumann, who remains as chairman of the company he started in 2010 and also currently maintains control a majority of voting shares.
They also reported that WeWork is looking at a deal with Wall Street giant JP Morgan to raise $5 billion in debt, with the Times saying directors of We would be meeting as soon as Monday afternoon to discuss that.
“WeWork has retained a major Wall Street financial institution to arrange financing,” the Journal reported a company spokesman as saying.
“Approximately 60 financing sources have signed confidentiality agreements and are meeting with the company’s management and its bankers over the course of this past week and this coming week.”
The New York-based startup that launched in 2010 has touted itself as revolutionizing commercial real estate by offering shared, flexible workspace arrangements, and has operations in 111 cities in 29 countries.
However, the company, which lost $1.9 billion last year, has faced skepticism over its ability to make money, especially if the global economy slows significantly.