Africa’s Truncated Free Trade Tug
The African Union, with stock exchange unification still a vision, struck an outline continental free trade accord in March with 45 countries signing to set the ratification clock with the notable exception of Nigeria with strong protectionist business and labor lobbies. Studies show that less than one-fifth of the region’s mostly raw material exports are cross-border due to tariff, administrative and infrastructure barriers, and that with manufacturing catching up at almost half the total, growth could increase 1% with integration. In principle 90% of duties will be eliminated on a common product list, and customs processing and licensing should also be harmonized. However specific time frames are absent until parliaments in half the entrants endorse the treaty, and they must also accommodate sub-regional arrangement like COMESA. Host Rwanda also took up traditional political and investment issues prominent in the East Africa zone with Kenya jitters despite good securities market performance. Re-elected President Kenyatta and perennial rival Odinga insisted they and party-tribal camps had reconciled, following months of street violence and a government media crackdown criticized as a dictatorship precursor. Despite another year of predicted 5% economic growth, private sector sentiment plunged at the height of confrontation and has since rebounded above the 50 neutral reading. The investment authority touts FDI lure with an Ernst and Young survey placing the country at the top of the list after the World Bank Doing Business ranking climbed twenty spots. Industrial policy centers on manufacturing diversification, but the financial sector remains handicapped by the interest rate ceiling as heavy borrowing has run up 50% of GDP public debt. A China-built high-speed railway between Nairobi and Mombasa completed last year cost over $3 billion and halved bus passenger travel time, but was designed chiefly to accelerate cargo shipment. The World Bank estimated 10 million tons annually will bring viability, but the most optimistic projections so far are for half that amount.
Nigeria opted out ahead of 2019 presidential elections, where the incumbent Buhari has been urged not to seek a second term due to illness, unpopularity and an anemic economy. His anti-corruption platform is in tatters with multiple scandals and the Boko-Haram insurgency and North-South religious and income divide are in global headlines with the continued child abduction saga and border town attacks. The naira was floated in theory but the central bank continues to intervene as access restrictions maintain benchmark local bond index exclusion. South Africa is preoccupied with its own imminent contest now that President Ramaphosa was picked to finish out the Zuma tenure and assembled an interim cabinet to unveil a cautious budget. It will boost social spending and raise value-added tax, and modestly shave the fiscal deficit to 3.5% of GDP allowing retention of Moody’s residual investment grade. 3% growth was registered in the end-2017 quarter, but still lags the rest of the continent as gold and platinum exports are subject to stricter mining charter employment and ownership mandates. Ruling party activists call also for forced land transfers to redress income inequality and insist on extending the swollen civil service payroll, one-third the budget. Banks have been stock market leaders but may be compromised by consumer loan provider connections as opposition politicians join in ratifying debt relief edicts.