As Canada moves to diversify its trade away from traditional U.S. markets, there are signs that a new African free-trade bloc could emerge as one of the targets of the revamped Canadian strategy.
Prime Minister Justin Trudeau created a refocused and renamed Department of International Trade Diversification in his cabinet shuffle on Wednesday, with Manitoba MP Jim Carr as its minister. The department is expected to focus on Asian and Latin American markets to supplement the increasingly difficult U.S. market, but Africa is likely to be another potential target.
African markets could prove attractive to Canadian exporters in industries such as agriculture, health sciences and environmental technology, analysts say.
The African free-trade zone would include 55 countries – more than any other trade agreement since the formation of the World Trade Organization – with a total population of 1.2 billion people and a combined economy of US$3.4-trillion.
The continental agreement is expected to win enough ratifications to take effect by January, although it could take another year or two for negotiators to resolve technical questions such as “rules-of-origin” issues.
Canada has helped to provide financing for free-trade research in Africa, and Canadian government officials have already begun talking with African officials to consider ways of working with the new African trade bloc, according to a knowledgeable official who spoke on condition of anonymity because the discussions were confidential.
Of the 55 member states of the African Union, 49 have now signed the trade deal. A key economy, South Africa, was among the latest to sign the agreement earlier this month. The biggest holdout is Nigeria, but its President is now saying that he will sign.
The agreement will take effect a month after it is ratified by the parliaments of 22 countries. Six have already ratified it, and another 16 countries – including South Africa – are expected to ratify by the end of this year.
“There is strong momentum behind it,” said David Luke, co-ordinator of the African Trade Policy Centre at the United Nations Economic Commission for Africa.
“Africans see an opportunity here to grow their economies and to create jobs and attract investment,” he told The Globe and Mail in an interview.
Trade within Africa currently accounts for just 18 per cent of total African trade – far less than the internal trade percentage in Europe or Asia. But the amount of internal trade could grow by 52 per cent by 2022, compared with the 2010 level, as a result of the elimination of import duties under the free-trade agreement, the UN economic commission says.
Trade within Africa is important because it is more likely to consist of manufactured products and other value-added goods, while exports to countries outside Africa are dominated by oil and other commodities.
The trade agreement, which has been under negotiation since 2015, was signed by 44 countries at a summit of the African Union in March. At another summit earlier this month, the deal was signed by a further five countries: South Africa, Sierra Leone, Lesotho, Burundi and Namibia.
The trade agreement represents “a new dawn for Africa” and will help unlock the continent’s full potential, South African President Cyril Ramaphosa said last week.
“By trading among ourselves, we will be able to retain more resources within our continent to be shared among our people, alleviating poverty and reducing inequality.”
Nigerian President Muhammadu Buhari hesitated to sign at first after voicing worry about the impact on domestic industries and promising to consult business leaders before signing the deal. As of last week, however, he said he now favours the agreement. “I will soon sign it,” he told journalists.
Canada has struggled to make progress on proposed free-trade agreements with China and India, and a deal with Africa might be easier to negotiate. Canada already has a patchwork of foreign investment protection agreements with some African countries, but a broader agreement with a continental bloc would be a more attractive target.
“The risk of Canada relying too much on the United States is becoming clear,” said Mr. Luke, who has taught at Dalhousie University in Halifax.
“The current NAFTA crisis is a wake-up call that you can’t rely on one market. You need to diversify. Canada should be looking at the rest of the world.”
The UN trade and development agency, UNCTAD, has estimated that Africa can boost its GDP by 1 per cent by eliminating import taxes for internal African trade.
But the tariffs are far from the only issue. Bureaucratic rules, corruption and other non-tariff barriers are a major problem in Africa. Poor roads and railways are another huge obstacle to trade. The cost of trade within Africa is about 50 per cent greater than the cost within East Asia, according to one study.
A recent report by the Moody’s rating agency concluded that South Africa, Kenya and Egypt are the most likely countries to benefit from the trade agreement because of their relatively developed manufacturing sectors and electricity supplies.