Motshidisi Mokoena

The 18^th Ordinary Session of the Assembly of Heads of State of Government of the African Union, held in Ethiopia in 2012, adopted a decision to establish a Continental Free Trade Area (CFTA) by an indicative date of 2017. The main objectives of the CFTA are to create a single continental market for goods and services, including the free movement of business persons and investment. In addition, the CFTA seeks to expand intra-African trade through the enhanced harmonisation and coordination of trade rules and instruments across the continent’s multiple Regional Economic Communities (RECs).

CFTA negotiations were expected to commence in 2015 on the back of the implementation of the Abuja Treaty, which provides the legal basis for these negotiations. The Treaty, which entered into force in 1994, provides a roadmap for the advancement of regional integration in Africa, with the ultimate objective to establish an African Economic Community by 2028. The RECs are identified as the building blocks for regional integration, however, in reality, progress within the RECs has been uneven and most have been unable to meet the deadlines set out in the Treaty.

In our work on trade and regional integration, DNA Economics regularly meets with trade negotiators and other interested parties. Based on these discussions, our overall sense is that progress towards the CFTA has been slow, and most countries remain unprepared for the up-coming negotiation process. This bodes unfavourably for the likely outcome of the CFTA negotiations. What more can regional trade negotiators do to prepare for these engagements and contribute towards a positive and meaningful agreement?

Here, as in most of our work, we turn to economics. Although trade negotiations are often driven by political considerations, they are founded on the principles of international economics. The gains from trade liberalisation can be estimated and according to most theorists and models, they are generally expected to outweigh the costs. Moreover, the winners and losers from specific negotiations can be identified; and this information should guide negotiators in their discussions and decisions. But there are many other lessons that we can draw from our study of economics which may assist countries in these negotiations.

1. Know what you want: scarcity and making choices

The most fundamental concept I learnt in my first year of economics is that the world is comprised of groups of individuals with unlimited wants and desires; and the attainability of these wants is determined by a limited set of resources, whether they be money, gold or even time. Ultimately, to satisfy these desires, individuals need to make choices between these competing wants by measuring the opportunity cost[1] of one choice over another. To do this, you first need to know exactly what it is that you want, and somehow allocate a level of preference to each option. You must also be able to explicitly identify what is attainable, and within your means. This is a lot to ask of any individual; even in making a simple decision over what to purchase or not. In order to make the right decision, one often needs to collect and understand a lot of complex information.

Similarly, in entering trade negotiations, it is critical for negotiators to know exactly what it is they want to achieve from the deal (relative to the costs or benefits from alternative deals), what they are not willing to compromise on and more importantly, what they are actually capable of attaining.

The key lesson for African States is this: spend time consulting with both government and business to define your primary interests; determine a set of clearly defined non-negotiables that will guide your decisions and approach to the CFTA negotiations; and set realistic and attainable goals and targets. All of this will assist you in making efficient choices.

2. Be open to compromise – relative elasticity

In economics, an elasticity measures the responsive of one economic variable to a change in another (such as the change in the demand for a particular good based on the change in the price of that good). Elasticities can be quantified, through econometric methods, to describe and analyse the relationship between two variables, and to predict behavioural patterns. There may come a time during negotiations when one is confronted with an unexpected circumstance which may call for a change in approach. A negotiators’ responsiveness and willingness to compromise in such a situation (elasticity) will influence the chances of a successful negotiation. This decision should ideally be guided by an understanding of the pre-determined non-negotiables, as well as the costs associated with possible compromises.

3. Know who you are up against – market power

Much like entering a new market, entering a negotiation requires extensive research; not only on your own strengths and weaknesses, but also on those of the parties you will be negotiating with. Like any given market, the negotiating space may have a number of interacting market players. For example, it may be dominated by one powerful party (monopoly), that has the resources and charm to influence the overall negotiation process, or it may include an oligopoly type structure governed by a number of smaller parties (say a REC grouping for example) that together control the outcome. It would thus be critical to understand the market power of the different players in the CFTA negotiations as this will guide ones’ approach in forming positions and allegiances, and ultimately, in driving decisions.

4. Come prepared – pushing out the productivity frontier

The likely success of any negotiation ultimately depends on whether the appointed negotiators are able to convert their plans (inputs) into the attainment of desired outcomes or outputs. Not very different from a regular production process. Viewing negotiations in this way helps to highlight two very important aspects of a successful negotiation. Firstly, negotiators must ensure that they are well-resourced; not only in terms of human skills and capacity, but also in the form of information and machinery (the analytical tools needed to identify potential gains and losses). Secondly, negotiators must make optimal use of these resources and the machinery at their disposal in order to produce a meaningful outcome within a reasonable period of time. This may prove particularly difficult in the context of the TFTA, where any one country is up against 7 regional blocks comprised of countries with multiple membership, varying levels of integration and in most cases no readily available information on their own interests or concerns.

There is no generally accepted or exact science when it comes to negotiating a trade agreement. The outcome of the CFTA negotiations will depend on the decisions of individual negotiators. From economics, we know that the decisions of firms are influenced by multiple factors, including the structure and responsiveness of the markets in which they operate, and the information which producers and consumers have at their disposal. At this stage, it would seem that many African countries do not have the necessary knowledge and resources needed to engage in meaningful negotiations at the continental level; and that these discussions might be dominated by a powerful few. Unless all countries can fully subscribe to the goals of the CFTA and are ready and able to achieve them, it is unlikely that these negotiations will lead to an optimal economic outcome.