Egypt Pulse

Common market between Africa, Egypt not in the offing

Article Summary
The African economic blocs summit left some feeling that the African common market idea is far-fetched.

CAIRO — The recent African economic blocs summit was proof that not all the economic agreements and conferences are effective or constitute a new step toward economic growth.

The summit, held June 10 in Egypt, included representatives of 26 countries, representing three major African economic blocs, namely the Southern African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC).

President Abdel Fattah al-Sisi inaugurated and concluded the summit, whose primary function was to try to overcome trade barriers between the states of the three blocs and countries within each bloc by reducing tariffs in preparation for the establishment of a common market between the three blocs.

There have been mixed reactions regarding the summit’s implications for the Egyptian economy. Passant Fahmy, a professor of economics at Cairo University, said the summit only has a limited effect and may not ensure a positive impact on the Egyptian economy. Medhat Nafeh, another professor of economics at Cairo University, said that the summit and the common market convention may reap positive results if certain circumstances take place.

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“Opening a common market aims at developing African investments in Egypt and Egyptian investments in Africa, depending on the ease of access to free-of-customs raw materials and investment requirements within the broad market — so long as the products are easily sold within that market," Fahmy told Al-Monitor. "However, African and Egyptian investors will be shocked by the corruption and routine [problems] plaguing both Africa and Egypt, and this will be an obstacle to establishing any investment.”

The 1999 COMESA summit in Nairobi emphasized the need to fight corruption, and there were many complaints by businessmen in the 2010 COMESA investment forum in Sharm el-Sheikh about corruption and bribes, as many media reports indicated corruption in the SADC and EAC countries.

The COMESA, EAC and SADC countries import many products from the United States, Germany, Italy, Japan, Turkey and France, and these are, according to Fahmy, high-quality products. “The Egyptian exports cannot compete with those European and US products, especially because of the low-quality Egyptian products,” she said.

She said that the establishment of a common economic market requires land, sea and air commercial lines between the states of the three blocs, which are not currently available. Also, such lines should be established in the framework of a partnership between those states. “This would take many years, knowing that such a plan requires the involved states to have enough liquidity to establish those lines. But most of them may not have the necessary cash,” she added.

The first conference of the three African economic blocs in 2008 was hosted by Uganda, while the second in 2011 was hosted by South Africa, and the common market project was the main subject of both conferences. Although officials said these conferences were successful in terms of discussing the mechanisms necessary to establish a common market, they failed to reap concrete results on the ground.

Fahmy said that the two conferences were the latest weak point in the common market project between the three African blocs, adding, “The delay in implementing the common market project makes it lose a great part of its value, which leads to other countries, such as the US and Europe, having more control over the African market.”

Nafeh said the African economic summit and the African common market may reap several positive outcomes for the Egyptian economy, and added, “The Egyptian products are not better than the European and US products, but better than the Chinese products that dominate the African market."

According to the Trade Map website, which gives access to world trade data, Chinese and Indian products top the list of COMESA, EAC and SADC countries imports, knowing that Chinese products amount to $60 billion, or 17.64% of the total imports of the three blocs for 2014, while Indian products come in second place and amount to $32 billion (9.5%).

Nafeh told Al-Monitor, “There are wide economic disparities between the classes in Africa, both at the levels of individuals and institutions. Thus some individuals and institutions rely on high-quality products from Europe, the US, Turkey, and the most part rely on Chinese and Indian products due to their modest prices without regard for quality. Therefore, in the event of the establishment of commercial lines between Egypt and the countries of the three blocs, Egyptian products can compete with Chinese products, as they are of higher quality than some of them and less expensive.”

The hardest mission is to increase Egypt’s exports to the SADC and EAC countries, as Egyptian exports to SADC reached $297 million, and $370 million to EAC in 2014, according to the Trade Map statistics. These figures are relatively low compared with Egypt’s exports to the COMESA countries, which reached $2 billion in 2014, according to the same statistics.

Nafeh said that the lifting of the Egyptian customs on imports of COMESA, SADC and EAC would not constitute a crisis for the Egyptian economy, because they do not account for a large proportion of Egyptian imports. According to Trade Map, Egypt's imports from the three blocs is estimated at $1.25 billion, which represents 1.76% of the total imports.

Asked about the opportunities that the summit and the common market provide in terms of bringing investments to Egypt or African blocs, Nafeh said that the common market may attract non-African investments to Egypt and Africa. He gave an example of those investments. “European investments are established in Egypt depending on tax exemptions and free territories dedicated for development projects, in accordance with the Investment Law. In this case, investment should rely on fuel or electrical devices that the countries of the three blocs are famous for exporting," Nafeh said. "Through these countries, investors can bring [fuel and electrical devices] to Egypt without paying any customs as per the common market convention. This can help them [investors] profit from a great investment under tax and customs exemption.”

Nafeh added that there were also political motives behind the summit. This was supported by Fahmy and Bahaa el-Maghawry, a political science professor at Cairo University.

Maghawry told Al-Monitor, “The summit aims at promoting Egyptian-African relations, whose deterioration has been noted after the crisis of the Renaissance Dam. It also aims at paving the way for economic links, even if these are not active and influential for the moment, as they can be used in the future to resolve the crisis or strengthen relations in case of tension.”

So the African Union summit inflicts no damage and may reap no positive results for the economy except under the above-mentioned specific circumstances, but there may be a political benefit.

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Found in: trade, egyptian economy, economy, economics, business, african union, africa, abdel fattah al-sisi

Ahmed Fouad is an Egyptian journalist working as newsroom assistant manager for Al-Shorouk. He specializes in coverage of Islamists and analysis of the political situation in Egypt, especially since the mass protests of June 30, 2013, the one-year anniversary of Mohammed Morsi's presidential inauguration.

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