Despite Singapore’s growing trade and investment partnerships with Africa, there have been no free trade agreements (FTAs) between the city state and the African continent.
Rather, both parties have agreed to a number of bilateral investment treaties, primarily concerned with private investments and double taxation avoidance treaties.
By using Singapore as a successful model of a trading nation that benefits from FTAs, this article seeks to examine the reasons why African countries have not successfully implemented FTAs with Singapore. It also considers what needs to be done to facilitate both intra- and inter-trade in Africa.
FTAs are agreements between two or more countries to lessen or eliminate trade barriers and effect closer economic integration. Basic areas of trade liberalisation typically covered by FTAs are trade in goods, trade in services and investments. FTAs can also include intellectual property protection, government procurement and other cooperation measures
. FTAs help secure export markets, movement of investment and people, making it easier for companies to trade and invest in FTA partner markets.
There are debates about the benefits and drawbacks of free trade. A good illustration can be seen in arguments surrounding the Trans-Pacific Partnership (TPP).
The much-heralded TPP between Singapore and 11 other countries, including Japan and the US, seeks to set high standards for labour, human rights and environmental issues amongst other trade-related issues.
However, following Donald Trump’s election to the US presidency, the TPP is in a precarious position with claims that it benefits big business and other countries at the expense of jobs and US national sovereignty.
Nevertheless, there seems to be consensus that FTAs improve the overall wealth of the parties to the agreement, boosting trade, exports and employment.
In a study on the US-Korea FTA and its effects on manufacturing, researchers found US exports to Korea would increase, albeit more than US imports from Korea; and jobs would increase by 26,500 and 34,200 in Korea and the US respectively. FTAs also facilitate increases in specialisation in industries where both countries have strong technological comparative advantages.
Singapore’s ability to trade has been boosted by FTAs. Currently, Singapore has 20 implemented FTAs with 31 of its trading partners.
One example of such FTAs is the India-Singapore Comprehensive Economic Cooperation Agreement (CECA) that covers the basic areas of trade liberalisation, but also includes intellectual property, science and technology, education and other co-operative measures. Between 2005 when Singapore and India signed the CECA and 2011, trade between the two countries doubled to US$35.4 billion.
Singapore – Africa FTA potential
The Spring Singapore’s Free Trade Agreement (Trade in Goods) Guide for SMEs published in 2005, listed South Africa and Egypt as two African countries with ‘FTAs in the Works’.
However, these FTAs never materialised. According to IE Singapore, in 2013, South Africa was ranked Singapore’s 33rd trading partner, and bilateral trade between the two countries amounted to S$2.236 billion in 2015. In the same year, Egypt had bilateral trade of S$679.1 million with Singapore.
Trade and investments between Singapore and Africa are growing with scope for an increase. Between 2009 and 2013, trade grew at 12 per cent.
In 2014 and 2015, Singapore-Africa bilateral trade was valued at S$15.4 billion and S$11.5 billion respectively. As at the end of 2014, Singapore’s stock of total foreign direct investment to and from Africa was S$22.1 billion and S$21.5 billion respectively.
Singapore’s reluctance to implement FTAs with African countries may stem from its relatively low trade with African countries compared to other regions. Singapore’s total trade with the African continent is only 1.5 per cent. Traditionally, Singapore was not involved in much trade with Africa.
In 1980, domestic exports to the African region was US$884 million. In the same period, exports for other regions outside Asia were US$3.9 billion, US$2.8 billion and US$4.5 billion for Europe, Oceania and America respectively. Although, there has been a noticeable increase in trade to Africa since 2010, this pales in comparison to increases that have occurred in other regions.
Africa’s potential to implement FTAs with Singapore could be boosted by an increase in Africa’s share of world trade and the efforts of African Regional Trade Agreements (RTAs).
According to WTO International Trade Statistics 2015, Africa has the lowest share of world merchandise exports. The Common Market for Eastern and Southern Africa (COMESA) world merchandise export has remained at the 1995 level of 0.5 per cent or US$96 billion.
The Southern African Development Community (SADC) did slightly better with an increase from 0.9 per cent to 1.1 per cent or US$205 billion. This can be compared to the Gulf Cooperation Council countries which accounted for six per cent or US$1,025 billion, up from two per cent or US$105 billion in 1995.
Currently, Africa’s intra-regional trade stands at a very low 18 per cent when measured against figures of 69 per cent, 52 per cent and 50 per cent in Europe, Asia and North America respectively.
Reasons for the low trade have included low industrial levels, restricted movement of labour, poor infrastructure and a high dependence on the export of unprocessed commodities.
Regions where Singapore has had strong trading partnerships, have generally resulted in negotiations, conclusions and/or implementation of FTAs. Singapore’s five top trading partners and their share of total merchandise trade in 2015 were China (14 per cent), Malaysia (11 per cent), EU (10 per cent), United States (8.5 per cent) and Indonesia (6.6 per cent).
All but the EU have implemented FTAs with the city state. The EUSFTA concluded in 2014 is currently awaiting the decision of the Court of Justice of the European Union on whether the EU has exclusive competence to conclude the FTA with Singapore.
Similarly, Africa has entered into a number of FTAs, the most recent being a series of economic partnership agreements (EPAs) between the EU and African countries.
In September 2016, the East African Community (EAC) was in the news for Tanzania and Burundi’s failure to sign the EPA. The EAC will revisit the issue at a summit this January 2017.
Facilitating Africa’s intra- and inter-trade
With this in mind, the Continental Free Trade Agreement (CFTA) expert meeting that took place in May 2016 to develop a draft of the Africa wide trade agreement, is welcome.
The CFTA seeks to transform Africa’s economy by boosting intra-African trade and ultimately increasing Africa’s global trade. Of significance also is the Tripartite Free Trade Area (TFTA) between SADC, the East African Community (EAC) and COMESA, launched in 2015 and expected to pave the way for the CFTA.
The TFTA involves 26 African countries spanning a combined market of 625 million. It addresses tariff and non-tariff barriers, transport infrastructure and industrial policy. If the TFTA is successfully implemented, many of the obstacles to intra-African trade could be resolved.
The Economic Community of West African States (ECOWAS) has also started implementing the Common External Tariff that came into force in January 2015.
Africa should also look into promoting its international trade in services as the services sector plays a major role in its economic development. As at the launch of the TFTA, trade in services was not addressed.
Contrary to the long-held theories that countries develop by increasing agricultural productivity followed by manufacturing growth, Africa’s growth has been to a large part due to the services sector.
Since services allow firms to participate in regional and global value chains, it has the potential to provide real trade opportunities for Africa. Moreover, international trade in services are less likely to be affected by slow economic growth and/or macroeconomic upheaval.
Africa needs to boost its trading prospects, both regional and global, by re-examining its intra-regional trade, RTAs and infrastructure development.
The RTAs have not reached expected goals, with limited implementation of political commitments, high trade barriers, constraints and infrastructure deficits. In continents like Europe and Asia, RTAs have increased global trade, evidenced by the number of FTAs and position in world trade rankings. However, those continents have also established good trade infrastructure and policies.
With Africa so fragmented, RTAs would still best serve the continent. It is hoped that the CFTA, TFTA, and ECOWAS CET will promote free trade among African nations, thereby potentially strengthening links in the global value chain, leading to increases in global trade and FTA implementation.