Do we need more than free movement of people across the African Union??

The long-awaited Pan-African passport was launched recently at the opening ceremony of the 27th Ordinary Session of the Assembly of the African Union. Dr. Nkosazana Dlamini-Zuma, the Chairperson of the African Union Commission, handed two representational African passports to President Paul Kagame, and to the Chairperson of the African Union, President Idriss Deby of Chad. The move to launch the African passport was reached during the Summit in January this year, with the AU deciding that the passport would be launched in Kigali, starting with Heads of State and Government, with Foreign Ministers and the leadership of the Representatives of the AU Executive Councils and Organs. What this means for countries doing business in Africa’s emerging markets is that simply put, one step in the mobility blockade of their human capital needs has been lifted. This is despite the fact most are struggling under various stages of economic recession, brought about primarily by the lack of proper economic management and planning and phenomenal cases of ineptitude in the management of their commonwealth. While you could argue that the free movement of people as enshrined as part of the African Union’s seventeen objectives provided in Article 30 of the Constitutive Act of the African Union, is one of the key principles of the African Union, care should be taken that it should not be tested to its limit when fully implemented. There is no gainsaying the fact that there is always this rush by people from economically less developed countries to move en-mass to other better developed economies. This is usually the case and typically happens over a duration of time, unless spiked by certain natural phenomena like wars, famines etc. In Africa for example, I must say at this point that in 2014, Africa experienced more than half of worldwide conflict incidents, despite having only about 16 percent of the world population. This is a slightly larger share of the world’s conflicts than even during the chaotic years of the post-Cold War 1990s. Geographically Africa’s conflicts are tightly clustered along an arc stretching from northern Mali through southern Algeria and Libya into Egypt, extending into the Sinai Peninsula. The Boko Haram conflict in northeastern Nigeria is another epicenter and situated in relative proximity to an area of conflict hot spots in the Central African Republic, eastern Democratic Republic of the Congo, Niger, Burundi, South Sudan and Darfur. On Africa’s eastern coast, the Somali civil war is still going strong in its third decade. Modern conflicts in Africa are thus highly localized, and they defy simplistic explanations based on stereotypes. That being said, the above tells us that we might already be at that point where there might be a migrant crisis already across these hot spots, and care should be taken in launching this AU passport which will eventually allow members of the 54 nations in the African Union, which includes every country on the continent except Morocco, to move freely between borders and war thorn regions, similar to the way the Schengen Area works in the European Union to lead us to what the EU is facing at this time with some countries being forced to opt out of the union. The AU believes that the fact that over half of the countries in the AU currently require visas for visitors from other countries on the continent is one of the causes of Africa’s dismal intra-continental trade, which makes up only 11 percent of trade in the region. The fact is that there have been some attempts at easing trade and investment in the continent in the past and these efforts have not been centrally coordinated by bodies like the AU but within regional blocs. For example, last year, 16 African nations signed an agreement to establish the Tripartite Free Trade Area. The Tripartite Free Trade Agreement (TFTA) was signed into effect in Cairo in June 2015, amalgamating three of Africa’s main trading blocs: the Southern African Development Community (SADC), the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA). However, investors will have to wait longer to reach a regional markets with 625 million consumers as only 16 out of 26 nations have signed an agreement to combine three trading blocs in Africa. Under FTA, a designated group of countries have agreed to eliminate tariffs, quotas and preferences on most — if not all — goods. However, of note is the fact that no country has yet ratified the pact, raising concern over delays in the implementation of the merger plans by the target of 2017. I believe the AU should also focus on facilitating these types of Trade agreements which will create a free trade union capturing more than 60 per cent of the continent’s economic activity and investors will easily reach a market of 625 million consumers from South Africa to Egypt, as opposed to just opening the borders to free movement of people. Also noteworthy is the fact that with the strong countries getting stronger by the day, and paper giants struggling with how to catch the northeast trade winds, forward looking companies would want to move to areas/regions where they feel they can guarantee return on investments for their stakeholders, and regulatory fluidity would be a factor not chasing them about the continent. For a country like Nigeria which has an economy that is shrinking by the day and has technically been in recession after a fall in GDP for two successive quarters, in the past six months, the prices of essential food items have risen significantly in consonance with the rising level of inflation in the country, which hit an 11-year high of 16.5 per cent last month. The Nigerian National Bureau of Statistics this week released the Consumer Price Index, which measures inflation, stating that the country’s inflation rate rose from 15.6 per cent in May to 16.5 per cent in June. June’s rise in the inflation rate represents one of the highest to be recorded by the country over a decade. For Corporates, the rising trends of various costs of production will make manufacturing in Nigeria no more attractive and competitive. Where does that leave us for export? These costs of production including Labor will skyrocket in response to the harsh operating environment. For this singular act by the AU, the fact that labour is now mobile across the region guarantees that companies are not going to be moving around due to the need to find cost effective labour alone as they can now get from across the region. Or wait; would they be moving around given the fact that the cost of labor is one of the most singular huge cost of production, and if reduced significantly, their goods might become competitive and thus attractive for export?. One really cannot tell at this point until we see the policy play out. While we cannot specifically say that encouraging intra-African trade or labor mobility is the reason the AU decided to reach this singular passport decision, according to Rwanda’s Foreign Affairs Minister Louise Mushikiwabo, the issuance of African passport is among the African strategic initiative intended to come as a possible rescue to disband all the restrictions to move which will eventually create a conducive environment for Africans to trade with each other. However once these restrictions to move have been addressed, the questions around the right to work in different countries still has to be addressed, i., e first you have moved to another region, however, questions like does this now give the you the right to live and work in these other countries in Africa, or it just has a short sleeved process of just traversing the length and breadth of Africa trading and moving on?. These are questions the policy makers need to address to be able to model the policies of the AU like a truly integrated customs union. Companies on the other hand typically move from place to place in search of greener pastures. In this sense a place where the cost and ease of doing business is competitive and they are able to guarantee good return on their investment. In Nigeria a typical case in point would be Dunlop moving from Nigeria in the 80ties to neighboring Ghana when the cost of doing business in Nigeria became exorbitant. While it might be true that free movement of goods and services in the region has the ripple effect of growing the economies of these African countries in the Union, companies now need to evaluate their production, distribution and sourcing options in order to determine where to get the best value. This is because it will not make economic sense for the AU to still have other forms of trade restrictions when other countries/regional blocs trade with countries in the AU and then allow the movement of persons within the region to be free. For these type of inter-regional trade restrictions to still coexist side by side with the one passport regime and be successful, the AU needs to get to a stage where they can be self-sufficient enough to be able to address sourcing requirements for businesses in the region for them to say that their isolationist policy will be sufficient to address the regions challenges to regional trade. Scenario 1 Plausible scenarios for the AU to explore would be to source raw materials from some parts of Africa, then manufacture in other countries where it makes financial sense (other factors of production) and then distribute to the rest of Africa leveraging the right of people to move freely within the region. The only barrier in this case will be the cost of duties particularly when they are not leveraging the ETLS. What this means is that companies are able to plan ahead and maximize costs in the region through the lifting of these movement and trade barriers. In the case where costs of duties are eliminated due to the regional arrangements, i.e. ETLS, Preferential trade agreements, etc. all factors of production becomes mobile and then there is good ROI and the region will flourish. The AU in this case can make a conscious effort to develop some of the countries in areas of their strengths, i.e. some can produce raw materials and then others can become industrial hubs Another scenario If the first scenario above is not developed in the long run, Africa will still continue to source from the rest of the world and manufacture locally. This leaves room for a lot of development as regards backward integration. Arguments against this scenario is that it discourages trade with other countries, however, it is my opinion that as a matter of fact, trade with other countries will be encouraged due to the fact that the AU would produce end to end purely made in Africa goods and then export to the rest of the world, in return for whatever they currently export. This scenario however is currently what is in existence as Africa has not reached that level of sufficiency to be able to meet its raw material requirements. I close this by submitting in my opinion that while the AU single passport is a step in the right direction the AU needs to legislate all other trade barriers with the aim of lifting the restriction on the movement of goods and services within the African Sub-region.