Page last updated at 23:04 GMT, Friday, 21 August 2009 00:04 UK

Q&A: Free trade zones in Africa

By Louise Greenwood
BBC Africa Business Report

Across Africa, free trade zones are being set up between countries and even at individual locations.

They claim to offer a cheaper and easier way to buy and sell goods, boosting economies. But what are "free trade" or "tariff-free" zones and how do they work?


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Map showing Ecowas free trade bloc in Africa Map showing Comesa free trade bloc in Africa Map showing Sadc free trade bloc in Africa Map showing Africa Free Trade Zones

What is a free trade zone?

Free trade zones, describe an arrangement where different trading entities, usually member countries, agree to cut or scrap taxes in order to lower business costs and remove bureaucracy. They are also known as "special economic zones" and are mostly found in developing economies. The aim is to give a massive artificial boost to trade, especially between raw material producers and manufacturing based economies. These zones are also attractive to foreign investors as it's cheaper for them to do business there.

Why have they become so popular in Africa?

Economists argue that free trade zones are particularly suited to African countries which were created under colonial occupation when land was divided up, often with little regard for the economic sustainability of the newly created plot.

Plus, post-independence conflict in Africa has left much of the continent with a legacy of poor governance and a lack of political integration which free trade zones aim to address.

For example, landlocked Uganda was almost ruined by the Ugandan-Tanzanian War (1978-79). Today it remains dependent for the supply of finished goods on its wealthier neighbour Kenya, with its international seaports.

Marketplace in Nairobi, Kenya
African states are looking for freer markets

The two countries entered into the East Africa Community Customs Union, EAC, in March 2004, along with Tanzania.

However, these trading blocs are not always tariff-free. Kenya continued to pay export duties to Tanzania and Uganda for five years after the EAC union began, to compensate for the fact that it was a more prosperous, diversified economy.

Other large free trade zones in Africa include SADC, the Southern African Development Community (South Africa, Tanzania, Zambia and Zimbabwe) and Comesa (Zimbabwe, Zambia, Uganda and Sudan), illustrating the point that these "zones" often overlap.

Free trade zones can also cover individual areas within a country. The Lekki free trade zone in Nigeria's former capital, Lagos, aims to create a new commercial hub by removing tariffs for international investors. Eritrea plans a similar arrangement at its port at Massawa on the Red Sea coast.

Last October, plans were agreed to create a "super" free trade zone encompassing 26 African countries, stretching from Libya in the north to South Africa. The GDP of this group of nations is put at $624bn (£382.9bn).

What do free trade zones claim to offer?

The hope is that free trade zones will boost both trade and Africa's economic independence.

Babatunde Raji Fashola, governor of Lagos State
The Lagos State governor wants to boost Nigeria's economic clout

Babatunde Raji Fashola, governor of Lagos state, told Africa Business Report: "At airports, Nigerians are the people you see with excess luggage and it comprises mainly of household goods, clothing.

"Every time we import goods, we invariably, without knowing it, export jobs because we keep those industries offshore."

World trade experts also believe in the future, more of the world's big multi national deals will be "South-to-South", ie between Southern Hemisphere nations.

A recent example is a plan by India's mobile phone giant, Bharti Airtel, to take a controlling stake in South Africa's MTN. Free trade zones can greatly boost the attraction of such deals.

Is there any evidence they work?

Some critics claim that free trade zones give an unfair advantage to multinational corporations, who are able to manufacture in a low-cost base and export around the world, rather than indigenous firms.

These companies are often given other incentives to locate in developing economies, such as grants to help with set-up costs and lax employment legislation, which trade unions and some charities claim are open to abuse.

Free trade zones can also take a long time to set up while member countries agree terms. The East African EAC bloc took six years to come into being, even though it was replacing a previous similar arrangement which collapsed in the 1980s.

The fear is that the dominant economy will set the agenda for the bloc as a whole - a criticism levelled at the SADC, which contains South Africa, the continent's only G20 member country.

But supporters say free trade zones are ultimately one of the fairest ways for developing world economies so that they can begin to compete on a global scale. They could even be extended to encompass other financial unions, such as pan-regional banks and a common currency.

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