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Enhancing Cross-Border Trade and Investment through Regional Economic Communities and the African Continental Free Trade Area

Cross-border trade and investment opportunities are a critical need for many regions across the African continent. To solve this need, various Regional Communities have been formed. These regional communities are crucial in promoting trade and investment by fostering economic integration, reducing trade barriers, and creating a more attractive and stable business environment. Their efforts contribute to economic growth, job creation, and increased prosperity for member states across the continent. In the article below, we unpack the role of these communities, provide examples of communities, and unpack some of the legal considerations that need to be taken into account.

The Role of Regional Communities in Trade and Investment

Regional communities play a significant role in trade and investment opportunities for various reasons. These communities, often consisting of neighbouring countries or regions with shared economic interests, collaborate to promote economic growth, facilitate trade, and attract investments.  Below are some key roles these communities facilitate with regard to trade and investment:

  • Trade Facilitation – Regional communities create platforms for member states to ease the flow of goods and services. This is often achieved through trade agreements and economic blocs. These agreements reduce trade barriers, tariffs, and other restrictions, making it easier for businesses in member states to access regional markets.
  • Market Expansion – Regional communities allow businesses within the region to expand their customer base without dealing with the complexities of international trade.
  • Economic Integration – Economic integration within regional communities can take different forms, such as customs unions, common markets, and economic and monetary unions. These forms of integration promote coordination in economic policies and regulations, fostering a more stable and predictable environment for trade and investment.
  • Investment Promotion – Regional communities often work to attract foreign direct investment (FDI) by offering a larger, more stable, and business-friendly market. By pooling resources and coordinating investment promotion efforts, member states can collectively compete for FDI more effectively.
  • Infrastructure Development – Regional communities may collaborate on infrastructure projects, such as transportation and communication networks, essential for trade and investment. These projects improve regional connectivity and make it more attractive for investors.
  • Policy Harmonisation – Members of regional communities may harmonise their economic policies, regulations, and standards. This alignment reduces compliance costs for businesses and enhances the predictability of the regulatory environment.
  • Trade Negotiations – Regional communities can negotiate trade agreements with other regions or countries. These negotiations can lead to preferential trade terms and increased market access for member states, potentially benefiting their industries and businesses.
  • Risk Mitigation – By diversifying trade partners and investment sources, regional communities can help member states reduce economic risks. This can be especially important during global economic crises or trade disputes.
  • Capacity Building – Collaborative efforts within regional communities often include capacity building, helping member states improve their competitiveness, infrastructure, and human resources. This benefits both domestic businesses and potential foreign investors.
  • Conflict Resolution – By fostering cooperation and integration, regional communities can help prevent and manage conflicts arising from trade or investment issues. Dialogue and dispute-resolution mechanisms can contribute to regional stability.
  • Knowledge Sharing – Regional communities facilitate the exchange of best practices, market information, and technical expertise among member states. This knowledge sharing can improve the competitiveness of local industries and attract foreign investment.

The above roles highlight many of the benefits of these regional communities and their importance in enhancing cross-border trade.

Regional Communities Working Towards Enhancing Cross-Border Trade And Investment

Across the African continent, several different regional communities have been created to enhance cross-border trade. Below, we highlight some of these communities and their objectives.

East African Community (EAC)

The East African Community (EAC) is a regional intergovernmental organisation of 7 Partner States, namely the Republic of Burundi, the Democratic Republic of the Congo, the Republic of Kenya, the Republic of Rwanda, the Republic of South Sudan, the Republic of Uganda, and the United Republic of Tanzania.

As one of the fastest-growing regional economic blocs in the world, the EAC is widening and deepening cooperation among the Partner States in various key spheres for their mutual benefit. These spheres include political, economic and social. The primary objectives of the EAC are to:

  • Promote and facilitate economic, political, social, and cultural integration among its member states.
  • Promote peace, security, and stability in the region.
  • Strengthen the economic and social welfare of its people.
  • Enhance cooperation in various sectors, including trade, infrastructure development, education, and health.

The EAC has its headquarters in Arusha, Tanzania, and has made significant progress in trade liberalisation, infrastructure development, and harmonising policies among its member states to create a common market and customs union. The organisation has also been working on a political federation to deepen integration further.

Several legal frameworks within the EAC have been designed to facilitate cooperation, integration, and harmonisation of policies and laws among member states. Two of these critical frameworks include:

The Protocol on the Establishment of the East African Community Common Market (CMP) which was signed and entered into force in 2010. It was projected that by December 2015, the common market would be fully implemented. The deadline was not met, but there have been progressive steps towards implementing a single market. To accelerate economic growth and development means that the EAC Partner States maintain a liberal stance towards the four Freedoms of movement (free movement of goods, free movement of labour, free movement of services, and free movement of capital).

The Customs Union Protocol which is the first Regional Integration milestone and critical foundation of the East African Community (EAC), which has been in force since 2005, as defined in Article 75 of the Treaty for the Establishment of the East African Community.  It means that the EAC Partner States have agreed to establish free trade (or zero duty imposed) on goods and services amongst themselves and agreed on a common external tariff (CET), whereby imports from countries outside the EAC zone are subjected to the same tariff when sold to any EAC Partner State. Goods moving freely within the EAC must comply with the EAC Rules of Origin and specific provisions of the Protocol for establishing the East African Community Customs Union.

ECOWAS (Economic Community of West African States)

The ECOWAS region, which spans an area of 5.2 million square kilometres, is made up of the following member States, Benin, Burkina Faso, Cabo Verde, Côte d’Ivoire, The Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Sierra Leone, Senegal and Togo.

Considered one of the pillars of the African Economic Community, ECOWAS was set up to foster the ideal of collective self-sufficiency for its member states. As a trading union, it is also meant to create a single, large trading bloc through economic cooperation.

The Community aims to promote cooperation and integration, establishing an economic union in West Africa to raise the living standards of its people, maintain and enhance economic stability, foster relations among Member States and contribute to the progress and development of the African continent.

ECOWAS is focused on creating a regional economic community that fosters trade and investment by reducing trade barriers, harmonising policies and regulations, improving infrastructure, and promoting a stable and conducive environment for local and foreign investors. These objectives aim to boost economic growth and development in the West African region.

WAEMU (West African Economic and Monetary Union)

The West African Economic and Monetary Union (WAEMU), also known as the Union Économique et Monétaire Ouest Africaine (UEMOA) in French, is a regional organisation of West African countries that have come together to promote economic integration and monetary cooperation.  The West African Economic and Monetary Union members include Benin, Burkina Faso, Côte D’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo. WAEMU member countries are working toward greater regional integration with unified external tariffs.

Overall, the West African Economic and Monetary Union’s objectives in terms of trade and investment are geared towards fostering economic growth, increasing member states’ competitiveness, and creating a more integrated and prosperous West African region. These objectives are essential for achieving sustainable development and improving the population’s living standards in the member countries.

SADC (Southern African Development Community)

The main objectives of SADC are to achieve economic development, peace and security, and growth, alleviate poverty, and enhance the standard and quality of life of the people of Southern Africa.

The Southern African Development Community (SADC) is a regional intergovernmental organisation in Southern Africa that aims to promote economic integration, cooperation, and development among its member states.

These objectives aim to foster economic growth, development, and regional integration in Southern Africa by promoting trade and investment, ultimately leading to improved living standards and socioeconomic advancement for the region’s people. SADC’s efforts in these areas are intended to enhance economic cooperation and reduce the disparities among its member states.

CEMAC (Central African Economic and Monetary Community)

CEMAC aims to promote peace and the harmonious development of its member states by establishing an economic union and a monetary union. In each of these two areas, the member states intend to move from cooperation to a situation of a union to complete the process of economic and monetary integration and to improve mutual assistance to support less developed member states.

CEMAC comprises six states- Gabon, Cameroon, the Central African Republic (CAR), Chad, the Republic of the Congo and Equatorial Guinea. The primary mission of CEMAC is to promote harmonised development in its member states in the framework of a common market. Its objectives are to:

  • Strengthen the competitiveness of economic and financial activities by harmonising regulations that govern them.
  • Ensure the convergence toward sustainable economic and financial performance by coordinating economic policies and rendering national budgetary policies consistent with the common monetary policy.
  • Create a common market based on the free mobility of persons, goods, capital and services.
  • Assure coordination of national sector policies in the following areas- agriculture, livestock, fishing, industry, commerce, transport, telecommunications, energy, environment, research, education and professional training; implement common actions and adopt common policies.

COMESA (Common Market for Eastern and Southern Africa)

The Common Market for Eastern and Southern Africa (COMESA) significantly promotes regional trade and economic integration in the Eastern and Southern African regions. COMESA is a regional economic bloc established to enhance cooperation and economic integration among its member states. This is done by reducing trade barriers, improving infrastructure, and facilitating trade. This community contributes to the growth of intra-regional trade and the overall economic integration of the region.

Building Blocks of the African Continental Free Trade Area (AfCFTA)

The African Continental Free Trade Area is the world’s largest free trade area, bringing together the 55 countries of the African Union (AU) and eight (8) Regional Economic Communities (RECs). The regional communities mentioned above form the building blocks and foundation for AfCFTA.

The overall mandate of the AfCFTA is to create a single continental market with a population of about 1.3 billion people and a combined GDP of approximately US$ 3.4 trillion. As part of its mandate, the AfCFTA is to eliminate trade barriers and boost intra-Africa trade. It specifically focuses on advancing trade in value-added production across all service sectors of the African Economy.

Regional communities, such as the ones mentioned above and regional trading blocs, serve as essential building blocks for the successful implementation of AfCFTA in several ways:

  • Harmonising Regional Policies – Regional communities help harmonise trade policies, regulations, and standards within their regions. This alignment of rules and regulations across member states facilitates smoother integration into the larger AfCFTA framework.
  • Infrastructure Development – Regional communities often undertake infrastructure development projects, such as roads, railways, and energy networks, that improve connectivity and reduce trade barriers within their regions. These infrastructure investments can benefit AfCFTA by enhancing the movement of goods and services.
  • Trade Facilitation – Regional communities work on trade facilitation measures, like reducing customs and bureaucratic hurdles at borders. This helps streamline cross-border trade within their regions and can serve as a model for trade facilitation under AfCFTA.
  • Capacity Building – They facilitate capacity-building programs for their member states. These initiatives can enhance the skills and knowledge needed to navigate the complexities of international trade, making countries better prepared for AfCFTA.
  • Market Access – Regional communities often grant preferential market access to members, which can be a valuable incentive for businesses in those regions. This experience with preferential trade can be extended and expanded under AfCFTA.
  • Coordination and Advocacy – Regional communities can serve as advocacy bodies to represent their members’ interests in the broader AfCFTA discussions. They can also coordinate positions and strategies to maximise the benefits of the continental agreement.
  • Economic Diversification – Regional communities can help member states develop complementary industries and value chains by focusing on economic diversification. This can make countries more competitive in the broader AfCFTA market.
  • Dispute Resolution Mechanisms – Many regional communities have established dispute resolution mechanisms that can serve as models for resolving trade disputes under AfCFTA. These mechanisms are essential for maintaining law and order in international trade.
  • Data and Information Sharing – Regional communities often collect and share economic data and information that can be used to assess the impact of AfCFTA and make informed policy decisions.

In summary, regional communities serve as building blocks for AfCFTA by providing valuable experience, infrastructure, and institutional frameworks that can be scaled up to the continental level. They create a foundation for broader economic integration efforts and can help overcome trade, infrastructure, and policy harmonisation challenges within Africa.

Legal Aspects and Considerations

Enhancing cross-border trade and investment through the AfCFTA and regional communities like the East African Community (EAC) involves various legal aspects and considerations. Here are some key legal aspects and considerations:

  1. Trade Agreements and Treaties
    • Member states within regional communities typically negotiate and sign trade agreements and treaties. These legal documents set out the framework for trade and investment cooperation and often include provisions related to tariff reductions, non-tariff barriers, and preferential trade.
  2. Customs Union and Common Market Protocols
    • Regional communities often establish customs unions and common markets. These protocols contain legal provisions related to the movement of goods, services, and capital across borders. They define common external tariffs, trade policies, and competition regulations.
  3. Harmonisation of Laws and Regulations
    • Member states may need to harmonise their national laws and regulations to ensure consistency in trade and investment rules across the region. Legal harmonisation can involve intellectual property, competition policy, and consumer protection.
  4. Dispute Resolution Mechanisms
    • Regional communities typically establish dispute resolution mechanisms to address conflicts related to trade and investment. These mechanisms may include regional courts, arbitration, or mediation processes.
  5. Investment Protection Agreements
    • Member states often enter into bilateral and multilateral investment protection agreements. These agreements provide legal safeguards for foreign investors, including provisions related to dispute resolution and compensation for expropriation.
  6. Customs and Trade Facilitation
    • Legal frameworks should be in place to simplify customs procedures, reduce trade barriers, and enhance trade facilitation. This includes rules governing the movement of goods across borders, customs valuation, and rules of origin.
  7. Intellectual Property Protection
    • Intellectual property laws and enforcement mechanisms should be consistent across member states to protect innovation and foster investment. This includes trademarks, patents, copyrights, and trade secrets.
  8. Competition Policy
    • Ensuring fair competition is essential for cross-border trade and investment. Regional communities may establish competition laws and enforcement agencies to prevent anti-competitive behaviour.
  9. Labour and Employment Regulations
    • Labour laws and regulations should be considered, especially if regional integration results in labour mobility across borders. Legal standards for labour rights and employment practices may need to be harmonised.
  10. Financial Regulations
    • Legal frameworks governing banking, insurance, and financial services should be harmonised to facilitate cross-border financial transactions and investment opportunities.
  11. Transparency and Anti-Corruption Measures
    • Implementing legal measures to enhance transparency and combat corruption is crucial for creating a conducive environment for cross-border trade and investment.
  12. Regulatory Coordination
    • Member states should coordinate their regulatory bodies to ensure that regulations related to trade and investment are coherent and aligned across the region.

Trade and investment policies across various regional communities on the African continent can have many complexities due to the various legal frameworks and legislations across different regions. It is, therefore, critical to ensure that legal representation is well-versed in the multiple legislations across regions. Says LEX Africa chairperson, Pieter Steyn, “LEX Africa is Africa’s first and largest legal Alliance formed in 1993 with over 700 lawyers in 30 African countries.  We are well positioned to continue assisting and advising clients on the legal issues arising from the implementation of the AfCFTA and Regional Communities and these issues are key focus areas for us”.

Conclusion

From the above, it is clear that African regional communities and the AfCFTA will play a significant role in enhancing cross-border trade and investment opportunities through broader economic integration efforts, reducing trade barriers, and creating a more attractive and stable business environment. For these efforts to be successful, it is vital for the proper legal framework, policies and concessions to be in place. For more on how LEX Africa is facilitating this through its lawyers across Africa, visit https://lexafrica.com/

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