Association for Free Research and International Cooperation

Intra-African trade : A game changer to economic stability

06.03.2020
Article from AFRIC Editorial
The business of exchanging commodities for value has undeniably been the backbone of prosperity through the ages. In recent years, however, conversations bordering on the importance of intra-African trade has gained prominence following positive forecasts for the business prospects of the continent. Consequently, the African Rising narrative has been carried by the diviners of economic fortunes. Since 2015, the African Union (AU) has been working to improve trade on the continent. In March 2018, in Kigali, these efforts culminated in the landmark agreement called The African Continental Free Trade Area Agreement (AfCFTA) among 52 out of the 55 African countries. This agreement constituted policies that sought to eliminate tariffs on goods and services and increase liberalization of trade while tackling barriers that will make the agreement ineffective.

It is expected that the successful implementation of this agreement will create a single regional market and deepen the economic integration of the continent given that it has more than a billion consumers. Furthermore, the agreement is expected to yield over $3 trillion in total GDP and boost intra-African trade by 52% by 2022. It will also aid the movement of money and people through investment as well as encourage the competitiveness of nation-states in the region and the global market. A strengthened intra-African trade will also enhance industrial development through diversification, agricultural development, and regional value chain. Above all, the agreement will make Africa the largest free trade market in the world.

Reports from the United Nations Conference on Trade and Developments, published in 2017, revealed that intra-African trade export was 16.6% while intra-trade in Europe, Asia, America were 86.1%, 59.4%, and 55.0% respectively. Given these statistics, it becomes difficult, if not impossible, to dismiss the importance of intra-regional trade to prosperity. The economic vibrance in the aforementioned regions is mainly because their inter-regional trade is more resilient compared to their exchanges with other regions. Again, intra-trading of manufactured goods and services is less susceptible to external price shocks and the volatility which mark global trade. Africa’s internal activities are the lowest globally as we continue to depend heavily on foreign markets through total export and import. 

Nonetheless, some countries have shown a greater commitment to trading among partners in Africa. Kenya is one of the major leaders in intra-African trade. The country has benefited extremely from this commitment, particularly in the area of tea export. The commodity has accounted for over 70% of tea production with half a million citizens deriving their source of livelihood from its cultivation. Tea exports to Egypt and Nigeria generate over $183 million, which does not only create economic gains, but also employs Kenya’s youthful populace.

The largest intra-African trade importer of sawn wood is South Africa, which generates $45 million, followed by Senegal with $31 million, Namibia with $11 million and Niger with $7 million among others. These revenue streams go a long way to enhance the economic stability of these nations. However, it is believed that more can be done within the sector if the existing constraints and barriers are dealt with. 

Although intra-African trade has received little support over the last decade it has been estimated to be worth $170billion. Given that most trade activities among African countries have not been formal and even under-reported in international economic circles, this estimated figure is impressive, to say the least.  The creation of the African Continental Free Trade (AfCFTA) has given life to the prospects and the picture is beginning to look a little brighter. The African Continental Free Trade Area will offer a better chance of progress for intra-African trade to fuel growth and boost Africa’s economic status.

AfCFTA presents a unique opportunity to grow intra-Africa trade while diversifying the continent’s export to the rest of the world. The trade agreement is the biggest of its kind since the inception of the World Trade Organization in 1994; a bold step for Africa towards strengthening regional economic integration. Even more remarkably, free trade has proven highly profitable in some African countries. Common Market of East African States (COMESA), the East African Community (EAC) and the Southern African Development Community (SADC) alone has accounted for anything above 50% of intra-African trade. Reports from COMESA indicate total imports of accounts $183 billion and $95 billion for total exports in the last six years. So, one can easily imagine the enormous economic benefits the region stands to benefit under AfCFTA.

Unfortunately, the agreement has formally been ratified by only 22 African countries as some countries such as Nigeria, Namibia, Guinea Bissau, Benin, Sierra Leone, Botswana, and Lesotho have demonstrated reluctance to participate. Although disappointing, this posture may be a result of the many impediments such as the existence of tariff barriers and heavy bureaucracy. Currently, it is far easier for some African countries to ship goods to Europe or the USA than to other African countries.  Lack of infrastructure has also been one of the major challenges to nearly every development project in Africa. Inferior transportation systems have a negative knock-on effect on intra-African trade. Our predominantly substandard transport systems only raise business transaction costs and limit the development of regional economic integration. 

These crucial challenges need to be tackled for intra-African trade to become more than an idea. By going beyond tariff removal and creating effective regional integration policy, Africa can begin to address issues that paralyze the daily operations of traders. 

Again, providing regulatory reforms and capacity-building training for authorities, institutions, and individuals in charge of running the various regulatory bodies on the continent can be instrumental in reorienting our perspectives.  Additionally, our manufacturing sector needs a renaissance with more value addition to our resources, products, and services. This can go a long way to provide well-paying jobs, increase the quality of livelihoods and so forth. Report from Overseas Development Institute Data shows the manufacturing production in Africa in the last decade has more than doubled from $73billion to $157 billion. Countries such as Tanzania, Zambia, and Uganda have achieved more than 5% annual growth in recent years. These figures indicate the higher capacity and progressive income the manufacturing industry can yield if the necessary attention is given to it. 

It is imperative for Africa to take advantage of technology as Technology has proven to be a game-changer and a key driver of competitiveness across the region and beyond. The needed financial investment, human capital development in terms of higher education and training will also move the value chain and maximize output. It is believed that the African Export-Import Bank is developing strategies to bridge the financing gap as $25 billion is needed for a better implementation. The strategy should be able to facilitate the rise of export trading in Africa and set up a fund for internal trade development to attract investment partners and financial institutions. 

In spite of all that has been said, let’s get this idea straight: internal politics can make and unmake the implementation of the AfCFTA, however brilliant the idea may be. Hence, the originators of AfCTA ought to carry out capacity training for political leaders to imbibe the benefit it holds for the citizens and the continent as a whole.

If the AfCFTA will see the full potential these key factors need to be tackled head-on, effective policies, and strategy for exports, identify new opportunities for diversification, industrialization, and value chain development else the reality of intra-African trading will be nothing but an idea.

Article from AFRIC Editorial

Photo Credit : google image/illustration

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