Insights Opportunities

How to Increase Intra-Africa Trade

BY FRANCIS MANGENI

Francis Mangeni.

LUSAKA, ZAMBIA- There are basically three ways to earn an income – stealing, inheriting or trading goods, services and assets. Stealing in its myriad forms is contrary to good public policy. Inheritance would be limited and subject to vicissitudes. Trade at various levels has been acceptable architecture for incomes. The higher the trade values, the better for income generation.

Lots of jeremiads about low intra-Africa trade have been churned out. Figures of a decade ago, putting intra-Africa trade at 10 to 12 percent of total trade, still haunt recent analysis. According to the COMTRADE data base, 2016 figures put intra-Africa trade at 21.2 percent. This is still low relative to EU at 61.7 percent, NAFTA at 50.3 percent and ASEAN at 24.3 percent, which are more developed regions. Intra-Africa trade levels, however, are comparable to or higher than those of other developing regions, with MERCOSUR and CARICOM at 13.6 and 9.7 percent in 2016 respectively.

It can be noted also that the COMESA-EAC-SADC Tripartite region accounts for 72 percent of intra-Africa trade, and Africa is the No.1 export market for the Tripartite region and several other countries.

In a global environment of protectionist tit-for-tats sparked off by the Donald Trump of the United States, threatening a melt-down of the international trade system, conclusion of the African Continental Free Trade Area by 44 countries on 21 March 2018 in Rwanda, sent delightful reverberations around the world. This Agreement is expected to double intra-African trade, and as such a panacea to the low levels.

A number of observers were of course quick to remind the world of the usual narrative about Africa, pointing out all the reasons why the African Continental Free Trade Area (ACFTA) would never work. Inadequate infrastructure, low levels of industrialisation, poor implementation record, high cost of doing business including corruption and the whole repertoire of desiderata were indicated. It didn’t help that Nigeria and South Africa, two large economies, have yet to sign the Agreement. The apt response by other observers pointed to the raft of existing programs to develop infrastructure and industrialisation, and to improve the regulatory and business environment.

This discussion should be welcome, keeping these critical priorities on the frontline of development interventions in Africa. Indeed, the ACFTA should be unthinkable without robust continental, regional and national programs to effectively ensure infrastructure, industrial, agricultural, and technological development in the context of Agenda 2063 and the Sustainable Development Goals. Basic programs on digitisation, trade information and market intelligence systems, customs modernisation and simplification of procedures and documentation, and other trade facilitation programs, remain pertinent.

It is possible to state some common-sense reasons why intra-African trade is low. The reasons include smaller economies, smaller and fewer companies, lower levels of technological and business sophistication, market information shortages, expensive and little money or credit, large informal sector making up significant amounts of unrecorded trade, among others.

Causes of low levels on intra-Africa trade have been widely discussed. What matters now is to design and implement high impact and immediate interventions, bearing in mind that volumes and values of intra-Africa trade are bound to increase as African economies grow bigger due to geographical contiguity and interconnectivity through economic infrastructure, and regional value chains and regulatory frameworks.

Computation of intra-Africa trade is based on trade in goods, curiously not covering trade in services. Services contribute on average to more than 50 percent of African economies. Consumer and business-to-business spending already stands at US $ 3.9 trillion and is projected to rise to US $ 5.6 trillion by 2025, according to the Mckinsey Global Institute in its report entitled Lions on the Move 2016.

Natural resources attract many to Africa, which possesses some of the largest deposits of strategic and valuable minerals. Congo DR for instance has half the world’s deposits of cobalt, used in batteries for powering clean energy. And Africa has the highest returns on investment in the world.

A lot has been said about value addition and diversification. It can be said quite simply that to grow intra-Africa trade and investment needs new products through innovation. This requires giving new ideas, including from research institutions as well as student coursework and dissertations, the maximum prospects for commercialisation. Focussed programs for harnessing ideas, skills and innovations from around the region and the world will greatly assist.

New products should have a business and investment environment to be rapidly grown into whole new industries. While the business and investment climate on the whole matters, however, targeted interventions that grow specific strategic sectors and clusters are what will constitute critical success factors.

A number of good practices from Africa and around the world can provide manuals for doing this. For example; Botswana introduced in 2010 a law requiring cutting and polishing of its diamonds as we all as a national company for stakeholders to gain better knowledge of the global market. The GDP per capital of Botswana has risen from US $ 83.73 in 1966 at independence to US $ 7,674 in 2017; investing huge revenues into infrastructure including education and health care. With the help of a standing multi-stakeholder national task force, clear-headed good governance, and an export-driven orientation, Mauritius transformed itself from a sugar-dependent economy in the 1970 with a GDP per capita of US $ 249 to a middle-income services-based economy with a GDP per capita of US $ 10,292.87 in December 2017. Mauritius has put a premium on skills development, training and re-tooling of workers, prioritising it into national budgets that provide for streamlined training levies.

In conclusion then, intra-African trade in goods is on the rise but its computation ought to take into account the huge services market provided through consumption by a rising middle class and businesses. Beyond conventional structural measures to grow economies, increasing intra-African trade requires some targeted focus on generating new products and industries through innovation and good economic leadership.

The author is the Director of Trade and Customs at the COMESA Secretariat

Contact: fmangeni@comesa.int