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Positive growth implications of intra-African trade


Economic-growthAFRICA is the second largest continent in the world- 30 million square kilomtres approximately. But its economy does not reflect its size; Africa’s GDP is only a tenth of the GDP of North America. These dismal figures set the stage for a conversation about the pressing need for Africa to generate sustainable economic growth.

2015 saw global commodity prices at a five-year low. Because the continent’s exports have thus far been largely dominated by oil producers and South Africa with $330 billion and $ 96 billion respectively, we have, as a result, felt the impact of this downturn more severely than most. The economic climate has further exacerbated the already pressing need for an industrialized Africa with a more diversified portfolio.

Having said this, economic diversification is on the increase, albeit slowly, encouraged by foreign direct investment and an improved business landscape. For example, in Nigeria, where, according to the Economist, despite the fact that oil accounts for 95% of exports, services now make up 60 per cent of GDP . Similarly in Angola, a third of revenue was derived from non-oil sources such as manufacturing and agriculture, in stark contrast to ten years ago when the revenue generated from all non-oil industries was insignificant.

Despite this growth in the right direction there are still comparably low levels of intra-African trade; 13 per cent compared to 69 per cent on the European continent, 53 per cent in Asia and 49 per cent in North America. Instead much of Africa’s trade is done with Europe and America. In order for there to be sustainable economic development, Africa needs to start looking a little closer to home for trade partners and investment. The importance of intra-Africa trade is buttressed when you consider that the continents two largest economies are also the two largest intra-Africa traders.

Increased intra-Africa trade has the potential for shared growth and sustainable development but before we can fully reap the benefits of increased trade, we must first address the barriers to trade.

One of the main barriers to trade within Africa is a lack of robust internal transportation links. Improving these links will have an exponential impact on industries in a way that stimulates sustainable growth. Another impactful barrier to trade are the borders between the countries themselves. These borders- physical and non-physical do more harm than good specifically as relates to trade and the ensuing economic benefits. Pulling down economic and institutional barriers to establish regional integrated markets will reduce transport and operational costs as well as reduce the cumbersome procedures that come with them.

Regional integration can help us to overcome some of these disadvantages. One of the main benefits of deepening regional and global connectivity is that it will ensure that we have better opportunities to access global and regional value chains. There are many other benefits of regional integration. For example, initiatives such as the North-South transport corridor from Dar es Salaam to Durban could unlock clustered economic activity and growth for the eight countries along its transport corridor. However, deepening regional connectivity will require robust policy changes and reform. These reforms can make national borders more fluid thereby lowering costs.

Africa already has existing trade preferences with both Europe (Economic Partnership Agreements- EPAs) and the United States (African Growth and Opportunity Act – AGOA). Despite successes such as AGOA being credited for opening up Tanzania’s cotton market to the Kenyan textile industry, only a small percentage of the capacity inherent in these preferences are being leveraged. There are many reasons for this lack of traction. One of these is the lack of autonomy inherent in leveraging a non-Africa originated agreement or preference- for example when the USA rescinded Madagascar’s eligibility because of undemocratic practices, this sanction affected multiple trade-linked countries also.

Another is that while EPAs opening up trade channels with Europe is positive , it could impede the growth of Africa’s industries, many of which are still in the infant stage and could be stunted by an influx of European goods from robust industries well into adulthood.

Indeed some of these free trade models though helpful could undermine our own efforts to encourage intra-Africa trade. These inter-continent models need to strike the right balance in order to have the potential to amplify rather than shrink Africa’s economy.

Africa does have some regional blocs which have programmes designed to foster trade; one example is the Chirundi one-stop border post between Zambia and Zimbabwe, established in 2009. Not only has it resulted in the reduction of lead-times by half and improved process that oversees the flow of goods, it also means that travellers are cleared once by a combined border system as opposed to twice by individual border controls. This reduction in resources- both time and monetary has succeeded in boosting trade in that region.

Policies that ease the process and reduce the cost associated with people moving between countries will be crucial to boosting intra-Africa trade and tourism in the short to medium term. Schengen-style visa restrictions could have a positive impact in this regard so long as security levels are not compromised.

There is much that can be done in order to start to see sustainable dividends from existing and future intra-Africa trade agreements. One of these is to consider combined border structures and reduce checkpoints which introduce informal and illegal but enforced payments to ensure safe passage of goods and persons. Another, but one that is certainly a long way off requires the consideration of many other factors is the possibility a single currency per region- such as West Africa, similar to the Euro in the Euro Zone.

The African Union uses the phrase;”African Solutions for African Problems” in much of its collateral. This statement is not intended to undermine the support that comes from the international community, but rather ensure that this is supplemented by African partnerships, plans and strategies from the ever increasing pool of successful, intelligent and dynamic people emerging out of the continent.

Mr Enakele is the founder of   Professionals for Africa (PfA) in London. He is currently the Managing Director and Chief Executive Officer of Zenith Capital Limited.

Africa cannot rely on the rest of the world to deliver the trade agreements and preferences, policies, strategies and indeed investments required for growth. The continent must lead and play an active role in the development of its own infrastructure. Our future is dependent on the extent to which we can lead on enabling policies, on sustainable development and more. We must employ the kind of robust regulations and policies that will encourage more intra-Africa trade and investment.

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