Trade is often heralded as the most viable route to developmental success in Africa. However, as Africa’s trade capacity has expanded, the dynamics have largely remained the same – with trade outflows heading to advanced economies such as the UK, US and China, and inflows coming from the same advanced economies.
As per the African Development Bank, intra-African trade constituted a meager 16.6 per cent of total African exports in 2017, as compared to intra-European trade of 69 per cent, intra-Asian trade of 59 per cent and intra-American trade of 31 per cent. This presents a significant opportunity for expanding intra-African trade, provided that existing headwinds are navigated skilfully.
The African Union’s determined effort to take a stab at the intra-African trade question culminated in the African Continental Free Trade Area (AfCFTA) agreement of March 2018.
The AfCFTA, if successfully implemented, would transform Africa to the largest single free trade area in the world, with a customer base in excess of one billion people, and an annual GDP of over $3 trillion. This would be achieved through the removal of 90 per cent of the tariffs imposed on goods traded within Africa, the progressive liberalisation of trade in services, and the elimination of non-tariff trade barriers.
AfCFTA’s clarion call, supported by policy initiatives such as the Protocol for Free Movement of Persons, Right to Residence and Right to Establishment and the Single African Air Transport Market, is for Africa to look inward for its success. Rather than remain vulnerable to global supply shocks, as has been seen during the COVID-19 pandemic, the oil slump of 2014 and the global financial crisis of 2008, Africa ought to strengthen linkages within its borders that serve the interests of the African populace.
Increased investment in intra-African trade would produce a positive catalytic effect to Africa’s growth story. Specifically, increased intra-African trade has the potential to shift the narrative from Africa being a net exporter of commodities and raw materials to a hub of innovation and value adding products and activities. Rather than export raw materials to advanced economies for further processing, intra-African trade would incentivise the production of manufactured and processed goods internally, with our focus shifting to skills transfer opportunities and value addition.
The road to achieving the above, however, is neither easy nor cheap. Infrastructure linkages required to connect individual African markets ought to be prioritised. It is unfortunately that as currently stands, Africa’s trade routes focus on exporting products and services out of the continent as opposed to within it. Similarly, conflict within and between individual African states hamstrings efforts to invest in Africa’s prosperity.
A key indicator of success in promoting and investing in intra-African trade would be export diversification within the continent and product sophistication. Through export diversification, Africa’s vulnerabilities to global market shocks would be significantly mitigated and innovation within the continent encouraged. Further, this would be an invaluable opportunity to increase the involvement of SMEs in Africa’s – a critical demographic in the African context.
Karen Kandie – MD, IDB Capital