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September 20, 2018

How to grow African Trade

An aerial view of Rwanda's capital city, Kigali. PHoto/Monicah Mwangi
An aerial view of Rwanda's capital city, Kigali. PHoto/Monicah Mwangi

As the African Export and Import Bank holds the Annual General Meeting in Rwanda this week, it is time to ponder its mandate of promoting African trade.

This is because trade is a key driver of economic growth, more so for Africa.

A lot of effort has gone into addressing constraints to trade between African countries and the rest of the world.

Yet the results are not sufficient to deliver tangible economic progress; not as yet.

It will be appreciated that trade development is a marathon rather than a sprint, and calls for a long-term perspective.

It is unlikely all African trade problems will be solved. Instead, learn-as-you-go and realising three steps forward may be followed by two steps backward is the reality.

Africa faces enormous economic, political, environmental and institutional constraints in pursuit of growth of trade.

Incremental success will be achieved by facing today’s and emerging challenges with renewed energy, hope and resilience.

One lesson learnt in the past three decades is that even the most articulate policies and plans can fail in the face of a rapidly changing market environment.

Trade reforms and macroeconomic stability, although necessary for growth of trade, are, by themselves, insufficient.

To move forward, a multiplicity of favourable factors is necessary. The challenge for African countries is to build the momentum and the flexibility to address these factors, even when they are themselves constantly changing.

Afreximbank identifies some of the issues facing African countries in its publication “African Trade Development issues at the Dawn of a new Millenium”.

First, the liberalisation of the commodity sector dismantled commodity boards and the export infrastructure built around them without creating viable alternative structures. In agriculture, this has complicated the farm to table value-chain. The impact is mostly felt by small-scale farmers, who have to rely on ad hoc middle-men, making farming less productive.

Secondly, many African banking systems continue to function along colonial lines that hardly address the banking needs of the typical African business and with limited intra-regional links. This has weakened their ability to address local initiatives aimed at promoting export and intra-African trade. Access to finance for SMEs at affordable rates remains a challenge.

Third, new entrants on the African markets have brought new types of risks, and both public and private institutions have to invest in capacity development to mitigate them. Consider the new measures taken to deal with money laundering and anti-terrorism financing.

Lastly, internet technology and e-commerce have created new opportunities as well as new risks. Increased automation has led to job losses, as manual tasks are taken over by technology. At the same time, it has provided new opportunities for people with the required skills. Successful economies will find ways of maximising the benefits of solving these and other emerging issues.

Kandie is IDB Capital MD

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