How can countries grow intra-Africa trade?
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In the midst of rising trade protectionism among advanced western economies, African countries must work to sustain ongoing efforts to achieve structural transformation of African economies and enhance their integration into the global economy.
African and global trade experts said this at the just concluded meeting of the African-Export-Import Bank (Afreximbank) in Kigali.
They highlighted that the increasing adoption of policies restricting trade among countries poses a threat to African economies.
Dr Benedict Oramah, President and Chairman of Board of Directors, Afreximbank, said that the continent, however, has all the ingredients required to accelerate African trade.
“Political will, market knowledge, conducive environment and right policies combined with adequate financial resources will put the continent on the path to industrial transformation and a quantum leap in intra-African trade,” he said.
According to the World Trade Organisation, the stock of trade restrictive measures increased from 424 in 2010 to 2,238 measures in 2016.
Between October 2015 and October 2016, 182 new trade-restrictive measures were put in place mostly by advanced economies.
G20 countries introduced an average of 19 trade-restrictive measures per month during 2016.
Oramah said that these developments, coupled with recent global financial and economic shocks, caused global and African trade to slow significantly in 2015 and 2016.
“Africa’s economic activity also slowed with real GDP growth rate falling below 3 per cent for the first time in about two decades. These developments, however, provide lessons that Africa has to find ways to maintain its trade driven growth even as protectionism rises in traditional markets,” he noted.
Rwanda’s Minister for Finance and Economic Planning Claver Gatete suggested that African countries should reflect on the complimentary roles played by governments and private sector in the promotion of trade.
“Government policies should facilitate intra-African trade such that the private sector players can unlock the opportunities and potential benefits enshrined in trade agreements. The growing trend of industrial parks and export processing zones is a good examples of cooperation between public and private sectors to develop the continent,” he noted.
If Europe, with a population of 550 million people in 28 countries and a land area of 10.2 million square kilometres, boasts of intra-Europe trade of about 6 trillion US dollars, experts said, it is possible for Africa, with double that population, and nearly double the number of countries and three times the land size, to achieve the same level, if not more.
Addressing the challenges
The lack of knowledge of the African continent and limited access to trade information among African businesses remain major constraints to cross-border trade.
A study on the regional value chains for leather and leather products, jointly commissioned by Afreximbank, UNCTAD and the Commonwealth Secretariat, found that, for instance, Kenya imports raw hides from New Zealand while Burundi exports the same to the rest of the world at a much lower price.
West African countries, on average, import meat worth over $3 billion per annum from Argentina and Australia yet Mali, Chad and Sudan could, produce the entire meat required by the region.
“It is our conviction that addressing the information gap could at a minimum, double the size of intra-African trade from the current level of about $170 billion to close to $400 billion,” Oramah noted.
Despite the relative improvement observed over the last decade, intra-African trade has remained very low, at about 15 per cent, against 67 per cent in Europe, 53 per cent in developing Asia and about 37 per cent in America, according to Minister Gatete.
This low performance is due to key challenges that have hampered economic development and structural transformation of African economies such as infrastructure deficit, insufficient export diversification, the small size of economies and market fragmentation on the basis of low level of integration, said Gatete.
He also attributed it to the low levels of intra-regional trade among African countries and over-reliance on export of natural resources and primary commodities which have undermined the capacity of countries to effectively enter global value chains.