Trade in Africa still run unprofitably

The creation of regional bodies like the Common Market of Eastern and southern Africa (COMESA) and the East African community allows the creation of free economic, social and political atmosphere that is important for the people living in the member states.
African countries produce similar agricultural products, thus rendering their marketability difficult.
African countries produce similar agricultural products, thus rendering their marketability difficult.

The creation of regional bodies like the Common Market of Eastern and southern Africa (COMESA) and the East African community allows the creation of free economic, social and political atmosphere that is important for the people living in the member states.

Coming together as member states has economically made trading activities easy in some African states through the implementation of regional integration agreements aimed at eliminating tariff and non-tariff barriers. High trade taxes on the continent are among the factors discouraging trade among African countries.

All these common initiatives by African countries are aiming at eliminating the domination of the former colonial rulers. This has been noticed in most West African states. For example Senegal’s biggest trading partner is France, while Gambia trades extensively with the UK.

It is amazing to see that although Senegal surrounds Gambia, trade between the two neighbours is minimal. It can easily be identified that the continent’s railways and roads often lead towards ports and do not link countries across regions.

In some countries you find it rather difficult to fly from one African country to another but easier to pass through Europe which is rather very expensive. Relatively lower tariffs on African goods entering European Union and US markets also make export to industrial countries more lucrative than those sent to other African countries.

Because of hindrances to trade within Africa, exports from Tunisia and Cameroon for example, often find their way to French warehouses before being redirected to each other’s market shelves. Trade amongst African countries only accounts for about 10 per cent of their total external trade, which is the lowest of any world region. 

The challenges of improving such low levels of intra-African trade are immense, but policymakers on the continent are increasingly focusing on them as a new wave of interest in regional integration gains momentum. For African countries to be able to capture more trade opportunities they need to diversify their products.

Today, regional economic arrangements exhibit narrow patterns of trade and depend on primary products that involve low levels of inter-country trade. Since most African countries produce and export raw materials and not processed goods, they have little interest exchanging imports.

This affects trade and economic potentials amongst the African member states. Based on World Bank reports, Inter-African trade is only dominated by few countries and selling a handful of products such as Petroleum that accounts for more than 30 per cent of this exchange, as well as cotton, animals, maize and cocoa that contribute only 18 per cent of the trade exchange.

To a lesser extent, fresh fish, vegetables, tea and sugar are also traded. Manufactured goods account for only about 15 per cent of such activities. Other trade arrangements can produce products that include; yarn, medicines, iron and steel, chemicals and industrial machines and equipment.

For individual countries, a few commodities often make up the bulk of exports to the rest of the continent. In Angola, for example, petroleum and petroleum products make up more than 90 per cent of exports to other African countries. In the Seychelles, fresh fish constitutes nearly 98 per cent of such exports.

Because of very limited diversity of products, the same primary products also tend to dominate Africa’s trade with the rest of the world. African tariffs on raw materials such as fibres remain high. Taxing key inputs for labour intensive industries like clothing and textiles, which Africa has a comparative advantage to produce and export, are counter productive.

High tariffs on fertilizers, pesticides and agricultural chemicals constitute an important disincentive to local production for export. Tariffs on essential inputs in farm production such as fertilizers produced by a number of African countries are higher than those in other continents, and this also affects trade amongst member African states.

Nonetheless, critics of liberalization point out that while reducing some tariffs may make sense, the narrow focus on sweeping tariff reduction over the last two decades has neither increased trade nor boosted production.

Before structural adjustment took hold in Africa, many governments thought to industrialize their economies through policies of import substitution.

In other words, they used trade measures such as charging high tariffs on imports of goods produced domestically to encourage the local manufacture of these products.

However, as African countries pursue more trade opportunities, they will also require a dynamic private sector to play a role.

In many African countries, the private sector is often made up of a few giant multinational corporations at one end and a large but small scale informal sector at the other.

One of the challenges facing African policymakers is how to deal with a small scale sector that is responsible for a significant portion of production, trade and services.

While the informal sector is the driving force of most economies in Africa, it is largely unregulated, has little access to finance, is often not taxed and its contribution to the economy is largely unrecorded.

Another problem is that current regional integration efforts in Africa have their design and objectives that are driven by a preference for formal rather than informal trade.

It is important to notice that in the past, informal trade among African countries was often viewed as synonymous with smuggling.

Small-scale, cross-border traders were seen as seeking to exploit differences in national pricing policies, mainly on agricultural goods.

Of course the informal sector was sometimes associated with corruption, violent conflict and drug trafficking, and therefore not actively promoted through government policies.

In an era of state monopolies, anything beyond government control was deemed a potential political threat. This attitude is slowly dying down and the fact that in the last two decades, African countries have begun to place a higher priority on trade with each other, shades more hope.
                                       
Contact: josephmunich06@yahoo.co.uk

 

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