Low Intra-Africa Trade Worrying

The African Heads of States and Governments pose during African Union (AU) Summit for the agreement to establish the African Continental Free Trade Area in Kigali, Rwanda, on March 21, 2018. / AFP PHOTO / STR

By Mandla Tshuma

DESPITE the African continent having long been liberated from colonialism, with South Africa, the last country to attain independence, now enjoying 25 years of democracy, intra-Africa trade remains very low.

Instead of being closely linked economically among themselves, African countries are by and large economically attached to their former colonial masters in Europe and North America.  

This means that African nations trade less across their borders while trading more with far-away Europe and North America.

Intra-Africa trade accounts for about 16 percent of the continent’s overall trade having expanded from 10 percent in 2000 to about 16 percent as measured in 2014.  

The African Heads of States and Governments pose during African Union (AU) Summit for the agreement to establish the African Continental Free Trade Area in Kigali, Rwanda, on March 21, 2018. / AFP PHOTO / STR

Comparably, intra-Latin America trade is 10 percent while intra-Asia trade stands at 51 percent. North America intra-regional trade is pegged at 54 percent and intra-Europe it is at 70 percent.

Notwithstanding what is obtaining on the ground, studies show that trade between African countries has the greatest potential for building sustainable economic development and integration. 

According to the African Development Bank’s (AFDB) African Economic Outlook Report for 2017, intra-regional trade is more advantageous than trade with markets outside the continent.

The African continent stands to benefit greatly from expanding trade in goods are services internally.

In April this year, Botswana said it was ready to strengthen economic ties with Zimbabwe to boost economic growth for both countries. 

Botswana Investment and Trade Centre chief operations officer, Reginald Selelo, told a Confederation of Zimbabwe Industries and Zimbabwe International Trade Fair (ZITF) Buyers and Sellers’ Forum, that increasing trade between two countries was important.

Selelo said there was potential to increase trade between Zimbabwe and Botswana hence the need for continuous sharpening of relations between the two countries.

He said his country was looking forward to exporting to all countries in Africa, particularly their neighbour Zimbabwe, taking advantage of the market access opportunity that has been provided to the two countries.

“We’re interested in seeing products coming from Zimbabwe. This is the message that we’ve come here with and we’re encouraging companies at the ZITF to seriously consider taking up opportunities in Botswana,” he said.

“Looking at the trade statistics between the two countries, there has been a decrease since 2014. In 2014 we exported about $105 million worth of goods to Zimbabwe as compared to $30 million in 2017. There’s need for us to increase trade. The instruments are there. We have the Zimbabwe –Botswana Trade agreement, which can help us improve economically.” 

The Southern African Development Community (SADC) has the Integrated Regional Electronic Settlement System (SIRESS) while East Africa has the East African Cross-Border Payment System (EAPS), which were established with a view improving African trade.

African countries are pushing towards having a continental free trade area and trade in Africa has long been touted as the big corporate opportunity. 

For such a vast area, trade in Africa to date has been relatively simple to define. 

In most of the 54 countries, trade has just been a mix of importing finished goods and exporting agricultural and mining commodities. 

While the current import/export balance continues, nations such as Ghana, Kenya, South Africa, Mozambique and Uganda, and many others, are, by varying degrees, developing their manufacturing capacities and starting to export finished and semi-finished goods whereas Zimbabwe seems to be lagging due to its economic and political turmoil. 

In May the African Union (AU) officially launched the African Continental Free Trade Area (AfCFTA).

Adopted in 2012, the AfCFTA is a flagship project under the AU’s long-term vision, Agenda 2063, a commitment to the creation of an integrated and prosperous continent by 2063.

Once the treaty is ratified it will create a single continental market for goods and services, with free movement of businesspersons and investments, paving the way for the establishment of a continental customs union. 

AfCFTA will also expand intra-African trade through better harmonisation and coordination of trade liberalisation and facilitation regimes and instruments across regional economic communities (RECs) such as the Southern African Development Community (SADC), Economic Community of West African States (ECOWAS) and the East African Community (EAC).  

The free trade area will, too, establish dispute settlement mechanisms to deal with trade disputes that are likely to arise in the envisaged free trade area.

The United Nations Economic Outlook for Africa estimates that the AfCFTA has potential to increase trade by 53 percent through the elimination of import duties and non-tariff barriers and create a market of over 1.2 billion people with a Gross Domestic Product (GDP) of $2.5 trillion.

If African states were to meaningfully trade among themselves, value would remain on the continent as countries trade more with their neighbours. 

It is worth noting that one of the major reasons cited by AfDB why intra-regional trade is still low in Africa is because of the continent’s low manufacturing and processing capacity. 

Most African countries lack processing capacity and therefore cannot trade unprocessed materials among themselves.

Taking for instance, Zimbabwe cannot import crude oil from Nigeria or Angola because the economically troubled nation lacks capacity to refine it. 

Lack of systemic integration between countries is also a major challenge. 

Sending funds from Zimbabwe say to eSwatini (formerly Swaziland), for example, is surprisingly complex. 

The money may have to leave Africa and be channeled through a European or a US partner bank before reaching its beneficiary. 

In this example, frustration can arise because correspondent banking relationships between some countries simply do not exist.

However, the rise of regional payment systems can help alleviate the challenge. 

The launch in 2004 of the Central Bank of West African (BCEOA) Real-Time Gross Settlement system (RTGS) removed the need for complex correspondent banking relationships, contributing to the integration of the economies of BCEAO member states. 

EAPS went live in 2013 doing the same for its members, the same year, SADC rolled out in four countries with SIRESS and, today, some 40 percent of all southern African regional payments traverse this platform.

These platforms are having some effect in that markets such as Zambia and Mozambique are becoming strong trade partners of Zimbabwean businesses.  

However, still there are huge opportunities for the taking. 

The key underlying factor is that development of intra-Africa trade and changing the culture embedded by historical precedent will require neighbouring countries to trust each other in delivering quality products on time and at a competitive price, which is not the case for now.

The formation of the free trade area is a very important step as the continent continues in its journey for greater economic integration.

For now, relations between African countries, as within its RECs, tend to focus more on politics and less on economics. 

Therefore, the development of the AfCFTA has to go hand in hand with a deliberate campaign by governments to grow their economies’ processing knowhow and infrastructure.

In addition to the need for the development of beneficiation capacity, the free trade agenda will need the backing of improved physical infrastructure – roads, railways, and air links to connect member countries across the continent.

Achieving the free trade goal will take many years and much money, we must point out, but from today onwards we will have a guiding framework that should lead us to the desired destination.