The value of total intra-African trade fell by 5.23 per cent in 2019 reducing its overall contribution to overall African trade, from about 15 per cent in 2018 to 14.4 per cent in 2019.
During this period, South Africa maintained its position as the largest intra-African trade nation, accounting for 23.1 per cent of total intra-African trade in 2019. The Democratic Republic of Congo (DRC) consolidated its position as a major contributor to intra-African trade, recording an increase of 10.4 per cent in total trade with the continent to emerge as the second-largest intra-African trade economy on the continent in 2019.
Despite declining by 4.7 per cent, Nigeria’s share of intra-African trade remained constant at about 7 per cent and Nigeria emerged as the third-largest intra-African trade country.
This is according to Afreximbank’s African Trade Report (ATR) which examined trade and economic developments in Africa in 2019, a year dominated by trade wars and escalating tariffs that resulted in sharp deceleration of global trade growth.
The hostile economic climate was compounded by Covid-19 resulting in the falling by 2.9 per cent last year leading to projections that global trade will shrink by 9.2 per cent in 2020.
Informal Cross Border Trade (ICBT) which is a key component of intra-African trade is wide-spread in its composition and is highest in Eastern Africa and could be worth as much as 80 per cent of the value of formal trade in some countries.
This week, the African Continental Free Trade Area (AfCFTA) kicked off marking a historic milestone for the continent as it moves to increase trading within itself.
Currently, the percentage of trade that African countries do with each other is a mere 16 – 18 per cent making the bulk of the continent’s trade with the rest of the world. Notably, most of the exports from Africa to other continents are raw materials including extractive commodities like oil, gas and minerals which are vulnerable to market volatility.
This denies the continent much more value which could be derived from these commodities if they were value-added within the continent.
In a March 2020 interview with the Financial Times, Dr George Elombi, Executive Vice President (Governance, Legal & Corporate Services), Afreximbank, said that the removal of tariff barriers by the AfCFTA is a starting point, not a destination.
Citing the EU an example where 61 per cent of its trade is internal among its member nations, Nafta whose figure is 40 per cent and the ASEAN at 23 per cent, Elombi said that Africans need to start trading more with themselves.
The low trade level among African nations is a problem for growth since large amounts of wealth end up flowing out of the continent. This means that African businesses are forced to rely on expensive imports from outside the continent and have to often pay more than necessary for finished materials and products.
By trading within the continent, African countries could have an advantage of cheaper suppliers and producing goods of the same quality closer to home.
Elombi noted that the AfCFTA goes a long way to unlocking intra-African trade but one of the major hindrances to this is infrastructure. With many companies relying on infrastructure, African nations are still lagging behind when it comes to development in this area.
The World Bank’s evaluation of infrastructure disruption shows that at least half of the top 15 most-affected countries are in Africa. The infrastructure challenges are not only in transport, energy and public amenities but also in water and digital space.
With the movement of money and information, reliable digital infrastructure is needed. This will ease the transfer of money across the continent and also enable the flow of information beyond the constraints of national borders.
In tandem, countries have to address the multiplicity of standards and harmonise them to remove non-tariff barriers which will form a key part of implementing the AfCFTA.
Pundits opine that Africa’s economic growth is pegged on the continent’s ability to streamline its industrialisation. For perspective, most exports from Africa are primary commodities which have little to no value added in global value chains. If Africa is to advance economically, this must and can change.
The continent has been in a state of decline since the 1980s after the post-independence era’s achievements which were characterised by industrial growth.
After the golden age of Africa’s growth performance following the wave of decolonisation across the continent from the 1950s, the manufacturing industry has narrowed and shifted to less sophisticated activities which has denied the continent the much-needed revenues.
The economic landscape is varied among Africa’s 55 countries but there are some characteristics that are similar to most. These include high poverty and unemployment rates, low industrialisation, inequality, low incomes and a heavy reliance on primary commodities.
With industrialisation, the continent can create lasting change by rectifying these problems.
The AfCFTA offers the opportunity for powerful synergies between investment and trade. The agreement bodes well for the future of industrialisation on the continent where more than 40 per cent of intra-African trade is in manufactured goods.
By taking advantage of economies of scale in the continental market of more than 1.2 billion people, the trade share could rise and with this the enterprises that take advantage of the AfCFTA.
About two-thirds of African imports are manufactured goods meaning there is a need for value-added goods. By taking advantage of the opportunities, enterprises can capitalise on what the trade agreement offers by investing in and increasing manufacturing operations.
The ATR’s extensive study of ICBT shows that despite regional variations, it serves as a source of income for about 43 per cent of Africa’s population and is dominated by women.
In Southern Africa (the SADC block), female traders account for about 70 per cent of ICBT while food and agriculture products accounted for 30 per cent of intra-regional trade in West Africa.
Going by these numbers, it shows that Africa is better off opening up its borders to trade and reduce the barriers which could increase the opportunities for those relying on the ICBT.
The AfCFTA is in time for this and the promise holds since revenues from trade are in multiples of receipts from sources like investments, remittances, foreign direct investment and foreign aid.