Trade revolutions? Africans are doing it for themselves.
The global trade landscape is tense. America and China are still locked in a trade war and India appears to be next on Trump’s hitlist. In the EU, trade agreements are fraught with uncertainty as Brexit negotiations continue. And Africa is feeling the impact: in March, African and UK leaders failed to reach an agreement on whether the Economic Partnership Agreement (EPA) would still apply to UK-SACU-Mozambique trade, post-Brexit.
With global trade becoming increasingly disparate, what’s a developing continent to do when it’s not a priority? Sometimes, it adopts an ‘every man for himself’ approach and turns its focus inward. But rather than bickering, African nations are committing to strengthening regional integration and harmonisation, and developed nations can learn a thing or two.
The zen of African trade
In a recent review of East African trade policies and practices, the World Trade Organisation (WTO) made encouraging observations about the state of intra-regional trade, including:
- Economic growth has been strong and consistent (averaging 5% between 2013 and 2017), despite global economic volatility, rising inflation, and depreciating currencies;
- Significant trade policy reforms have helped to achieve deeper integration agendas, including a fully-fledged customs union, a common market, a monetary union, and political federation; and
- Since 2013, East African countries have made it easier to do business in the region. Notably, Rwanda is ranked as the second easiest country with which to do business, and Kenya is also in the top ten.
The WTO’s report attributes some of these achievements to infrastructure development, which has facilitated trade within the region. While significant foreign investment may have funded these infrastructure upgrades, Africa cannot rely on external support for its continued growth and needs to own its future – especially when global trade is so volatile.
And what better way to do that, than conduct trade and do business with itself? Africa has established a strong foundation; now it must build on it through increased regional integration and trade liberalisation. But it appears to be well on its way.
Quietly building an empire
While the rest of the world closes ranks, drives wedges between trade routes, and effectively stifles free trade, Africa is prioritising it. In March 2019, Ethiopia ratified the Africa Continental Free Trade Agreement (AfCFTA), which means the agreement needs one more approval before nations can launch the operational phase to make intra-continental trade faster, cheaper, and easier. When that happens, Africa will be en route to creating the world’s largest free trade area, worth over $4 trillion and covering more than a billion people.
What does this mean for the continent? And, indeed, the world?
For Africa, it means the free movement of goods, money, and people, who benefit from easier access to jobs and skills. Higher employment and an educated population contributes to higher economic growth, reduced poverty, and increased innovation. Ultimately all this comes down to stronger economies and innovative products and solutions, which attract the attention of global markets… You can, no doubt, see where I’m going with this.
Not there yet
Africa still has a way to go before it realises the trade value promoted by the AfCTFA, despite its astounding progress in one year. According to the World Bank, intra-African trade accounted for only 11% of the continent’s total trade between 2007 and 2011. In 2015, intra-African trade was worth just $170 million. The goal is to increase that to 25% by 2023.
But there are a number of obstacles, including:
- Fragmented markets. While different regions have progressive trade agreements in place, like the Southern African Development Community (SADC), the Economic Community of West African States (ECOWAS), and the East African Community (EAC), these need to be harmonised so that the benefits of each can be scaled for the benefit of the entire continent.
- Poor infrastructure. Africa has made vast improvements to transport and logistics infrastructure, which has stimulated intra-regional trade. This momentum cannot slow down, and more focus should be placed on developing ports, energy, telecommunications, and technological infrastructure.
- Stifling policies and processes. Complicated customs processes and procedures, strict documentation requirements, corruption, and inefficient border management often cause trade delays. Africa needs policies that maximise competitiveness, reduce trade costs, eliminate non-trade barriers, and mobilise financial resources.
As much as it needs to be inwardly focused, Africa must also look outward to secure its place in the global economy, attract more foreign investment, and encourage fiscal policy improvements. Strengthening inter-regional trade relationships is a good place to start. It shows the rest of the world that Africa is serious about becoming a global contender.
Developed nations should heed the World Economic Forum’s warning that shifting focus from emerging markets will negatively impact the global economy’s future growth potential. Developed nations discount Africa’s resourcefulness and innovation at their peril.
It might not be apparent yet, but change is coming. Positive, globally-impacting change. Could Africa be just what the market has been waiting for?