Intra-African trade needs to be prioritised, says GTR editor, Rebecca Spong.
The endless arguments about why Africa is not trading within Africa are wearing thin. It is time for a coherent action plan to be drawn up.
Setting out an action plan for African trade
When most observers, from political analysts to bankers and investors, look at Sub-Saharan Africa they speak of the continent having “great potential”.
Yet it seems that there is always potential but very little action. When you talk to commodity finance bankers, among others, many are still financing the same handful of deals that they have always financed.
There is of course plenty of evidence of this African “potential” and a lot of chatter about it at the current World Economic Forum (WEF) for Africa taking place in Addis Ababa in Ethiopia this week.
Africa’s projected growth rate for 2012 stands at 6%. The continent is seeing rapid growth of its middle class, with estimates suggesting it will triple over the next three decades.
There is a growing spirit of entrepreneurship in many African nations as they capitalise on the benefits of internet access and social media. Those living in the Middle East and Africa are apparently the most engaged in social media networks.
Some countries, particularly Kenya, have been frontrunners in terms of mobile phone technology. The level of innovation in the Kenyan market outstrips many of the achievements in the so-called developed world.
But the age-old problem is that the bulk of the continent’s natural resources and commodities are shipped out to the rest of the world and not traded within Africa. There is also the lack of processing capabilities within the continent to help add value to commodities. Cocoa is often not processed in-country and oil is shipped elsewhere to be refined and then imported back into Africa.
Trade, and particularly intra-Africa trade has been heralded as the driver for economic growth. But Africa’s share of global trade remains hovering around the 3-4% mark, while intra-Africa trade stands at just 11% of its total trade activity. Compare this to Europe where intra-regional trade is approximately 72% of total volumes, or in Asia where 52% of trade is conducted within the region itself.
Why is this? The reasons are far too well-known and bandied about at too many conferences.
You will no doubt know that there is an acute lack of infrastructure such as roads and railroads. There is lengthy bureaucracy, inefficient border administration and cumbersome regulation. More recently the lack of trade finance has been an added constraint to trade flows as a number of banks retreat from the continent.
But everyone already knows this...
So it was refreshing to hear Pascal Lamy, director-general at the WTO, tell the delegates at the WEF for Africa, that it was time to take action to boost intra-African trade.
In Lamy’s actual words: “[The issue] of boosting intra-African trade is not so much the diagnosis on what needs to be done, but on how to do it.
“We know that the necessary initiatives have to happen at the regional level. Regional organisations have to address these problems one by one. The key to removing these bottlenecks lies in the political energy of regional leaders to do it.”
Jaidey Shroff, chief executive officer, United Phosphorus, India, was speaking on the same panel as Lamy. He stated: “There is a lot of talk about Africa becoming a global supplier of food, energy, minerals, etc, but until governments make the business environment more competitive, it is going to be very difficult to achieve. And, unless you capture regional markets, you cannot be a global player.”
So what is the answer to this lack of regional trade?
Both WTO’s Lamy and fellow panellist Jean-Louis Ekra, president and chairman of the board of directors at the African Export-Import Bank, called for more private sector engagement to help place pressure on politicians to address issues relating to trade competitiveness.
“A few African entrepreneurs understand trade issues. It is important that they build capacity on these issues so they can put pressure on the government to negotiate in their favour,” Ekra commented.
Lamy also placed pressure on national governments to get their priorities in order.
“African countries and regions need to set up a list of priorities of what needs to be done and do it. It is not a problem of resources – we have the resources,” he said. “The Aid for Trade lesson is that once countries have their priorities clear, money is not a problem.”
In terms of the lack of trade finance in Africa, there has also been much talk and hope that the African Development Bank (AfDB) will establish a trade finance facilitation programme in the near future, in a similar manner to those schemes run by the EBRD or the IFC.
The WTO put forward recommendations in a report to the G-20 last year in Cannes that the AfDB should work to set up such a scheme. As far as GTR is aware, work on this potential programme is still continuing.
Africa will see many elections taking place this year, from Ghana to the Democratic Republic of Congo, to Angola and Sierra Leone. Key policy decisions will need to be made, so it is now perhaps time for governments to heed Lamy’s comments and really start to prioritise trade.
How do you think Africa can boost its intra-African trade?
Is it time to talk about Africa’s ‘potential’ and start talking about what is actually being done?