IMF: Intra-African Trade, Remittances Rising
Contrary to widely held belief that intra-African trade has remained abysmally low, a new report by the International Monetary Fund (IMF) has shown that countries in sub-Saharan Africa are more closely tied than ever.
This was attributed to the rising trade among countries in the continent as well as remittances—the money people send home when working in another country.
The new study by the multilateral institution showed that closer ties expose countries to each other’s good and bad fortunes.
It noted that booming large economies spur partners’ growth by demanding more of their goods, saying that because people working in a booming economy will send home more remittances.
“Downturns in one country impact another by the same means. So, tighter economic ties also raise challenges. We find trade to be the strongest conduit when it comes to the impact on growth. Trade and remittances drive closer ties.
“Integration between the economies of sub-Saharan Africa has increased most substantially through trade. In 1980, regional exports were equal to only six per cent of total exports, but by 2016 they had risen to 20 per cent.
“This makes the extent of regional integration in sub-Saharan Africa as high as in any other emerging and developing region in the world. This is the result of the region’s higher growth relative to the world, the reduction of tariffs, and stronger institutions and economic policy, relative to the past, throughout the continent.
“The bulk of this trade, however, occurs within rather than between subregions—smaller groups of geographically close countries within sub-Saharan Africa. For example, the five countries that make up the Southern African Customs Union -Botswana, Lesotho, Namibia, South Africa and Swaziland - account for 50 percent of total sub-Saharan African trade,” it stated.
According to the report, integration within the region has also increased, due mainly, to wages sent home by workers living in another country.
In 2015, these amounted to about US$11.5 billion.
“Total remittances to sub-Saharan Africa have been broadly stable in percent of GDP over the last ten years, but their composition has changed.
“By 2015, intra-regional remittance flows accounted for one third of total remittances. As with trade, intra-regional remittance flows are large by global standards, about 0.6 percent of GDP, and greater than those in emerging and developing Asia, Europe, and the Americas, which are all less than 0.3 percent of GDP.
“Developments in financial technology—notably mobile banking—continuously reduce the cost of sending remittances. Even though remittance costs are less affected by distance than trade costs, remittance flows mostly take place within the sub-region.
“Cameroon in Central Africa, Côte d’Ivoire and Ghana in the West, South Africa in the South and, to some extent, Kenya in the East are large sources of remittances for the continent,” it added.
Continuing, the report stated, “We find trade to be the strongest conduit when it comes to the impact on growth. We estimate that a one per cent increase in the weighted growth rate of intra-regional partners is associated with an increase of 0.11 in domestic growth.