Can intra- African trade buffer the continent against future recessions?
Intra- African trade provides a compelling opportunity to move away from reliance on exports of raw materials and develop the continent’s economies.
The economic uncertainty in the wake of the Covid- 19 pandemic places a huge load on economists to formulate effective recovery and resilience strategies, and this is all the more the case in sub- Saharan Africa.
According to the World Bank’s recent biannual Africa’s Pulse report, the pandemic has taken its toll on economic activity in sub- Saharan Africa, putting a decade of hard- won economic progress at risk.
Depending on the success of measures taken to mitigate the pandemic’s effects, it is estimated that economic growth in sub- Saharan Africa dropped from 2.4percent in 2019 to between - 2.1percent and - 5.1percent in 2020. This could claw back some of the major strides that Africa has made in its participation in trade and value chains as well as result in a reduction of foreign financing inflows.
Africa’s international trade relationships and transactions are vital and have showcased significant growth over the last two decades. According to a recent UNCTAD report, in the period 2015- 17 total trade from Africa to the rest of the world averaged $ 760bn in current prices. Similarly, the share of exports from Africa to the rest of the world represented 80- 90percent of Africa’s total trade transactions between 2000 and 2017.
However, a decline in Africa’s international trade activity could have a silver lining. There is growing consensus among economic planners of a need to shift the mindset on intra- African trade and view it as a key driver of economic growth in the post Covid- 19 era. Intra- African trade provides a compelling opportunity to move away from significant reliance on extractive exports.
However, oil, minerals and agricultural exports are subject to price volatility and require less labour, thereby limiting employment opportunities for a continent with a young population.
Conversely, according to the UN Economic Commission for Africa ( ECA), when African countries trade with each other, they exchange more manufactured and processed goods, have more knowledge transfer, and create more value. In addition, greater value addition or sophistication increases the value of the exports and therefore productivity. Africa’s growth is fuelled by small to medium- sized enterprises ( SMEs).
SMEs possess the extraordinary ability to tap regional African markets, grow exponentially and create jobs, while also accounting for 80percent of the region’s trade, according to the Africa Trade Policy Centre ( ATPC).
REDUCING BARRIERS
The opportunity for intra- African trade is best viewed with a “glass half- full” approach with an equally pragmatic view of the challenges that lie ahead.
Let’s start with the barriers to trade on the continent. Barriers such as high tariffs and poor supply chain infrastructure raise trade costs, erode the competitiveness of goods and services, inhibit exports and generally stifle economic growth. Recent studies conducted by the World Bank indicate that 75percent of the delays in the movements of goods are from trade facilitation and that 25percent are attributed to infrastructure.
Proof exists that these barriers can be reduced. Poor infrastructure causes congestions, delay and ultimately high transportation costs. African countries have begun investing in physical infrastructure at key ports, introducing One- Stop Border Posts ( OSBPs) whilst doubling down on soft infrastructure such as integrated border management systems as well as mobility of human resources.
The advantage of OSBPs is that they eliminate the need for vehicles, travellers and goods to stop twice to undertake duplicated border- crossing formalities.
According to the African Union’s Programme for Infrastructure Development in Africa ( PIDA), African regional economic communities have identified approximately 76 border posts for implementation.
Addressing the infrastructural challenges will lead to a reduction in key trade bottlenecks, faster movement of goods through key links and nodes, and ultimately lower transport costs.