The 2020 African Trade Report

28.9% Asia remains Africa’s largest trading partner accounting for 28.9% of total trade. Of that 23.1% is with China $1,049bn Value of Africa’s total merchandise trade in 2019 The low level of intraAfrican trade is a consequence of largely unrecorded informal cross-border trade, a prominent feature in intra-African trade not accounted for in balance of payment and national account statistics.

The African Export-Import Bank’s (Afreximbank) 2020 African Trade Report provides a full analysis of Africa’s trade flows and economic growth in 2019. It discusses currency fluctuations and commodity prices against the backdrop of global economic developments, while also considering the impact of the unfolding Covid-19 crisis. The global trade situation has obviously been severely shaken by the pandemic but the trends, opportunities and challenges of 2019 will still be apparent this year and beyond. The African continent as a whole registered growth of 3.6% last year, ahead of total global growth of 2.9%. Growth varied considerably across the continent, with Eastern Africa recording the strongest regional growth at 5.1%, including South Sudan’s recovery from its civil war and continued strong growth of 5.6% in Kenya. Elsewhere, Ghana just failed to make it into the list of the world’s ten fastest growing economies with a 6.1% rise in GDP, while Egypt managed 5.6%, partly on the back of huge investment in offshore gas projects. Six African countries were among the ten fastest growing economies in the world: South Sudan (11.3%), Rwanda (10.1%), Libya (9.9%), Ethiopia (9%), Djibouti (7.5%) and Côte d’Ivoire (6.9%). Overall continental growth was held back by lower growth in many of Africa’s biggest economies, including South Africa, which suffered from power shortages and ongoing macroeconomic problems, and also in the continent’s biggest oil producers: Nigeria, Angola and Algeria. Central Africa recorded just 1.5% growth last year as it suffered from continued overwhelming reliance on the export of oil and other primary commodities, despite the steady 4.4% growth achieved by the DR Congo. Southern Africa performed even more poorly, recording average growth of just 1% in 2019, partly because of an 8.4% contraction in Zimbabwe and the devastating impact of cyclones Idai and Kenneth on the east of the region. The average inflation rate in Africa fell 0.2% in 2019 to 9.1%, continuing its gradual descent, as higher agricultural production pushed down food prices and energy prices stabilised. Wide fluctuations in the value of the Angolan, Sudanese and Zambian currencies fuelled inflationary pressure in those countries, while the same pattern pushed inflation in Zimbabwe up to 40%. Inflation also remained very high in Liberia (20.3%), Sierra Leone (13.9%), South Sudan (30%) and Ethiopia (19.5%). The six countries of the Economic and Monetary Community of Central Africa, or CEMAC in French, continue to benefit from tying their common currency, the Central African CFA Franc, to the Euro, with average inflation of 2.5% last year, a big fall on 2019’s 4.6%. Ever tighter international economic integration has resulted in a strong correlation between global economic growth and rising trade volumes. However, the value of trade in current US dollar terms fell from $38.8 trillion in 2018 to $37.7 trillion last year as the trade war between the United States and China affected economies across the world. This

triggered big falls in share prices at the end of 2018 but most financial markets recovered from these falls during the course of last year. The stock market picture was mixed in Africa in 2019 but more exchanges ended the year up than down. South Africa’s JSE All Share index recorded an 11.4% rise over the year, while Morocco’s MASI Free Float All Shares Index and Egypt’s EGX 30 index grew by 8.9% and 5.7% respectively. However, some of Africa’s most important stock exchanges experienced falls over the course of the year. The NGSE All Share Index in Nigeria fell by 13.6%, the Bourse Régionale des Valeurs Mobilières in West Africa by 7.3% and the Nairobi Securities Exchange LTD 20 index by 5.5%.

Commodity prices

The pattern with stock prices was replicated with commodity prices, which are tracked by the Afreximbank African Commodities Index (AACI). Afreximbank launched the AACI as a trade-weighted composite index designed to track the price performance of 13 different commodities exported by African producers: crude oil, gold, cobalt, aluminum, copper, zinc, cocoa, coffee, cotton, sugar, wheat, corn and palm oil. The base year for the index is 2016, when it was set at 100. It rose over the first three years to reach 157 by the end of 2019, buoyed by high infrastructural expenditure in both the US and China. This broad trend masks weak price performance in late 2018 but there was a broad recovery during 2019 that will not be sustained this year because of the pandemic, although the outlook varies considerably from commodity to commodity and there are some bright spots. Oil production cuts could help to buoy crude oil prices and OPEC has stated that the outlook for oil in the second half of 2020 will be more positive as the global economy recovers. Moreover, China has already revised up its cotton, corn and soybean import forecasts for 2020-21 and Chinese demand for palm oil is also expected to increase. In addition, gold often offers a safe harbour during recessions, although lower interest rates generally reduce opportunities for holding bullion. Fluctuating prices and terms of trade make it difficult for private sector companies and policymakers to consistently monitor trends in key commodity markets. However, the AACI, which more accurately reflects the composition of African commodities and their contribution to African trade, is used to track the movements of commodity prices on a quarterly basis. Changes in the Index should highlight areas requiring pre-emptive measures by the Bank, key stakeholders and policymakers in its member countries, and global institutions interested in African markets, to effectively mitigate risks associated with commodity price volatility.

Trade volumes

Despite reasonable economic growth, the volume of African trade actually fell by 0.13% last year from $1,051bn in 2018 to $1,049 last year. This small reduction has to be set against the

The fall in Africa’s imports was the result of challenges in accessing trade finance, liquidity constraints and exchange rate risks. The $84bn opportunity

Using methodology developed by the International Trade Centre, the Afreximbank report calculates the export potential of intraAfrican trade at more than $84bn, which if tapped would take total intra-African trade to $231bn. The untapped proportion is based on sectors that have already proven to be internationally competitive and which have good prospects for export success in other African markets. Among the products with the greatest export potential are mineral commodities, machinery, food products, motor vehicles and parts, and plastics and rubber. The untapped figure of $84bn is overwhelmingly concentrated in Southern Africa, with $53bn of the total. North Africa comes next with $13.4bn, followed by West Africa with $9.5bn and East Africa with $7.8bn. Central Africa comes firmly in last place with just $840m.

context of a 2.89% decrease in global trade, on the back of the trade wars and tariff increases that characterised the international trade landscape last year. Africa’s better performance was largely the result of economic reforms, some economic diversification and increased South-South trade, which reduced the continent’s reliance on its traditional export markets. Higher public and private consumption, underpinned by lower inflation, also played a role. Although there has been some diversification, the continent remains overly dependent on the export of raw commodities. Asia overtook the Europe Union as Africa’s largest regional trading partner in 2018 and strengthened that position last year, accounting for 28.86% of total African trade, compared with 26.24% for the EU. China and India alone accounted for a combined 23.1% of African trade in 2019. There was a huge 46% fall in the continent’s trade deficit last year, from $69.19bn in 2018 to $36.93bn for 2019, driven by a 3% fall in merchandise imports and 3.15% rise in exports. However, Africa’s total foreign exchange reserves contracted by 5.25% to $408.49bn in 2019. Africa’s share of global trade has stagnated at about 2.7% over the past three years. In this regard, it is critical to ensure that practical measures, including incentives and investment aimed at improving trade-related infrastructure and logistics, as well as increasing processing and manufacturing capacity are implemented to broaden the sources of growth

The AfCFTA has the potential to accelerate industrialisation processes and boost crossborder trade. 97% The AFCFTA seeks to eliminate tariffs on 97% of goods traded within Africa 37% Oil is by far the most important African export generating 37% of export revenues 46% Africa’s trade deficit actually fell by 46% last year to $37bn driven by a 3% fall in imports and a 3.15% rise in exports

and shift the patterns of African trade. These will be especially important during the implementation of the African Continental Free Trade Agreement (AfCFTA) The AfCFTA aims to develop regional value chains and accelerate Africa’s integration into a global economy that is dominated by manufactured products. The Agreement seeks to eliminate tariffs on 97% of goods traded within Africa, while also eroding non-tariff barriers to trade and easing customs operations, with the aim of boosting the volume of intra-African trade and promoting industrialisation. The fall in the average price of oil from $71.7 a barrel in 2018 to $64.2 a barrel last year had a big impact on African exports. Oil is by far the most important African export, generating for 37% of the continent’s export revenues. Equatorial Guinea’s merchandise exports fell to $5.64bn in 2019 from $7.11bn the previous year, a 20.74% decline; while Algeria suffered a 14.08% fall in exports, from $90.8bn in 2018 to $78.01bn in 2019. As a result of the Covid-19 pandemic, oil prices have been far lower this year. Other oil-dependent economies, such as Chad and Congo Brazzaville, were similarly badly hit. Other important African commodities, including coffee, cotton, palm oil and tea in the agriculture sector, and bauxite, platinum and copper in the mining and metals sectors also came under price pressure. Two of the continent’s biggest trading nations, Morocco and South Africa, whilst they are net oil importers, saw 3.51% and 4.62% declines respectively in the value of their exports.

Merchandise exports

The 3% fall in Africa’s merchandise imports last year to $543.22bn was the result of challenges in accessing trade finance, liquidity constraints, exchange rate risks, falling foreign exchange reserves and the depreciation of some local currencies. Perceptions of the African business environment being risky were driven by socio-political conflicts in some countries, including Algeria, the Central African Republic and Sudan. In addition, militant activity in Burkina Faso, Kenya, Mali and Niger heightened the perception of risk and prompted international investors to scale down their investments. The security concerns also deterred tourists and discouraged FDI inflows. These security risks, coupled with a stringent global regulatory environment, led several international financial institutions to either scale down their correspondent banking services or provide trade finance under strict terms. However, the decline in oil revenues appears to have been the biggest factor in falling imports, with the imports of net oil exporters declining by 12.23%, including a huge 33.45% fall in Algeria. This curtailed the ability of oil-producing states to finance imports.