Intra-African trade proves resilient
We knew in advance that there was much activity along the Abidjan-Lagos corridor, but were taken by surprise by the variety of products being traded, such as rubber from Liberia ending up in Nigerian factories
The African Export-Import Bank and the UN Economic Commission for Africa were the two institutions behind the 2020 African Trade Report. We caught up with Hippolyte Fofack and David Luke, who were both instrumental in putting the report together to find out what caught their eye and also what we can look forward to in the coming year. David, you collected the data on the Abidjan-Lagos corridor. Why that corridor and what’s your experience of other corridors on the continent? David Luke: We knew in advance that there was much activity along the Abidjan-Lagos corridor, but were taken by surprise by the variety of products being traded along the corridor, such as rubber from Liberia ending up in Nigerian factories. Volumes of informal cross-border trade (ICBT) are expected to be higher in corridors between neighbouring countries, such as Benin and Nigeria or Togo and Ghana, and following discussions with the Afreximbank we agreed that this would be a viable pilot to look at to better understand the dynamics of informal cross-border trade along the corridor.
It’s difficult to generalise but can you tell us a little about the different corridors across the continent? DL:
Our studies seem to confirm that the corridors in East and Southern Africa tend to be better developed in terms of infrastructure. What we have also noted are the significant developments of ports for example, such as the port of Mombasa and the port of Dar es Salaam, not only in terms of infrastructure but also in terms of operational efficiency and so on. We’re seeing also railway traffic being extended from Mombasa all the way to Kampala and with plans to go beyond that. The EAC and COMESA have also established mechanisms along their corridors to directly support informal small-scale traders. For example, both regional economic communities have functioning simplified trade regimes which help to reduce the costs of informal trade and eventually bring these small-scale traders into the formal trading system. Such schemes need to be replicated across Africa in the context of the AfCFTA. In North Africa we see a similar situation to West Africa where the corridors, outside of the coastal shipping lines on the land corridors, are not as dynamic as other regions. Of course, we do know that transactions are taking place between the countries but we’re not seeing an established corridor. In terms of percentage of trade within Africa or regional trade, what would you say the ICBT accounts for? DL: It’s difficult to estimate because for one thing we don’t have one standardised definition of ICBT. But it’s a fair amount as you can see from the report. In terms of agricultureal products it’s as much as 30%. A critical dimension of ICBT is the dominance of women. Though there are regional variations, our research shows that the majority of trade on the Abidjan-Lagos corridor is by women and in some instances it’s up to 70% of all ICBT transactions. Maybe Dr Fofack you may want to pick this question up. It’s what you call entrepôt trade or re-exporting in the report. Will the AfCFTA with its laws in terms of rules of origin impact re-export, and as a result impact informal cross-border trade? Hippolyte Fofack: The scale of entrepôt trade was in our view one of the big surprises in this study. When you just look at the news cycle, you may think it’s a marginal phenomenon concentrated between Nigeria and Benin but it seems to be prominent across the continent whereby countries in Europe and Asia essentially used a specific smaller African economy as a conduit to get into a much larger market. It’s also highly dominated by manufactured goods. Interestingly, when you look at 2020 and the effect of Covid, we see commodities declining by as much as 38% in the second quarter at the height of the Covid-19 pandemic, whilst the trade in manufactured goods has fallen by about 19%. Essentially trade in manufactures is more resilient to global shocks than commodities. But I would like to look at it differently. If we are able to implement the rules of origin underpinning the AfCFTA more strictly we will see a significant reduction on this transit trade of manufactured goods. And this will encourage producers to manufacture locally and boost African trade, both extra- and intra-African trade. That’s one very important message which comes out of this report. The scale of entrepôt trade emphasises the potential of manufacturing on the continent. The AfCFTA creates opportunities to put us on an irreversible path of industrialisation as we develop regional value chains, creating jobs as opposed to the job-exporting entrepôt trade. But I should point out that for this to happen, we do need to accelerate improve
70% In many trade corridors, women dominate ICBT, and, in some incidences, up to 70% of ICBT is conducted by women 27% With the impact of Covid, intra-African exports contracted by 27% in Q2, compared to a fall of 36% for Africa’s exports to the rest of the world The AfCFTA creates opportunities to put us on an irreversible path of industrialisation as we develop regional value chains, creating jobs as opposed to the job-exporting entrepôt trade
ments around business environment as well as infrastructure and logistics to drive longterm investment. When you look at growth since the turn of the millennium, one may argue that globalisation, as seen through the double digit growth of trade, was one of the most important contributing factors to global growth, including in Africa growing in double digits. Is this correct? HF: That is the right story in terms of the drivers of global growth. You can also add that historically African growth was essentially driven by commodities and African trade has for a long time been highly concentrated geographically. What we see in this report is that in 2018, Asia became the main destination for Africa’s exports and largest trading partner, from a regional standpoint. Asia consolidated its top position last year accounting for about 32% of total Africa’s exports. The second thing which is linked to crossborder trade is that when you look at African trade, and yes the intra-African component of it remains very low at 15%, but it has actually doubled over the period you have mentioned, and this has been also another driver of resilience in terms of our growth. This has been demonstrated during the pandemic, where intra-African exports have been more resilient to the twin Covid-19 and commodity price shock than Africa’s exports to the rest of the world. Intra-African exports declined by 27% in quarter 2 compared to 36% for Africa’s exports to the rest of the world. This highlights the importance of further developing competitive and diversified intra-African value chains in the future. In terms of future forecasts following what has been a very difficult year, with global trade contracting by over 9%, we are anticipating a strong rebound next year, with global trade volume growth expanding by over 7% and world output by over 5%. More importantly, China and India, which have become Africa’s first and second largest trading partners, will be growing at more than 8% in 2021. With Europe growing at more than 5%, you have the real ingredients for Africa to rebound strongly in 2021. Together Europe, China and India account for over 55% of total African trade. That is one source of comfort at a global level. The synchronised global recovery expected next year will act as a major growth-enhancer across Africa. Another source of comfort of course is the AFCFTA, which will help create the conditions for what I call the “patient capital” – the capital injection that drives and accelerates structural transformation to sustain the continent on a long-term growth trajectory. This is made possible by economies of scale and competitiveness associated with the AfCFTA. In terms of domestic consumption in African countries, do you think the numbers will hold up? HF: I think domestic consumption is resilient. But I still think the main driver of growth really in 2021 will be investment in a manufacturing space but also in the infrastructure space. David, Dr Fofack mentions 15% intra-African trade – does that 15% include informal cross-border trade or not? Or should we add another 30 or 40% because of the ICBT? DL: The 15% intra-African trade figure that people talk about, the average between 2016 and 2018, refers just to formal trade. This figure is based on data that is recorded on a daily basis by customs authorities, which is currently limited to formal data. Hippolyte, you may want to add to that as well. HF: David is perfectly right. One of the main objectives of this report when we reached out to the ECA to work with them, was to assess existing informal trade studies to get an idea of how much we underestimate intraAfrican trade. And really to help establish a baseline as to where we are as we transition to an AfCFTA scenario, and the impact it will have on both formal and ICBT. The report is full of interesting insights, including how food products represented more than the 50% of imports and exports in Nigeria. Any last points that you’d like to make in terms of the main takeaways or anything that caught your eye or surprised you from the report? DL: Not so much as surprised us, but something that we propose in the report, and indeed this is also something that we’re already working very closely with Afreximbank on, is the need to develop a common harmonised methodology to collect genderdisaggregated data on informal cross-border trade. We have introduced the idea to the African Union Commission to set up a task force that will bring together the key stakeholders, including national statistics authorities, central banks, customs, to improve the quality of data, including standardising how we account for it. This is a breakthrough from this report, that for the first time we are going to be able to do this. We plan to roll out this common approach throughout the continent. And I saw that the Cameroonians were one of the first to measure informal cross-border trade. I don’t take it that’s your influence Dr Fofack [a Cameroonian national]? HF: Yes, Cameroon but also Rwanda and Uganda have been continental leaders in the collection of ICBT data. But another important aspect of this report which comes out clearly and has real implications for the AfCFTA going forward is what I call the stickiness of colonial norms of trade, whereby some regions, especially Central African countries, are still trading more with Europe than with each other within that sub-region. This is a major issue in terms of continental integration and which can undermine the impact of the AfCFTA. Then on the positive front, intra-African trade potentials are significant, in the billions. More specifically, export potential for intra-African trade is estimated to exceed $84bn, which means that there is room to actually grow intra-African trade significantly over the coming years, especially if you look at those high potential products, such as manufactured goods. Finally, I think we can also use this report as another important baseline. As you look at Africa in the world today, African share of global trade, the report estimates is 2.8%, worse than where Africa was in the 1970s, more than 4%. We now have to monitor the potential benefits and impacts of the AFCFTA, not just in terms of intra-African trade but in terms of total African trade and composition of trade, in terms of total African growth and contribution to global growth, which now is at around 1.5%. Intra-African trade is much more diversified than Africa’s trade with the rest of the world, and therefore offers an important tool to fuel Africa’s industrialisation.
Another aspect of this report which has real implications for the AfCFTA going forward is what I call the stickiness of colonial norms of trade