Progress on hold as trade barriers constrain Africa
African leaders frequently pay lip service to the virtues of regional integration, but have yet to implement any meaningful change. One small positive step that a number of countries are slowly implementing is the one-stop border post concept, in which two countries jointly operate a border crossing to remove the usual two-step process.
Supported by the New Partnership for Africa’s Development, Common Market for Eastern and Southern Africa (Comesa) and the East African Community (EAC), the second edition of the One-Stop Border Post Source Book, was launched on March 16.
Described as a complete guide to best practice, it has been lauded as an important toolkit to help governments improve cross-border and intraregional trade across Africa and enhance the continent’s competitiveness. The source book is set to combat one of Africa’s biggest challenges, trade and growth, by reducing the time spent clearing posts, borders and checkpoints.
Much more is required if Africa is to solve its regional integration issues and live up to its promise.
In 2014, according to forecasts by the IMF’s World Economic Outlook report, six of the world’s 10 fastest-growing economies were African countries, with the top-20 list dominated by African economies.
These strong prospects for the continent led to the Africa Rising narrative developing.
The most recent report, from October 2016, coming after the subsequent plunge in commodity prices such as oil, led to the number of African countries on the fastestgrowing list dropping to four, with the outlook for many of the previously promising economies looking bleak. The prime example is Nigeria.
One way of reviving Africa’s faltering growth outlook is by improving regional integration. However, this is hampered by high trade barriers throughout the continent, increasing the cost and difficulty in doing business within Africa. As a result, Africa has the lowest percentage of intraregional trade worldwide — only 25% of total exports take place within Africa, compared with 50% in Asia and 70% in the EU.
Anabel Gonzalez, a senior director at the World Bank, said due to trade barriers a truck crossing a border in southern Africa may need to carry up to 1,600 documents because of permits and licences, while a supermarket chain operating in the same region can spend up to $20,000 per week on securing import permits for just one country.
Tackling trade barriers in Africa could have significant, positive effects on the poorest people, such as reducing the price of basic items. Despite these benefits, IMF managing director Christine Lagarde recently warned African nations not to rush the process.
She cited the UK’s choice to exit the EU as a cautionary tale, with integration having unforeseen political and social consequences.
African countries seem to have taken this advice to heart. The creation of the Tripartite Free Trade Area (TFTA) from Cairo to Cape Town in June 2015 was a significant step towards merging existing regional organisations into a single African Economic Community. The TFTA includes the 26 countries that are members of the Comesa, EAC and the Southern African Development Community (SADC). It is supposed to cover more than 600-million people and span an area equivalent to the combined size of China and the US.
Progress on this important initiative remains slow, with only 18 of the 26 countries having ratified the agreement almost two years after the deal was signed.
Another initiative that is taking time is the SADC’s comprehensive integration plan, which it adopted in 2003. It detailed certain milestones and their expected completion dates, such as becoming a customs union by 2010 and having a single currency by 2018. However, these goals still appear to be many years away.
The benefits to integration are numerous. Economic integration can serve as incentives for foreign direct investment and help allocate production to countries with a comparative advantage, which will lead to specialisation and increased output and services, making the whole region better off.
This is of particular importance in the African context, as the continent is the most fragmented region in the world, with almost half of its 54 countries having small economies and populations of less than 10-million.
These economies are too small to achieve the economies of scale needed to compete internationally. By fostering regional integration, Africa can create regional value chains and become a key player in global value chains that increasingly characterise world trade.
A burgeoning problem is the growing trend in Africa to support locally made products at the expense of foreign competition. This is done through the use of import and foreign-exchange restrictions.
Nigeria, for example, has implemented import restrictions and exchange controls in a bid to prop up its exchange rate, which is being kept artificially inflated.
The collapse in oil prices led to a plunge in their foreigncurrency revenues and consequently a decline in foreign-currency reserves.
They have therefore published a list of transactions that are not eligible to access foreign exchange in the official Nigerian forex market.
The IMF has previously said that Nigeria has one of the most restrictive trade policy regimes in the world, not ideal for one of the continent’s economic giants.
Similarly, on the back of the decline in foreign direct investment and their tourism sector, Egypt has seen its foreign-currency reserves tumble and has consequently implemented policies aimed at rationalising imports to alleviate the foreign-currency reserves crisis.
Another example is the stringent import bans enacted by Zimbabwe on SA. Although the bans caused widespread anger and Zimbabwe partially repealed the bans for individuals, it shows a worrying trend of African countries closing their borders to free trade.
One of the major hurdles to overcome, especially for the continent’s regional superpowers SA, Nigeria and Kenya, is to convince their neighbours and the rest of the continent that their agendas are not entirely self-serving.
The fear of dominance runs deep in Africa’s middle and smaller nations; the spirit of pan-Africanism always tempered with strong nationalistic tendencies.
African leaders have historically been reluctant to relinquish any power to a supranational body or have their sovereignty compromised in any way.
SA has in particular suffered in this regard with neighbouring states perceiving it as putting forward aggressive economic policies and putting its global aspirations, such as its Brics membership, ahead of regional commitments. The reality is also that the gains made by the region as a whole might well not be equally spread between the nations.
A recent survey by research group Afrobarometer found this unwelcoming attitude towards integration extends beyond leaders to the African population itself, with 37% of Africans thinking that governments should restrict cross-border movement of people and goods to protect their citizens.
A mind-set change might therefore be one of the largest obstacles to overcome if the continent really wants to change.