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Can Africa Trade with Africa? Yes, but…

  • Africa trades with Africa at a level of only 10 percent compared to 60 percent among Western European countries
  • Africa has the potential to boost intra-continental trade in order to enhance economic growth
  • Promised reforms and other measures aimed at boosting trade must be put into action

WASHINGTON, October 10, 2010 - Africa’s population of about one billion consumers is a powerful engine for growth, employment and intra-African trade, especially at a time when other markets are contracting in the wake of the global financial crisis.

So far, though, too many declarations have been made and too little action taken, a workshop bringing together senior African policy makers, private investors, trade and development experts, and African finance ministers concluded Friday.

Africa trades more with the rest of the world than it trades with itself. Intra-African trade accounts for hardly 10 percent of the region’s total trade, compared to rates of 40 percent for intra-North American trade and about 60 percent for trade among Western European countries.

At a the seminar organized on the sidelines of the Annual Meetings of the World Bank and the International Monetary Fund in Washington, DC, the President of Coca-Cola South Africa, William Egbe, deplored the lack of implementation of reforms adopted by African governments and regional organizations to allow business to thrive in the region.

Too many declarations, too little action

A litany of measures aimed at curbing behind-the-border trade constraints; improving trade facilitation and logistics; and reforming customs unions and other regional trade institutions continue to languish in drawers, awaiting implementation, Egbe said.

“Africans have announced for too long that they were lifting border barriers but they have not delivered on their commitments” said Paul Collier, who is a professor of Economics and director of the Centre for the Study of African Economies at Oxford University. The issue of border restrictions is not only a huge impediment to intra-African trade, it has created a credibility problem for Africa, Collier added, urging the African Union (AU) to do more to push for these commitments to be respected.

Maxwell Mkwezalamba, commissioner for Economic Affairs at the African Union (AU), acknowledged that key decisions taken at the 2006 Summit of the AU had not yet been implemented, due to a lack of coordination between regional economic communities (RECs) and the lack of funding windows for regional undertakings.

“At the technical level, we all know what works in terms of policies, investments, and institutional underpinnings. What is needed now is for politicians to do what must be done to scale up trade and accelerate growth and create employment,” the World Bank Vice President for Africa, Obiageli Ezekwesili, told participants.

South Africa’s Minister of Finance Pravin Gordhan called for a shift from export patterns dating back to Africa’s narrow focus on trade with Europe; as well as a shift from dependency on aid to investments that can reduce poverty, generate shared growth and increase internal demand. A suggestion that seemed to draw much approval from attendees was one from Gordhan that all new investments and projects in the continent be regional operations, unless otherwise specified. Participants recognized that this would require that institutions like the World Bank modify their lending instruments, since most World Bank-funded projects are tied to national governments.

A “Super AGOA”

Rosa Whitaker, an architect of the U.S. African Growth and Opportunity Act (AGOA), and a former Assistant U.S. Trade Representative for Africa, spoke about Africa as a new business frontier offering promising new ventures. Whitaker is advocating for AGOA to become a permanent feature of the U.S. trade policy (it is due to expire in 2012).

Participants discussed the vision of a “Super AGOA” that would extend preferential access for imports from African countries beyond North America to the rest of the world. Not everyone, however, was in favor of AGOA going global. Mr. Erastus Mwencha (former COMESA Secretary General) recommended that Africa “continue to think small” by using and improving on existing regional blocs and relying on homegrown systems of regional distribution rather than “going global.” According to Mwencha, statistics do not do justice to the actual volume of trade in Africa, because they omit informal trade, which in some countries dwarfs the official trade figures.

Reforms are necessary to boost trade

The World Bank’s Chief Economist for Africa, Shanta Devarajan, commented that people usually turn to informal trade when regulations are too obtrusive. Therefore it would make more sense to implement sound reforms rather than continue relying on informal trade, where productivity is low and the quality of goods likely to prevent the continent from competing successfully on the global market.

The experts answered questions submitted by on-line viewers on the role the African Diaspora can play to enhance intra-African trade; on the potential for multilingual business processing outsourcing (BPOs) to Africa; and on the inter-convertibility of African currencies. Over 500 on-line viewers engaged virtually in the discussion which was Webstreamed live. Their questions were answered in real time by trade economists present in the room. 

In closing, Ezekwesili called on African Heads of State, regional organizations, and the African Union, to move forward swiftly with the regional integration agenda, and proposed they together set a timeline for the delivery of a number of key measures and define accountability for their implementation.

“Today, there is a strong consensus among African leaders that regional integration is indispensable to unlock economies of scale and sharpen competitiveness,” Ezekwesili said, “and African leaders should be mindful of the cost of not delivering on their promises for reform to foster intra-African trade.”

 

 




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