Institute for Security Studies (Tshwane/Pretoria)

19 July 2013

Africa: Realising the Dream of Greater Intra-African Trade

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analysis

How to break the colonial legacy of exporting goods 'overseas' and raise the level of trade between African countries? This has been an issue the African Union (AU) has grappled with since it devoted its January 2012 summit to the issue of 'Intra-African trade'. The annual Economic Development in Africa report by the United Nations Conference on Trade and Development (UNCTAD) launched in Ethiopia last Friday, 11 July 2013, gives interesting answers to some of the questions African governments and the AU have been asking.

African governments are increasingly aware that socio-economic development is an essential pillar of securing a peaceful and stable continent. Former Ethiopian Prime Minister Meles Zenawi often spoke about the pursuit of greater cooperation among African countries in this regard. During last year's debate at the AU summit in Addis Ababa, he reprimanded his peers for being too short sighted. One couldn't simply scrap tariffs and speed up bureaucracy at border posts to ensure intra-African trade, he believed. If every country in East Africa produced 'tea and coffee' why would they export to one another, he asked. Zenawi and a number of other heads of state also complained at that debate that the AU's plans for creating a continental free trade area in 2017 was, at best, unrealistic.

Intra-African trade - which is linked to greater regional cooperation and stability - has become quite a buzz word in Africa since it was pointed out that only 11% of Africa's trade is within the continent, compared to Asia, where 50% of total trade is between countries in the region. African governments have, over the last number of years, taken up the challenge and announced ambitious plans for mega continental infrastructure projects, development corridors and free trade areas - a continental integration seen as one of the essential drivers of African development.

But UNCTAD says this is not enough. In its report entitled 'Intra-African trade: unlocking private sector dynamism', it calls on the AU to make a 'paradigm shift' and for governments to let go of plans that have become outdated in a globalised environment. They should instead look at new notions like a 'developmental regionalism' built around value chains, be more realistic and face the fact that it is actually the private sector that imports and exports and not government institutions. The advice to governments is also to look at outcomes rather than only removing barriers to trade.

UNCTAD does acknowledge that lifting tariffs within Regional Economic Communities (RECs) and one-stop border posts are good steps towards improving intra-African trade. However, many discrepancies remain. How can it be that, for example, an Ethiopian company exporting to Tunisia faces tariffs of up to 50% on average while a Tunisian exporter to Ethiopia faces a protection rate of 16%? A Moroccan exporting to Nigeria faces an average protection rate of 66% while a Nigerian exporting to Morocco faces an average protection rate of 18%, the report states.

Too many external trade agreements taking advantage of colonial trade patterns are another potential obstacle to intra-African trade. UNCTAD praises AU Commission chairperson Dr Nkosazana Dlamini-Zuma for announcing a moratorium on external trade agreements at the AU's January 2013 summit. 'This is a step in the right direction and should be welcomed and supported by development partners,' it says.

In this debate, figures can be misleading. According to the report, intra-African trade as a share of African world trade declined to a low of 11% in 2011, compared to 22% in 1997. However, it acknowledges that much of this is because of the surge in African trade with the rest of the world, which grew at 12% per year. The report is also based only on official figures. 'Substantial and thriving informal trade in Africa is an indication that intra-African trade is not as low as official statistics suggest,' it warns.

At the same time, there is little doubt about the huge untapped potential for growth in trade among neighbours, particularly in agriculture and manufacturing. According to the report, an estimated 50-60% ofthe world's unused arable land is in sub-Saharan Africa. However, only 16,9% of African world trade in food and live animals and only 14,8% of African agricultural imports took place within the continent in the period 2007-2011. Africa, chronically food insecure, imported only 15% of its food items from the rest of Africa in 2007-2011, the report states.

Regional integration is not the only answer. 'The African integration agenda, which has been followed by the [RECs], is based on the linear model of market integration, in which groups of countries move progressively from a free trade area to a customs union, a common market, an economic union and eventually a political union, by reducing barriers to economic and non-economic transactions amongst participating countries. Although some progress has been made by some [RECs] in their attempt to integrate, the implementation record as a whole has been poor,' says UNCTAD.

Instead, UNCTAD calls upon governments to look closely at what the private sector is producing and how. The share of manufacturing, for example, in both intra-African and extra-regional trade has been falling over the last decade. This is due to a process of deindustrialisation. African companies are not competitive enough, compared to, for example, Chinese products and too much focus has been placed on commodity exports. How can this be improved?

Upgrading road and railroad infrastructure is of course essential. 'Africa currently has fewer kilometers of roads than it did 30 years ago and the region has the highest costs for transporting goods in the world,' says the report. All the usual issues that plague productivity such as lack of sufficient energy supply and lack of skilled labour play a role here and are addressed in the report. Peace and security, it states, is 'one of the main obstacles' to trade and economic development. Côte d'Ivoire is cited as an example.

Research shows that bigger companies, many based in hubs like South Africa, Nigeria and Kenya, have easier access to regional markets, but UNCTAD believes better research and information, export credits from government-supported schemes and integration in a value chain can help even smaller firms make it. It recommends that government and the private sector talk to one another when making plans for regional trade.

For 'developmental regionalism' to really take off, long-term, holistic plans, involving all stakeholders, are needed. The successful Greater Mekong Subregion economic cooperation programme, signed between Cambodia, China, Laos, Myanmar, Thailand and Vietnam, is cited as an example. Of the 20 'development corridors' established by African regions, only the Maputo Corridor between South Africa and Mozambique has really been a success, says UNCTAD. Mostly it is because these corridors are 'unable to translate improved infrastructure development into broad-based growth that contributes to poverty reduction and employment creation'.

Liesl Louw-Vaudran is a consultant to the ISS.

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