SARMAD LONE: Pandemic offers golden opportunity for intra-African trade

The economic uncertainty in the wake of the Covid-19 pandemic places a heavy burden on economists to formulate effective recovery and resilience strategies — the more so in Sub-Saharan Africa. According to the World Bank’s recent biannual Pulse report, the pandemic has exacted a heavy toll on economic activity in the region, putting a decade of hard-won economic progress at risk. Depending on the success of measures taken to mitigate the pandemic’s effects, it is estimated that economic activity will shrink by between -2.1% and -5.1% in 2020 from growth of 2.4% in 2019.

The dip could be attributable to an approximate 6.9% contraction in African economies, which are heavily reliant on exports of commodities — whose prices are dropping. This could claw back some of the major strides Africa has made in its participation in trade and value chains, as well as result in a reduction of foreign financing inflows.

Africa’s international trade has surged in the past two decades. According to a recent Unctad report, in the period 2015-2017, total trade from Africa to the rest of the world averaged $760bn at current prices. Similarly, the share of exports from Africa to the rest of the world represented 80%-90% of the continent’s total trade transactions between 2000 and 2017.

Still, a decline in Africa’s international trade could have a silver lining. There is growing consensus among economic planners of the need to shift to intra-African trade and to view it as a key driver of growth in the post Covid-19 era. Intra-African trade provides a compelling opportunity to move away from reliance on extractive exports. Oil, minerals and agricultural exports are subject to price volatility and require less labour, thereby limiting employment opportunities for a continent with a young population.  

Conversely, according to the Economic Commission for Africa, when African countries trade with each other they exchange more manufactured and processed goods, have more knowledge transfer, and create more value. In addition, increased value addition or sophistication increases the value of the exports and therefore productivity. Africa’s growth is fuelled by small and medium-sized enterprises, which have an extraordinary ability to tap regional markets, grow exponentially and create jobs, while also accounting for 80% of the region’s trade, according to the Africa Trade Policy Centre.

The opportunity for intra-African trade is best viewed with a “glass half-full” approach, with an equally pragmatic view of the challenges that lie ahead. High tariffs and poor supply-chain infrastructure raise trade costs, erode the competitiveness of goods and services, inhibit exports and generally stifle economic growth. Recent studies conducted by the World Bank indicate that 75% of the delays in the movements of goods are the result of a lack of trade facilitation and that 25% is due to poor infrastructure. Poor infrastructure causes congestions, delay and ultimately high transportation costs.

Yet these barriers can be reduced. African countries are investing in physical infrastructure at key ports, introducing one-stop border posts (OSBPs) while doubling down on soft infrastructure such as integrated border management systems as well as the mobility of human resources. The advantage of OSBPs is that they eliminate the need for vehicles, travellers and goods to undertake duplicated border-crossing formalities. According to the AU’s Programme for Infrastructure Development In Africa, regional economic communities have identified about 76 borders posts for implementation.

Addressing the infrastructural challenges will lead to a reduction in trade bottlenecks, faster movement of goods and ultimately lower transport costs. The signs are encouraging. Two years ago African countries signed the landmark African Continental Free Trade Area Agreement (AfCFTA), which commits countries to removing tariffs on 90% of goods, progressively liberalise trade in services, and address a host of other non-tariff issues including import quotas.

The agreement will certainly deepen trade, boost economies, create jobs and achieve the elusive market integration objectives. The 54 signatories created a single African market of more than one-billion consumers with a total GDP in excess of $3-trillion, making it the largest free trade area in the world. Globally, trade agreements, like human relations, carry hopes and suspicions. Pulling off AfCFTA was therefore a remarkable feat from a trade negotiations perspective.

AfCFTA’s scope exceeded traditional trade agreements and covers intellectual property rights, e-commerce and competition policies which have diminished trade and heightened protectionism. It provides an opportunity for member countries to improve diversification in exports and trade, especially agricultural products — African countries spend more than $80bn a year importing food. According to the economic commission for Africa, AfCFTA is expected to expand access to markets at a regional and international level, thus generating state revenue and increasing farmers’ income, resulting in the provision of reserves for investing purposes — especially in modernising the agricultural sector through processing and mechanisation.

AfCFTA is key to intra-African trade but the road remains bumpy, for now. Its litmus test will be how quickly members can fast-track export diversification and product sophistication. Domestic policymakers will need to demonstrate the commitment to industrialisation and manufacturing.

A unique catalyst for intra-Africa trade is the empowerment and inclusion of women. According to a UN report, informal cross-border trade has become an integral part of trade flows for the East African Community and Southern African Development Community countries. The report says more than 70% of the cross-border traders are women. In West and Central Africa, women informal cross-border traders “employ 1.2 people in their home businesses; support on average 3.2 children as well as 3.1 dependants who were not children or spouses”. Moreover, cross-border activity is he primary source of income for two-thirds of all traders, and interventions targeted at intra-African exports and imports have huge potential to drive development, inclusion and poverty reduction.

The consequences of a Covid-driven recession offers African governments a golden opportunity to hasten the deepening of intra-African trade. Failure to implement the necessary policies will be felt for years to come.

• Lone is regional head client coverage, corporate, commercial & institutional banking, at Standard Chartered Africa & Middle East.