Intra-African Trade Can Create Wealth

Africa trade
Africa has a very low rate of intra-Africa trade

The lack of intra-African trade is a cause for concern within the African community. In this piece, Florence Udoh and Omotola Oloruntobi write on why government needs to address the challenges against trade among African countries.

Efforts by African countries to fast-track trade amongst themselves have been on the front burner for several years, yet not much success has been recorded as multiple road blocks, harsh trade policies and political crises in some parts of the continent have hindered the realisation of a hitch-free trade on the continent.

These efforts started as far back as the 1960s which gave birth to the Economic Community of West African States (ECOWAS) with the sole objective to boost economic relations among member countries.

Other objectives of ECOWAS included promoting co-operation and integration in socio-economic and cultural activities, ultimately leading to the establishment of an economic and monetary union through the total integration of the national economies of member states.

It also aims to raise the living standards of its peoples, maintain and enhance economic stability, foster relations among member states and contribute to the progress and development of the African continent. ECOWAS integration policies and programmes are influenced by the prevailing economic conditions in its member countries, the need to take the principal provisions of the AEC Treaty into account, and relevant developments on the international scene.

However, years after this treaty, African countries have yet to improve on its intra-Africa skills as the World Bank Director of Poverty Reduction and Economic Management, African Region, Mr. Marcelo Giugale, expressed concern at the low level of trade among countries in Africa.

He said: “Africa has been very successful in integrating itself with the rest of the world, but it has not been successful in integrating countries in the continent. The commodity trade has made Africa to integrate with virtually every region of the world, but in terms of trade among countries in the continent, Africa has really failed.

“The fragmentation of Africa in terms of trade is dramatic and is resulting in the loss of billions of dollars of Gross Domestic Products (GDPs) and millions of jobs that ought to have been created.

“This is a self-inflicted wound. As you can see, agricultural trade among African countries is yet to start. That is one sector that will generate a lot of employment and a lot of social input.

“You certainly need much more than the GDP numbers going up. The translation from growth to employment is complex as it depends on labour market, skills, infrastructure and quality of the business environment. Growth can be very fast and you still don’t see poverty reducing. Also, growth is a necessary, but not sufficient condition that poverty will fall,” Giugale said.

Recently, African Regional Organisation for Standardisation (ARSO) and the Standards Organisation of Nigeria (SON) made the move to boost trade among African countries through harmonisation of standards.

At an event organised by the two standards bodies in Lagos, Dr. Kioko Mang’Eli, ARSO president, and Dr. Joseph Odumodu, SON director-general, told journalists that “trade among African countries is abysmally low and we need to facilitate more trade among African countries.

“We are saying, Africa can stop buying substandard goods coming into the continent from Asian countries by harmonising the issues of standard, conformity assessment that are in place and making them more useful to their countries.

And there is need to severe bilateral ties with countries that bring those goods by not accepting to do business with them. We ought to be doing business with countries that are friendlier in trade agreement,” said Kioko.

He called on African governments to support standards bodies so that they can come up with conformity regime that can stop counterfeit products from coming into their countries.

Kioko observed that current standards and conformity regimes are not geared towards unity and development of Africa, although the African Union (AU) says they want to do integration of our economy, in terms of common currency and tariff.”

SON director general noted that “Africans are not trading with each other. I can tell you, if Africans are trading with each other, it is cheaper and more efficient. We need to build the African continent in terms of our capacity; we need to reach out and build ourselves to the level of other continents of the world, and the only way we can do this is trading with each other.”

Over the years, efforts were made by African countries to address the lack of intra-African trades, and the Kenyan President and current Chair of the EAC Heads of State Summit, H.E. Mwai Kibaki, while contributing at the 18th African Union Summit, Boosting Intra-African Trade at the AU Headquarters in Addis Ababa, Ethiopia, noted that the current level of trade within Africa remains too low compared to other regions and therefore said it was imperative to review the achievements so far made and chart the way forward for increased trade.

The Kenyan president asserted that “increasing intra-regional trade requires bolstering cooperation between governments and opening up borders to let the people move and trade freely. We must also invest in infrastructure, the development of human capital, embark on rapid industrialisation and create enabling domestic economic policies.”

He said these efforts will create employment, increase trade and multiply Africa’s wealth and prosperity, adding that Africa and her people stand to benefit greatly from intra-African trade and that in view of the demands for growth in all African countries, efforts to increase intra-regional trade should be guided by political commitment accompanied by measurable, time-bound targets.

Also, to show that enhanced trade relations of African countries was paramount, the African Union Summit was with the theme: “Boosting Intra-African Trade”.

Barriers to intra-African trade

Productive capacity and non-significant industrialisation efforts, amongst others, have been identified as barriers against the success of inter-regional trade.

Inadequate or non-existent infrastructure, complex bureaucratic procedures, inefficient border administrations, regulatory discrepancies that hamper trade, economies of scale and, more recently, the tightening up of trade finance are also parts of the reasons why intra-African trade had suffered a hitch.

“Africa cannot continue to grow simply on the bases of the supply of raw materials to fuel industrialisation process taking place elsewhere,” said Rob Davies.

According to a report by WTO, “Natural resources dominate Africa’s economy, leaving other sectors neglected and under-developed. Political and economic factors also contribute to Africa’s poor performance vis-à-vis the free flow of goods and services. These non-tariff obstacles to trade are the principal challenges to Africa’s development; they reduce the continent’s ability to benefit from intra-regional and international trade.

A research scholar at the University of Iowa, College of Law, Henri Joel Nkuepo, said: “Africa is as rich in natural resources as it is politically unstable. Many African countries are among the most unstable in the world.

These instabilities render trade relations almost unfeasible in certain regions of the continent. However, African leaders have not given attention to the fact that international trade can be used as a conflict resolution mechanism. International trade fosters mutual dependency.

“If African countries increase intra-African trade, they will be motivated to take conflicts and terrorism more seriously. Indeed, it is striking that the African Union Action Plan for Boosting Intraâ-African Trade makes no mention of conflict or instability; it completely ignores the cooperative benefits of increased regional trade.”

Way forward

In setting the atmosphere right for trade within African countries, President Goodluck Jonathan had said at the AU Summit that “there was a need for the provision of adequate infrastructure, policy and regulatory frameworks, conducive social, political and economic environment, financial services and support to businessmen and women, locally and across borders.

If addressed, these measures will assist in reducing the anticipated adjustment costs, as well as put less pressure on the compensatory system and ensure a cost-effective governance architecture for the Continental Free Trade Area.”

He added that “it is beyond doubt that our regional economic communities provide the best platform for accelerating and achieving economic integration.

Therefore, what is required of us is to do more to implement the several initiatives that we have already adopted, aimed at addressing factors such as infrastructure, productive capacity and science and technology that inhibit integration efforts.”

Also, an economist, Ayo Agbaje, said there was a need to adopt and implement efficient trade policies at the national, regional and continental levels.

He said: “Boosting of intra-African trade requires that the trade policy of African countries be designed or differentiated in such a way that no other African country would receive a less favourable treatment than is given to a non-African country, whether the latter is developed or developing.”

Considering the barriers to the effective take-off of smooth trading among African countries, efforts must be made by government of these countries to ensure that the financial industries are able to implement the innovations, ensure that roads are motorable and fewer checkpoints are mounted to further ease the movement of goods from one country to another.

Likewise, the rising spate of insecurity in some of these countries needs addressing as no country would want to transact or establish a business venture in a place where conflicts and insecurity are the order of the day.

In the words of the Vice President for Africa at the World Bank, Obiageli Ezekwesili, increased intra-African trade is “an area of potential growth and as the global economy deteriorates, it is important that Africa discovers Africa.

The idea should be free trade within the continent to boost the free-flow of goods, services and people. Because as that happens, productivity is enhanced, competitiveness is improved. It increases growth and reduces poverty.”

 

By; Omotola Oloruntobi and Florence Udoh