Nurturing Trade Between African Countries Crucial to Development

Southern African nations have taken steps towards an envisaged $1 trillion African free trade area but investment data linked to trading indicates a lot of commitment and work lies ahead to achieve the goal, particularly for South Africa as a continental leader.

Linked to trade are flows of foreign direct investment (FDI) into countries and development of infrastructure that can enhance trade communications between countries and regions, especially in Africa, where better inter-regional communications is a key priority in a continent with several different regional trade agreements.

This year’s world investment report released last month by the UN Conference on Trade and Development (UNCTAD) shows that total FDI inflows to Africa for last year came to $55 billion, or 10 percent of total FDI inflows to developing countries.

“Africa’s share among developing countries declined from 12 percent in 2009. FDI to Africa’s primary sector, especially the oil industry, continued to dominate FDI flows to the continent,” says the report.

UNCTAD investment and enterprise division director James Zhan said: “While east and south-east Asia and Latin America experienced strong growth (increases of 24 percent and 14 percent respectively, those to Africa, south Asia, west Asia and transition economies continued to decline.”

At the same time, flows to developed countries as a whole fell marginally to $602bn with some European countries experiencing significant falls, while inflows to the US increased sizeably.

“Inflows to southern Africa decreased by 24 percent to $15bn, although the sub-region accounted for more than one quarter of the African total,” the report says.

“The second-largest recipient in the sub-region, South Africa, saw its inflows fall by over 70 percent to $1.6bn, a level amounting to only one sixth of the peak recorded in the country in 2008.

“Over the long term, investment flows with greater development impacts are likely to come from neighbouring countries. Although there is some evidence that intraregional FDI is beginning to emerge in non-natural-resource-related industries, intraregional FDI flows in Africa are still small, only $46bn, or 5 percent of total African FDI projects during 2003-2010,” the report notes.

The UN body said: “Harmonisation of Africa’s regional trade agreements and accelerated and closely co-ordinated planning with respect to FDI would help Africa reach its intraregional FDI potential.”

UNCTAD was established in 1964 as a permanent intergovernmental body. It is the principal organ of the UN General Assembly dealing with trade, investment, and development issues and it works with the World Trade Organisation (WTO) and the World Bank on Aid for Trade.

While Aid for Trade may not directly impact South Africa, seen as one of Africa’s developed countries, it is important for current and potential trading partners.

“Aid for Trade flows have increased by 60 percent in real terms (since it began in 2005), but not at the expense of other forms of aid. This is an area where north-south as well as south-south co-operation has been increasing,” WTO director general Pascal Lamy said on July 18 when the latest data on Aid for Trade was launched. “The amount going to Africa has been growing by 20 percent per year since 2005; and Africa is now the largest recipient of aid for trade.”

At the WTO on the same day, World Bank president Robert Zoelick said he saw trade as the panacea to pull the global economy out of its current malaise.

“Opening trade drives growth. It’s the best driver of structural reforms that the world has seen.”

He argued that clinching an international trade deal that could drive global economies required leadership. “And it has to come from the major developed countries as well as emerging market countries. That’s a different world to what it was 15 or 20 years ago,” Zoelick said.

But in Zoelick’s view it would be good if a key developed country, such as the US could and would lead on unscrambling the current world trade negotiations pessimism, but that China should be there.

“And what about enlisting the Africans, who unlike six or seven years ago, know this deal is in their interest,” Zoelick said.

At the announcement of the Aid for Trade data and the world trade report in Geneva, the African Development Bank (AfDB) stated its commitment to the WTO initiative as good for developing economies.

AfDB regional integration and trade division manager Moono Mupotola said: “One of AfDB’s mandates is to support the integration process especially helping with the building blocks of the various sub-region economic groupings and helping the regional groupings rationalise.”

She said the AfDB would assist in the negotiations over a three-year period. “We come in to support the process and to provide technical assistance, for example, on what sort of rules will be put in place as well as to help in implementing some of the programmes.”

Mupotola cited the desire to help exporters collect the right sort of documentation to facilitate exports and said part of that strategy could be to use competence in South Africa has to help other countries.

“For example, on the north-south (trade) corridor even a country like South Africa has come to the bank to say can we help it develop a strategy for one-stop border posts for all its neighbours,” she said.

“At the moment we are looking for grant money to help South Africa develop one-stop border posts, especially to support the north-south corridor which has been accepted at a sub-regional level as one of the areas for aid for trade. The bank has pledged $600 million in infrastructure to support this.

Mupotola said that in west and central Africa there were high transport costs, probably because of transport cartels. “This does not allow for competition, so the consumer unfortunately ends up paying.”

Mupotola had previously said that bank studies suggested that the poor state of infrastructure in sub-Saharan Africa “cuts potential economic growth by 2 percentage points every year, and reduces business productivity by as much as 40 percent”.

A World Bank trade report found that transport costs in Africa were among the world’s highest. “For example, shipping a car from Japan to Abidjan costs $1 500 whereas the comparable cost for… Addis Ababa to Abidjan would be $5 000.”