Increasing Intra-African Trade is Important for Africa

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AFRICA — Intra-African trade has long been a topic of much discussion among Africa’s policy analysts. Its potential economic opportunities are vast by allowing African nations to take advantage of economies of scale, generate income and jobs, and access other benefits associated with market integration.

Despite this, intra-African trade is infrequent. According to The Economist, it makes up only 12 percent of Africa’s total trade. This figure pales in comparison to other continents, such as 40 percent in North America and 60 percent in Western Europe.

With foreign direct investment on the continent declining, its increased implementation is now arguably becoming more vital to the future of Africa than ever before.

Although African leaders may discuss the need for increased regional trade, oftentimes employing rhetoric that promotes the vision of “pan-Africanism” and “one-Africa,” this vision is far from realization.

Problems that have long plagued Africa, including poor infrastructure and mistrust between countries due to past conflict, all play a part in hampering trade between countries, according to an article in ICTSD.

Perhaps most illustrative of Africa’s disconnection lies in its countries’ travel policies. According to Quartz, most have visa laws that highly restrict the movement of its citizens, making it difficult for them to gain access to other countries, creating another obstacle to trade.

A recent report by the African Development Bank (AfDB) revealed some troubling statistics regarding this issue.

To travel to other countries in Africa, Africans need visas to enter 55 percent of states on the continent. Only 20 percent of nations allow Africans to enter without visas, with 25 percent offering visas on arrival. In fact, North Americans have an easier time traveling to and within the continent than Africans. They need a visa to travel to just 45 percent of African countries, can get a visa on arrival in 35 percent of countries, and can enter without a visa in 20 percent.

Attempts to establish integration have historically been scattered and lacking in unity. Africa has multiple trade agreements; there are 14 trading blocs with overlapping members; most countries belong to at least two blocs, while many belong to three. “These proliferating memberships in RECs [regional economic communities]have drawbacks as they impose high costs on governments in terms of time, energy and resources, forcing them to juggle between competing regulations,” ICTSD reports.

Recently, there has been an increased sense of urgency to amend these issues and increase intra-African trade. Two important developments took place last June.

First, Africa’s three largest trade blocs: the East African Community, Common Market for Eastern and Southern Africa, and the Southern Africa Development Community, launched the tripartite Free Trade Agreement (TFTA). This agreement, which encompasses 26 nations, is expected to grant parties several benefits. “It is hoped that the merger of the three main trade groupings will boost inter-Africa trade by creating larger markets and more opportunities for economies of scale, as well as strengthen Africa’s voice in international negotiations,” ICTSD reports.

It is also hoped that this new agreement will increase unity among the three blocs’ trade policies. For example, a couple weeks ago, they were called on by experts to expedite the harmonization of their rules of origin. Rules of origin, which are the criteria needed to determine the national source of a product, are important because duties and restrictions in several cases depend on the source of imports. “According to the experts, harmonizing rules of origin will encourage competitiveness for the African private sector, and accelerate regional integration,” allAfrica says.

The second development is that the AU heads of state launched negotiations to create an African Continental Free Trade Area (CFTA) by 2017, with the purpose of connecting all 54 AU member states into a single market. This is significant; according to allAfrica, many of the AU’s 54 countries have populations of less than 20 million and economies of less than $10 million, which are too small to justify heavy investments. The market established by the FTA will have a population of over a billion people and a combined GDP of over $3 trillion, which will attract more investment.

Further, the FTA is expected to increase intra-African trade by as much as $35 billion per year, or 52 percent above the baseline by 2022. With the CFTA, the continent’s GDP is estimated to rise from $1.7 trillion in 2010 to $2.6 trillion in 2020, as well as pushing up consumer spending from $860 billion in 2010 to $1.4 trillion in 2020, according to The Herald.

Despite these promising developments, these agreements are just that – agreements. It is up to African countries to actually uphold them. To do so, they need to start by improving conditions to make trade more conductive. An article in ICTSD outlines some of them, which includes increasing investments in infrastructure, and reducing barriers such as complex immigration policies and prohibitive transaction fees. These steps will have costs, but the benefits may be worthwhile.

Sources: allAfrica, allAfrica, The Economist, The Herald, ICTSD, ICTSD, Quartz

Photo: Flickr

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Anton Li

Anton writes for The Borgen Project from New York. He enjoys playing the board game Settlers of Catan, as well as basketball.

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