Africa more integrated with rest of world than with itself

African countries are losing billions of dollars in potential trade earnings yearly due to high trade barriers with neighbouring countries, reports, quoting a Word Bank report titled Defragmenting Africa: Deepening Regional Integration in Goods and Services.

The report observed that although regional trade integration had been a strategic objective for Africa, the African market still remains highly fragmented. It maintained that while there had been some successes with the removal of import duties within regional communities, a range of non-tariff and regulatory barriers still raised transaction cost and limited the movement of goods, services, people and capital across borders. The end result, according to the report, was that Africa had integrated with the rest of the world faster than with itself.

“The cross-border production networks that have been a salient feature of development in other regions, especially East Asia have yet to materialise in Africa.”

It stated that effective regional integration was more than removing tariffs, but rather addressing challenges that paralyse the daily operations of ordinary producers and traders. Hence, it called for regulatory reforms and capacity building among institutions that were charged with enforcing the regulations.

Similarly Frost & Sullivan last month also noted that driven by improved business and investment climates, Africa has raised its potential investment profile in recent years. However, although the perceived improvement has resulted in an influx of FDI, trade between African countries has not shown a corresponding increase.

James Milne, an analyst at Frost & Sullivan stated that while the three largest African trade zones, namely ECOWAS, SADC and COMESA, generate over US$1 billion of regional trade annually, what was critical to note was that only 7.6% of trade within the mentioned trade blocs is intra-African. This implies a severe under-investment in the continent, and a large opportunity for countries that are willing to enhance and promote free intra-regional trade.

Low intra-country trade figures are predominantly caused by poor regional transport infrastructure, which drives up transportation costs. Such issues are in the process of being addressed, with an estimated US$310 billion expected to be spent on the upgrading of road and rail corridors across Africa between 2010 and 2030. To ease the burden of transport costs, eight heavy-duty ports have also been identified for development or rehabilitation across sub-Saharan Africa.

African governments could also make a far more enhanced contribution to the easing of transport bottlenecks that occur at borders between countries, added Milne, while also making a conscientious effort to reduce the legislative burdens that face companies that trade across borders.

The continent needs urgently to begin investing more in itself, if it wants to become more self-sufficient and less reliant on the vagaries of global markets, thereby sustaining its economic growth. Hopefully this will be one of the key issues to be discussed at next week’s World Economic Forum on Africa to be hosted in Addis Ababa.

Imara is an investment banking and asset management group renowned for its knowledge of African markets.