Last year trade between Africa and China crossed the US$200bn mark, confirming our continent’s largest single international business partner. India began 2014 by announcing plans to increase its trade with the continent to over $100bn by 2015, up from the current $70bn. And as I write from my desk in Angola, the enormous signs of construction firm Odebrecht represent Brazil’s 20-fold increase in investment in the country since 2002.
It is no surprise Africa is attracting global trade and investment on a mass scale. For fast emerging and established countries alike, our continent is one full of potential, and one growing on average at 6% a year. Incomes are rising, bringing prosperity to a burgeoning middle class. The number of households with discretionary income is projected to rise by 50% over the next 10 years, reaching $128m. Our natural and human potential is enormous, being home to over 50% of the global uncultivated agricultural land, and with a young and energetic population with a median age of 20.
But increasing trade internationally has come at a cost. Africa’s trade between its own nations is now extremely low at around 12%, half of the share 15 years ago. Trade within regional borders is 70% and 50% in Europe and Asia respectively, and even 21% in fast growing South America.
For those who work on the continent, it’s clear to see why. Moving goods and people around is extremely difficult. A small percentage of African roads are paved, rail networks are poorly interconnected and ports and airports alike have limited routes and capacity. Often, it’s easier to trade internationally than locally, with current infrastructure built around getting our goods out to global hubs and beyond. In a recent report, Ecobank found large numbers of traders in Nairobi sending goods to Dubai first in order for them to be transported to other African nations.
An array of regional trade agreements (RTAs) has brought some attempt to foster intra-regional trade, but there is still often a fairly inconsistent and cumbersome business environment across neighbouring countries. The South African Development Community, of which Angola is a member, now averages about $11bn of trade annually. However, estimates suggest that figure could easily triple if smarter and more business friendly policies were put in place. From my experience in agribusiness and construction, tackling the uncoordinated agricultural policies and the damaging combination of fluctuating import and export tariffs would be good place to start.
Asia is on hand to provide useful lessons. The region has clearly (and recently) shown the correlation between regional integration and increased international competitiveness. This is not either or. Strengthening regional cooperation and trade will make Africa more competitive internationally: it is the bedrock for sustainable and stable economic growth, and African governments should see it as such.
For Africa’s emerging powerhouses, our ‘lion’ economies of Angola, Mozambique, Ethiopia and others, regional integration and trade provides them with an opportunity to cement their rise, and help lift others on the continent with them. The African Union, with which I met last year to discuss some of these challenges for business, is making progress, supported by other pan-African organisations, including the United Nations Economic Commission and the African Development Bank.
The ambition is now set for intra-Africa trade to reach 50% by 2045, which is welcome. And new initiatives, including the Africa50 Fund, which aims to raise some $100bn of global capital to finance Africa’s current infrastructure pipeline, are now underway. This week, South African President Jacob Zuma also threw his weight behind the idea of a pan-Africa free-trade area, an idea that could promote over $2.6tr of trade.
The signs are promising, and businesses must be poised to make the most of new regulations and opportunities as they come in. Outward facing corporate strategies are welcome, but boardrooms should increasingly be aware that working with neighbours in the region is a critical bridge to bigger and stronger international trade relations.
As the world’s eyes continue to focus on Africa, we must make sure that we strengthen our regional ties to develop not as fragmented states but as a sustainable economic region, using trade and investment within our borders to enhance our global offer.
Dr Álvaro Sobrinho is one of Angola’s leading business figures and chairman of emerging bank Banco Valor. Born and raised in Angola, Sobrinho has been at the forefront of the rise of one of Africa’s most powerful economies and is now a major cross-sector investor in Africa’s frontier markets.