We must boost intra-African trade now

José Filomeno de Sousa dos Santos 600x400

José Filomeno dos Santos, chairman of the board of directors, FSDEA

Africa has 14 trade blocs that were designed to facilitate greater cross-border trade and intra-African cooperation. These include the Greater Arab Free Trade Area, the Mano River Union, the Economic Community of the Great Lakes Countries, as well as the Regional Economic Communities (RECs). The latter fall under the banner of the African Economic Community, which was established in 1991 and enacted in 1994. The RECs include the Community of Sahel-Saharan States, the Common Market for Eastern and Southern Africa, the East African Community, the Intergovernmental Authority on Development and many others.

Despite the establishment of these trade blocs, regional exports constitute nearly 11% of the total goods exported – the rest are shipped out of the continent. Compared to other major economic regions in the world, this is a relatively low figure. In the United States, intra-regional trade accounts for 40% of total trade. Whereas in the EU it accounts for 60%. Given the fact that exports support economic growth, increasing intra-African trade could provide solutions to issues such as the trade deficit and food production and security for many African nations.

One of the most disappointing regional deficits is in the agricultural sector. Whereas Africa has the potential to autonomously feed itself, most nations produce goods that they do not consume, whilst consuming those that they do not produce. Arguably, our nations must redirect the objectives of these various trade agreements to support the domestic industries, the regional trade, and the economic and demographic growth. This might narrow the trade gap and bring the domestic prices of finished goods down.

A 2014 Economist Intelligence Unit report attributes the lowest regional score on its Global Food Security Index to sub-Saharan Africa, whilst noting that high import costs are a major consequence of this fact. Along with relative poverty, the latter exacerbates the negative social consequences of expensive imports. According to this publication, limited transport and logistics infrastructure across large geographical areas make intra-African trade complex and costly. The fact that only 5% of Africa’s imported cereals come from other African countries highlights the scarcity of logistic capacity across the continent. However, these observations may be replicated across other commodities, such as metal and plastic, which are predominantly imported from outside of the continent.

Despite these challenges and the ensuing global economic headwinds, sub-Saharan Africa is set to grow by around 4.5% in 2016, which is far more than the world’s major economies. This is favourable because it confirms that governments still have the financial capacity to invest in business-critical infrastructure, which can further boost future regional trade and GDP growth in the continent. Nonetheless, the support of commercial intra-Africa trade ventures requires a reassessment of the efficacy of the existing trading blocs. Today, many of our nations are members of various such blocs, with complicated and potentially contradictory policies. Whereas, the strategic objective of these blocs ought to be simplicity and consistency across the board, based on mutually beneficial tariffs and light regulation.

For instance, Kenya, Nigeria and Angola have been prioritising infrastructure for several years because it is crucial to the development of a domestic SME production capacity. Recently, the heads of state of Angola, Democratic Republic of Congo (DRC) and Zambia attended the relaunch of the renewed Benguela railway, which links the sea port of Lobito with hinterlands of the three countries. This is a major example of how neighbouring countries draw mutually beneficial growth paths for trade and development. Such initiatives must be supported by facilitation in the circulation of goods from one nation to another in order to attract commercial investments.

Another initiative that supports intra-African trade are the seven private equity investment funds established by the Angolan Sovereign Wealth Fund (FSDEA) for infrastructure, real estate, healthcare, agriculture, timber, mining and mezzanine capital opportunities within sub-Saharan Africa. FSDEA has been actively screening and investing in medium-size ventures that provide long-term financial returns for the Republic of Angola and catalyse private sector activity domestically and in other sub-Saharan African countries. So far, these funds have invested over US$400m in timber, infrastructure, mining, mezzanine capital and real estate projects. The FSDEA expects to raise this investment commitments to $1.2bn by the end of 2016. The private equity funds that it has established favour projects that support the development of domestic value chains and related industries. To enhance its investment reach, the FSDEA is attracting co-investors from the continent and abroad by securing greenfield opportunities that are structured to generate long-term sustainable revenues that are socially enhancing for the host nations.

Accordingly, sub-Saharan African nations must focus more intensely on attracting investments that support business growth, especially those in energy and transport infrastructure. In this regard, the role of governments is the facilitation of trade with regional nations via multilateral agreements, in order to secure viable markets for upcoming African businesses. Cooperation amongst different countries with different political systems, culture, economic and political objectives is not an easy goal to achieve. But given that amongst these differences that are a myriad of similarities in the reality faced by our peoples today, at the very least, facilitation trade, simplification of cross-border trade regulations and an implicit understanding that all stand to benefit from cooperation, is key for agreeing on a stable and interdependent growth path throughout Africa.

José Filomeno dos Santos is the chairman of the board of directors of the Angolan Sovereign Wealth Fund (FSDEA).