Three ways Africa can achieve its trade goals
Intra-African trade has seen a resurgence as a topic of conversation, featuring prominently at the recent World Economic Forum (WEF) on Africa, and in news reports, as African leaders seek a solution to slow growth, inequality and unemployment across the continent.
In the Agenda 2063, The Africa We Want, the African Union (AU) has set a target to increase intra-African trade from 12% in 2013 to approximately, 50% by 2045. This is to be mainly facilitated through the Continental Free Trade Area (CFTA) – a single African market for goods and services, due to be established this year. According to the UN Economic Commission for Africa (UNECA), the CFTA could increase intra-African trade by US$35bn, or 52% above the baseline, by 2022. The intra-regional trade goal of Agenda 2063 also extends to infrastructure, which the agenda says will include high speed rail systems – with a pan-African high-speed train network including all major cities and capitals of Africa – roads, sea and air transport and shipping lines. According to the United Nations Development Programme (UNDP), Africa’s intra-regional trade grew annually at a rate of 13%, up from $30bn to $178bn between 2000 and 2014.
Collaboration between government and business is the key to the success of the CFTA and Agenda 2063’s trade goals. This is because co-operation and collaboration across the private, public and social sectors could be a powerful force for transformative change and growth. With shifting dynamics in the global economy, Africa has a unique opportunity to break the structural constraints that have long marginalised the continent. Trade within Africa remains the lowest of any region globally, and significant potential can result from the efficiencies of trading more with one another.
This will, however, be achieved only by driving greater regional coherence from the current patchwork quilt of 54 sovereign states. East Africa has made significant strides in building the East African Community, and this has seen the region become the fastest-growing part of the continent.
EY’s latest Africa Attractiveness report, Connectivity redefined, found that Africa’s growth will improve from 2016, which was the worst year for the continent in nearly 20 years. The report emphasised the importance of regional integration as a key priority for accelerating and driving more inclusive and sustainable growth in Africa.
The key areas that Africa needs to prioritise, to better facilitate intra-regional trade and integration – particularly as the CFTA is being finalised – are:
One of the barriers preventing existing trade agreements from working properly, is that there is no enabling infrastructure to connect countries, because the lack of road and rail infrastructure, continues to impair trade within Africa. Some countries have identified and documented their infrastructure development needs, in line with their long-term economic development goals; but are struggling to close the funding gap for these projects. With most of these projects still at feasibility stage, it is challenging for the private sector to participate in these projects, as their investment mandates limit their participation to projects that have gone past the feasibility study stage and completed a tangible business plan that can be evaluated for commercial viability.
2. Patience and incentives
Governments need to direct investment into beneficiation and the manufacturing of finished products, by providing investment incentives and production subsidies that can attract investment into economic development zones. However, there needs to be patience and understanding that economic development projects are long term in nature and will take time to yield economic returns. For example, manufacturing economic development zones should not be expected to make profits overnight, funding should be set aside in the annual government budgets as part of the economic development zones incubation strategy. Such projects need to be coupled with active promotion, incentives like tax breaks and attraction of key industries that have been taking production of finished goods off-shore.
Tourism should be a proxy for trade, if African countries are not able to promote and execute tourism among each other, then trade is going to be difficult. The lack of infrastructure for tourism also affects trade. It’s easier to move goods and services than people, so if we can solve the problem of moving people through the promotion and development of infrastructure for intra-regional tourism, then we are one step closer to enabling intra-regional trade.
The above are the key areas, which Africa needs to take advantage of as it moves towards a more uniform and continent wide trade. However, governments need to commit to a long-term plan to subsidise trade and allow intra-Africa trade to grow and business needs to also play its part and invest in trade. Africa has a bright future ahead of it in terms of growth, but this is only possible if we come together and strengthen our trade economy from within the continent.
Sandile Hlophe is Africa Government and Public Sector Leader at EY.