Intra-Africa trade extremely low

THE Cairo-headquartered African Export-Import Bank (Afreximbank) has been at the forefront of promoting trade across the continent. Zimbabwe Independent projects editor Kuda Chideme (KC) caught up with the bank’s regional chief operating officer for Southern Africa, Humphrey Nwugo (HN, pictured), to discuss trade matters ahead of the financial institution’s Intra-African Trade Fair in the Egyptian capital. Below are excerpts of the interview:

KC: What are your major concerns regarding the state of intra-Africa trade?

HN: The major concern is the persistently low level of intra-Africa trade. Africa’s intra-regional trade lies well below that of other regions. In 2016, intra-African exports made up 18% of total exports, compared to 59% and 69% for intra-Asia and intra-Europe exports, respectively.

The figures for imports are similar. The cause of these persistently low levels of intra-regional trade relate to the absence of information on trade opportunities, infrastructure deficits and non-tariff barriers. It is essential that these be addressed to unlock the potential of intra-regional trade.

KC: How best can we address Africa’s trade imbalance?

HN: One of the most important challenges facing the continent is triggering structural transformation in the economies of the region and, in the process, creating more added value in its exports and generating higher employment.

A large share of exports of the region comprise basic commodities with very little added value. One way of triggering this transformation is to increase the competitiveness of countries in producing and exporting manufactured products using the large base of natural resources available within the region and increasing intra-regional trade.

Regional integration and pooling of resources and capabilities by forming market-driven and private sector-oriented regional value chains can be an important step in this direction. This can lead to a shift towards more productive manufacturing activities in many countries and can subsequently boost domestic value addition.

The best way to address Africa’s trade imbalance is for African countries and African businesspeople to talk to each other and share information about what they produce and what they consume and where they source them from with a view towards encouraging Africans to buy goods and services made in Africa. In a nutshell, there is a need for sharing trade and market information.

The study by Afreximbank shows that sharing trade and market information could increase intra-Africa trade from 15% to 38%. In this context, the bank will be organising the Intra-African Trade Fairs every two years to bridge the gap on trade and market information.

KC: How are you working around issues of inefficient and in most cases absent infrastructure such as ports and railway systems which facilitate trade?

HN: The second pillar of the Banks Strategic Plan is Industrialisation and Export Development. The aim is to reduce dependency on commodity exports and exposure to volatility by increasing Africa’s share of global trade in a world dominated by global supply chains and trade predominantly in value-added and manufactured goods and services.

This pillar is therefore conceived around three key themes: Catalyse, Produce, and Trade. Catalyse focusses on addressing the constraints to industrialisation and export development on the continent. It aims to do so by supporting the emergence of “hard” infrastructure that will make Africa’s export manufactures more competitive.

This includes industrial parks, export processing zones, and technology and innovation parks.

It also aims to address the “soft” infrastructural issues impacting industrialisation and export development including providing a conducive policy environment, building capacity of Africans on the selected priority sections (agro-processing, light manufacturing, and services) and supporting initiatives that promote Africa as an investment destination. Produce focusses on implementing activities to foster efficient production of African-manufactured and diversified goods and services to promote extra African trade.

The bank intends to support initiatives that create efficiency in production infrastructure across the length of the export manufacturing value chain, while trade is dedicated to ensuring that African goods can reach international markets and are competitive.

KC: What are you doing to attract trade finance to plug the funding gap estimated at US$100 billion?

HN: Trade finance in Africa continues to be affected by liquidity constraints that have been worsened by the withdrawal from Africa by foreign banks and low access to affordable financing for SMEs. Facilitating trade finance in Africa is one of the primary reasons for which the Bank was set up.

Accordingly, since the bank’s inception, trade finance has been core to the bank’s operations. Over the years, the bank’s influence across the continent has grown. While the bank’s asset size relative to Africa’s GDP remains small; it has increased significantly over the years. Also, the bank is now better known in Africa.

The bank’s leadership in trade finance is a key pillar of the fifth strategic plan, dubbed Impact 2021, and focussed on expanding its intervention in some of the critical trade finance products it already offers while creating new products and initiatives. The bank will introduce or expand its intervention under correspondent banking and trade services, structured trade finance facilities, factoring and forfaiting facilities.

In addition to trade finance products, the bank will seek to improve its intervention in other product areas that improve access to trade finance, including syndications, guarantees, and specialised financing programmes.

KC: What is being done to improve the diversity of the product portfolio of African countries, given that most of them are commodity based?

HN: Afreximbank has an initiative on industrialisation and export development aimed to build capacity for the expansion of production and processing capabilities, with focus on agricultural production, agro-processing, manufacturing and services. Afreximbank is facilitating capacity for expansion of tradable goods and services that can enter the trade.

KC: How are you dealing with the elimination of non-tariff barriers to trade?

HN: Afreximbank is working on a number of trade facilitation initiatives such as harmonisation of standards, the proposed Pan-African Interstate Transit Guarantee scheme as well as advocacy, which relate to enhancing trade facilitation/eliminating non-tariff and tariff barriers to trade. For example, on standards, Afreximbank is supporting the establishment of internationally accredited testing, inspection and certification centres (food testing laboratories) across Africa to assist exporters to comply with trade standards.

KC: What are your thoughts on the stance taken by Nigeria not to sign up to the African Continental Free Trade Area (AfCFTA)?

HN: Given the import and far-reaching implications of the AfCFTA, it should be expected that countries consult extensively before entering into trade agreements. We believe Nigeria is going through that process of consultation and the outcomes will be favourable and Nigeria will sign the historical agreement.

KC: There are concerns that the AfCFTA gives an unfair advantage to developed markets such as South Africa while threatening smaller developing markets.

HN: While the AfCFTA provides an opportunity to boost intra-African trade and accelerate the process of structural transformation to reduce the vulnerability of economies to external shocks, the implementation of the agreement will be complex and challenging given the large number, diverse nature and different stages of economic development of member states. At the same time, integration may carry adjustment costs for some countries.

Concerns over competition, employment, tax revenue (tariff revenues) losses, and the uneven distribution of benefits and costs need to be addressed and mechanisms put in place to ensure broad-based buy-in and implementation of the AfCFTA, and to ensure that the full benefits of the agreement are realised.

The policy challenge, therefore, becomes how to promote and deepen trade integration while ensuring that the potential losers from trade liberalisation are assisted and the costs of adjustment are mitigated.

Several policy mechanisms exist to mitigate trade shocks that arise from market opening under bilateral, plurilateral and/or multilateral trade liberalisation. The AfCFTA contains some of these inbuilt mechanisms such as paced liberalisation and trade remedies that will allow smaller developing markets to integrate at an appropriate pace.

KC: From a policy perspective, what more should be done to improve intra-Africa trade?

HN: The common challenges to the development and strengthening of regional value chains in Africa have been unreliable and poor infrastructure, tariffs and non-tariff barriers, poor access to finance, political uncertainty and insufficient knowledge of regional markets (lack of access to trade and market information). Massive investments in infrastructure are needed in most African countries to enable the building of regional value chains.

Also important is to ensure reliable and smooth trade across African destinations. Further, macroeconomic stability and policies are needed to improve access to credit so that firms can expand from the domestic market to intra-regional trade. African countries that have not yet signed up to the AfCFTA should do so to increase options for developing or strengthening regional value chains by making it easier for firms to trade across the continent.

KC: What deliverables are you expecting from the conference in Cairo?

HN: The deliverables include the conclusion of approximately US$25 billion worth of deals as well as discussions around topical issues affecting intra-African trade and provision of practical and effective solutions.

The deployed multi-country and multi-company pavilions that will save as a one-stop shop for intra-African trade and investment opportunities in Africa and provide a platform for business-to-busines exchanges and development of business and investment opportunities

A virtual trade fair is being developed to provide a marketplace where buyers and sellers of goods and services meet and explore business for the Trade Fair in Cairo and will continue going forward.

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