Africa contributes only around 3% to total global trade. It falls far behind the likes of Asia, America and Europe. Its share of exports and imports, as a proportion of global figures, is dismal.
Apart from the poor contribution to global trade, intra-African trade is equally poor, when compared to intra-regional trade in other continents and regions.
For instance, in 2018, intra-African exports as a share of total exports from Africa were only 16,6%. This means that 83,4% of Africa's exports were destined outside of the continent.
Sadly, this reflects a high export dependency, on the rest of the world.
As an average, both intra-African imports and exports, combined, as a share the continent's total trade, were around only 15,2% between 2015-2017.
On the other hand, regions such as Europe, Asia and America, faired much better and had intra-regional trade of 64,1%, 61,1% and 47,4%, respectively.
A major advantage of higher intra-regional trade is that, it can help to reduce the vulnerability of a region to external economic shocks.
Shocks such as the financial crises, which began in developed economies in 2008, for example, dealt a heavy blow on African economies because their exports were highly dependent on the performance of developed and other significant external economies (such as Asia).
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The continent's high dependence on trade with the rest of the world, meant that it was not adequately insulated from external economic challenges, some of whose epicentres were not immediately connected to it (Africa).
However, by virtue of the strong dependency on external trade, the economic recession of external economies, immediately impacted Africa's own economic performance.
Additionally, intra-African trade tends to have greater proportions of high-value goods, such as manufactured products. Around 45% of it, constitutes manufactured goods.
This is unlike Africa's trade with the rest of the world, which is dominated by raw materials and low-value goods. Africa’s external trade only has a 20% share of manufactured goods.
In essence, this means that intra-African trade has a greater opportunity to spur economic growth and social development, than external trade.
Causes
Among the causes and drivers of poor intra-African trade are weak productive capacities, poor infrastructure development, unsatisfactory intra-African trade agreements, and, non-tariff barriers to trade, among others. These will be explained below.
Africa's minimal productive capacities are reflected in the failure of governments to provide and safeguard property rights. For instance, although the continent has abundant land and suitable conditions to produce globally-competitive agricultural output, a lot of citizens do not have access to title deeds.
There are no significant plans on how African governments aim to creatively provide their generally poor populations with title deeds.
Instead of being documents, which simply reflect ownership of immovable property and the privilege to exercise exclusive rights on it, title deeds are critical instruments for raising funding in formal financial markets.
That means if more Africans can have access to title deeds, they would be able to borrow from banks, to finance various entrepreneurial ventures, some of which would stimulate the pace of African trade, within and outside, the continent.
The inability of African governments to finance competitive public education systems also imply that the continent cannot produce exceptional human resources that are capable of producing globally-respected innovations, which can dominate local and external trade.
Formal financial markets (banks, stock exchanges, pension funds) are poorly developed such that they reinforce the poor demand for goods and services, and the weak growth of entrepreneurship and trade-impacting investments.
Poor infrastructure means that it is sometimes logistically cheaper for an African country to export to Europe, Asia or America, than it is to trade with another African country.
Opportunities for direct shipment of goods from one African country to another, are lacking, especially when compared with other continents and regions.
In 2024, the European Centre for Development Policy Management (ECDPM), reported within one of its studies that Sadc-based entrepreneurs had emphasised that, the unavailability of good roads outside of capital cities in the Sadc region had driven them to lose interest in growing their intra-regional exports.
The delays caused by bad roads, generally cause poor revenue turnover, making trade undesirable for African companies, who may end up pursuing better financial returns elsewhere.
For countries with poor cold chain infrastructure and limited access to electricity, exporting perishable goods would be extremely risky, as it can expose consumers to disease or result in the degradation of export consignments.
Limited phone and internet communications make it hard to successfully implement trade endeavours even in neighbouring countries.
Direct air connectivity among African nations is very limited, thereby, curtailing the movement of trade and people, regionally.
Africa has eight regional economic Communities (RECs) namely; Arab Maghreb Union, Community of Sahelo-Saharan States, Intergovernmental Authority on Development, Economic Community of West African States, Economic Community of Central African States, East African Community EAC), Southern African Development Community, and Common Market for Eastern and Southern Africa.
These regional groupings have established their own exclusive trade agreements, in order to give their participant countries preference in trade, in comparison to non-regional economic community member states.
Unfortunately, the RECs have failed to grow trade as originally envisioned, due to the poor nature of the procedures and rules that characterise their respective trade deals.
They have set rules and formalities which do not encourage trade because African countries have no capacity to fulfil them. Considering that small and medium scale enterprises (SMEs) are still a common feature of African economies, the trade deals have failed to establish rules which they can easily fulfil.
For instance, maize exports within the EAC are held to standards, which are higher than international benchmarks for moisture content and pesticide residues, among others.
Within EAC, maize exports can be rejected even on the grounds of discolouration, which is not necessarily a threat to health. That means tinted or yellowish white maize from small scale farmers, who use the sun and other manual techniques for drying their produce, cannot be exported regionally.
Additionally, the documentary requirements for SME and informal trade exporters are mostly similar to those required of established companies.
This impedes trade because large and well-financed companies are limited in Africa due to limited investment flows and weak consumer demand.
Moreover, the eight regional economic communities in Africa have rules and terms, which are not in harmony with each other. Perhaps more tragic is the fact that, the African Continental Free Trade Area (AFCFTA), which aims to be create preferential trade terms among all 55 African countries, will not lead to the harmonisation of trade rules among the eight communities.
Rather, AFCFTA has been designed such that it works alongside the fragmented the eight, in a manner where it will introduce its own rules, some of which may even be divergent from the existing communities.
This has the potential to make the administration of intra-African trade complex whilst curtailing its development.
Non-tariff barriers (NTBs) have already been included in some of the paragraphs above. However, since they are a really broad area, their impact on curtailing trade cannot be over emphasised (is critical).
Sometimes, they are inter-connected with other barriers to trade, which are not exclusively NTBs. Health measures, which govern food and agricultural trade, are of particular concern.
That is because they can be set at standards, which go beyond the protection of consumer health, and therefore, end up as a barrier to trade through setting measures (standards), which are difficult to fulfil.
Rules of Origins, which comprise procedures to authenticate that exports actually originated from their claimed source-country, can also be non-tariff barriers to trade, especially if they are complex and difficult to fulfil.
The limitation of customs (border compliance) infrastructure, such as manual, computer or human resources, can also delay or impede the movement of trade.
Africa is known for high non-tariff barriers. These make it hard for the local population to utilise regional export opportunities, which they could have ultimately expanded into international exports, through experience.
Case studies
On a global level, the market value of cocoa beans produced by farmers was estimated at US$9 billion in 2016. On the other hand, products produced from the beans, such as chocolate alone, for example, registered sales of as much as US$112 billion, in the same year.
Cocoa is mainly produced by West African small holder farmers, who account for over 75% of the world's production. However, Africa is mostly responsible for cocoa bean exports, which are a raw material in value chains.
Africa also exports limited amounts of cocoa paste, low-value intermediate good and much more limited end-products, such as chocolate.
Exports of cocoa and related products from Africa to the rest of the world were worth only US$7,8 billion, per year, between 2015-2017. Yet Africa, as a continent, is a net importer of chocolate, the refined product derived from cocoa beans.
Among the key limitations to the development of this value chain in Africa is the capital-intensive nature of processing, which demands large investments and relies heavily on economies of scale to remain competitive.
Growth is also constrained by the relatively low demand for refined cocoa-based products within the continent, especially when compared to developed and emerging markets.
In addition, weak infrastructure and logistical systems increase the cost of moving products, making it difficult to deliver them to markets on time and at reasonable prices.
The bottom line is, for as long as Africa's industrial and trade policies are not fit-for-purpose, the continent will continue to reap little benefit from such strategic crops of continental significance.
The cocoa-chocolate value chain still faces tariffs of between 5-25%, within Africa, whilst there has not been considerable mobilisation of investments to capacitate the continent to become a net exporter of processed cocoa-based products, to the rest of the world.
The cotton-clothing value chain has some unique advantages for nations, which control it. It is labour intensive, accommodates considerable amounts of unskilled labour and can be used as a basis for migrating into more sophisticated manufacturing industries, for developing economies.
This is above its contribution to economic growth and contributions to government revenues, through taxes. At the “Summit on Food Security in Africa”, of 2007, in Abuja, cotton was recognised as one of the continent's strategic crops.
Its global significance is reflected in that it accounts for around 30% of worlds textile fibre consumption. As of 2019, 70% of cotton exports from Africa were made up of primary intermediate goods, with only 12% and 18% comprising yarn and cotton fabrics, respectively.
Whereas, cotton imports destined for Africa comprised only 12% primary intermediate goods, 16% yarn, and as much as 72% cotton fabrics.
That means, the continent is a net-exporter of primary intermediate goods but has a consistent trade deficit (is a net importer) in yarn and cotton fabrics.
Africa has failed to organise and integrate cotton value chains, so that it exports significant amounts of cotton-based fabrics.
Around 75% of Africa's tea exports are destined to the rest of the world, whilst the majority of its tea imports are not sourced domestically.
This signifies disjointed trade.
Intra-African exports of strategic products such as tobacco (including cigarettes), meats and beverages, remain subject to prohibitive tariffs, which are set at over 20%-50%, by most regional countries.
As of 2016, the 20 products with the highest import value in Africa, such as; refined petroleum (US$47 billion, per year), cars (US$8,4 billion), packaged medicaments (US$7 billion), parts of motor vehicles (US$5,6 billion) and crude petroleum (US$4,9 billion), were mostly imported from beyond the continent.
Tutani is a political economy analyst. — [email protected].
