One leap forward for trade in Africa

BY OLUKAYODE OYELEYE.

REGIONAL INTEGRATION and economic cooperation in Africa have inched forward a little in the past couple of years with more emphasis on activities that tend to promote commerce. That is not yet the best story that could emanate from Africa as the world economy grows in leaps and bounds but mostly from elsewhere in Europe, Asia, North America, Oceania and the Middle East. A big leap for the continent’s economy could come anytime soon if some things are done right. We are now aware of a continental trade platform that became operational in the past one year and a half. The impact is yet to be felt as a number of issues are yet to be resolved in attempts to facilitate its operations. Harmonising the legal systems of 54 countries to facilitate economic cooperation and commercial activities between the various countries will require far more time, a great deal of plans, more complex domestic legal reforms within countries and a lot of sensitisation for any significant progress to be made. And Africa desperately needs to make economic progress.

Turning the narratives on African economic prosperity around within a short time will require much innovations and disruptive thinking. Those who posited that Africa’s economy can receive a big boost through trade are right. But what they need to add is how to make such trade truly rewarding, attractive, easy, operational and sustainable. One of such is by facilitating financial transactions in the exchange of goods and services through seamless payment. The solution to the challenge of boosting intra-African trade can indeed come from within Africa. Many things provide the basis and reason why this is both an imperative and a possibility. Africa can very well exceed its present level of economic performance if the right things are done. In an increasingly affluent world, Africa can no longer afford to account for what the World Bank estimated at just three percent of global trade in goods and services, a situation that has been partly responsible for holding back Africa’s development.

Although there was a 0.1 percent drop in global merchandise trade volume in 2019 to an estimated $18.89 trillion, compared with 2.9 percent growth in 2018, the intra-African trade in 2019 was valued at $69 billion. Even then, comparative data for the preceding year 2018 only depended on data from 35 of the 55 African countries. In other words, currently available Africa’s trade data could at best be treated as guesstimates rather than true representative of the market realities. In 2019, Intra-Africa trade reportedly accounted for 15 percent of Africa’s total trade, the same as for 2018. It was given as 16 percent in 2019 by another estimate. The percentage of world trade from Africa may or may not have been underestimated. As pointed out by one analyst in a Brookings publication, African trade is widely perceived as low compared to other regions of the world, an opinion that was described as probably faulty. With enough and reliable information and statistical data, therefore, it is possible that both intra-African trade and trade between Africa and the world are much bigger than are often reported.

While China, since its accession in 2001, has climbed on the ladder of the World Trade Organisation (WTO) to become the world’s leading trading nation, the African continent of about the same present population of 1.31 billion still struggles to even scratch the surface in attempts to benefit from the WTO. Africa’s nominal GDP as at 2019 was valued at $2.6 trillion and the purchasing power parity (PPP) at $6.7 trillion same year. It is understandable that China is a single country while Africa is made up of 54 countries operating 54 different laws and different systems of governments, which obviously place a lot of impediments on a continental cohesion in trade matters. The last straw that broke the WTO’s Doha Development Agenda was applied in the Nairobi meeting some time ago where it was discontinued after over a decade of fruitless discussions in vain attempts to create what was considered favourable opportunities for developing countries to trade on the WTO platform. It is hoped that the “Geneva Package” arising from the discussions at the WTO’s 12th Ministerial Conference a few weeks ago in Geneva would truly and satisfactorily address the developing world’s most pressing trade concerns and issues in the multilateral trading system as well as give birth to a living posthumous progeny of a moribund Doha Development Agenda, and not another stillborn.

For Africa, it is pointless belonging to a multilateral trading platform that does not deliver obvious or tangible benefits for nearly three decades. China’s accession to the WTO has helped both the Chinese and the world economy, resulting in astounding growth of exports, and a reduction in tariffs both on imports into China and tariffs placed on Chinese products for export. A burgeoning export market, a greater trade liberalisation and a regime of loose investment restrictions led to growth in Chinese capital and gave more power to private interests, forcing the Chinese Communist Party-led regime to make international trade law more transparent and even. The WTO accession gave China better market access to its 152 WTO trade partners, and the greater foreign market access created a surge in the export of Chinese products such that, from 2002 to 2007, net exports as a share of GDP in China increased from 2.6 per cent to 7.7 percent. By 2010, China’s current account balance was $305 billion, in part due to China’s boost in exports primarily from inexpensive labour-intensive manufactured goods. But within the same period of China’s export-led and manufacturing-based economic boom, with WTO’s boost, Africa was going through a period of de-industrialisation, with manufacturing industry experiencing severe blows as the cost of labour rose, making trade and export of manufactured goods from Africa uncompetitive and less cost-effective. Even as many developed and developing countries experience structural transformation from predominantly manufacturing-led economies to service industry-led, Africa is yet to transform from commodity-led economies which depend predominantly on raw, unprocessed natural products from extractive industries.

The challenges faced by African countries in achieving their trade growth and development goals are many and legendary. It has been reported that 33 of the 49 least-developed countries (LDCs) are in Africa, many of which are landlocked and resource-rich but post-conflict states, while others are small states. Their small sizes and other socio-economic challenges are considered the justifications for the increased emphasis on regional economic groupings to enhance the size of their domestic markets. Africa’s export trade has been growing, though mostly as that involves raw materials and natural resources. Services trade has also grown, albeit in a subdued mode. There is no doubt that the potential for Africa’s trade relations with other developing countries to contribute to Africa’s growth is tremendous, as some African countries are members of the G33 and there have been increased duty-free and quota-free (DFQF) market-access opportunities granted from both developed and developing countries, particularly India and China. The African Continental Free Trade Area (AfCFTA) that became operational a year and a half ago is expected to overcome the various lingering hurdles, including non-tariff barriers and rules of origin, which have been preventing trade and investment opportunities from translating into meaningful benefits. Africa can therefore be expected to become notable players in the international markets and global supply chains.

With AfCFTA, a lot will have to be done to facilitate intra-African trade and much of these will have to come from state actors while many will have to emanate from non-state actors. Enactment and enforcement of sound and reliable legal instruments, stable macroeconomic framework and provision of critical infrastructure – such as energy, telecommunications and effective transport corridors – belong to the domain of the public sector while innovation, entrepreneurship, domestic resource mobilisation and collaboration efforts remain within the ambit of private sector operators. The size of the African market appears to be getting clearer to warrant greater attention. According to the United Nations Conference on Trade and Development (UNCTAD), Africa has a big domestic market that possesses significant opportunities. By UNCTAD’s reckoning, currently, Africa accounts for 2.9 percent of the world production and 2.6 percent of the world trade even though 16.3 percent of the world population is living on the continent, but the percentage could realistically be higher. The UN agency observed that there are significant economic development gaps both between African and developed countries as well as among African countries, adding that poverty is still widespread in Africa where 32 out of 48 Least-Developed Countries (LDCs) are located. It stated that, although intra-African trade has increased in recent years to 15.4 per cent, Asia and Europe are still the main trade partners of the continent. Moreover, UNCTAD pointed out that high dependence on trade in primary goods, high product and market concentration of exports, and weak regional production networks are among the main challenges of African countries.

Among other notable economic predicaments of Africa are the low performances in trade facilitation as many African countries score low in e-commerce, linear shipping connectivity, doing business indicators and challenges of small, fractured and partly isolated markets. But it is surprising that, in spite of the low level of development in both intra-African trade and trade between Africa and the world, some political and economic frameworks and institutions in existence for over half a century within the continent are yet to be capable of boosting Africa’s relevance presently and lifting Africa from the prevalent economic quagmire. For instance, Africa is no stranger to Customs Unions. The continent, to date, has six customs unions, although not all of them are fully operational. They include the Economic Community of West African States (ECOWAS), the East African Community (EAC), the West African Economic and Monetary Union (WAEMU), the Economic and Monetary Community of Central Africa (CEMAC), the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Customs Union (SACU). Of all these six, SACU is considered the world’s oldest customs union. To what extent have these customs unions been utilised as trade blocs composed of free trade areas with common external tariffs and effective trade pacts where the participant countries set up common external trade policies? How far have they gone in inter-regional cooperation and collaboration over the years?

Intra-African trade still remains fragmented and individualistic with some form of economic introversion within countries. These are evident even within the regional economic blocs. Within the ECOWAS, for instance, WAEMU operates with its own distinct rules and common currency involving a select number of countries with the same colonial histories and continued policy of assimilation that tend to keep them closer to each other and to their former colonist country. Thus the CFA Franc has been a unifying force within the members of WAEMU – also known under the French acronym, UEMOA, in Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo. It has been operating as a separate monetary union within the ECOWAS for a long while, with its regional Central Bank, known in French as Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO) or the Central Bank of West African States, headquartered in Dakar, Senegal. Its Central African counterpart, the Bank of Central African States or Banque des États de l’Afrique Centrale (BEAC), headquartered in Yaoundé, Cameroon, is the central bank serving CEMAC, composed of six country members, Cameroon, the Central African Republic, Chad, Equatorial Guinea, Gabon, and the Republic of the Congo. But the ECOWAS regional monetary union currency, the ECO that was contemplated since 2000, was almost hijacked by the WAEMU, a situation that would have meant that the ECO would have been pegged to the Euro as has been done in the case of the CFA since the 1940s, when it was earlier pegged to the French franc and later to the Euro since 1999. These are not without their economic costs.

Until recently, the CFA countries deposited no less than 50 per cent of their reserves in the French Treasury in exchange for a convertibility guarantee. Although this convertibility has been guaranteed within the CFA zones, the same cannot be said between them and all other countries. It, however, serves to stabilise their own regional currencies, serving as a benchmark in their trade relations among themselves and between them and other countries. On a continental scale, the idea of a customs union appears to be looming on the horizon. With the AfCFTA, a first major initiative has been taken towards establishing a Customs Union as it is expected to facilitate uniform import duties on all goods produced, exported, and imported within African countries. Financial intermediation would be made a lot easier all over the continent when the convertibility hurdle is effectively scaled. This is also expected to boost trade and economies of all countries within the continent. The Pan-African Payment and Settlement System (PAPSS), a centralised Financial Market Infrastructure developed by African Export-Import Bank (Afreximbank), that enables the efficient flow of money securely across African borders, minimising risk and contributing to financial integration across the regions, is expected to boost intra-African trade by transforming and facilitating payments. PAPSS, according to AfreximBank, is expected to serve as a continent-wide platform for the processing, clearing and settling of intra-African trade and commerce payments. When this comes on stream, the story about African trade within and with external trading partners is expected to change for the better and the economy of the continent is expected to begin to experience an unprecedented boom. It is possible. Africa must now begin to capture its own share of the global and intra-regional trade.