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Standard Bank Africa Unlocked conference highlights what the continent needs to reap the rewards of its own industry
The African Continental Free Trade Area (AfCFTA) is the world’s largest free trade bloc. It opens access to potential markets of about 1.3-billion people and an estimated combined GDP of $3.4-trillion.
Still, intra-African trade lags far behind other global trading blocs, said experts during a panel discussion at the recent Standard Bank Africa Unlocked conference in Cape Town.
Panellists included economics professor Haroon Bhorat, the University of Cape Town’s Development Policy Research Unit director; Wesgro CEO Wrenelle Stander; and group senior executive for Strategic Trade at Aspen Pharmacare Holdings, Stavros Nicolaou.
Intra-African trade, at 16%, lags far behind other global trading blocs
Discussing the introduction of the AfCFTA Agreement at the conference, the panel members said in contrast to intra-Africa trade, which accounted for about 16% of Africa’s total exports, levels of bloc trading had reached 55% in Asia, 49% in North America, and 63% in countries in the European Union.
Given these statistics, it was highlighted that the AfCFTA Agreement should be leveraged to position African products more relevantly across global and intra-African markets.
A significant factor delaying this progress is Africa’s failure to become economically complex by using its available products to develop products that can open opportunities in new fields. The principle of economic complexity, mastered in developed countries, has enabled countries such as the US to create and export products based on oil for more than a century.
Nigeria, which also has access to oil, has not taken the step into complexity. As a result, the country is importing petroleum jelly; a product that could easily be locally produced. The same problem exists in many African markets where, for decades, beneficiation of raw materials has not occurred.
Covid-19 has been another limiting factor for African trade, and the continent is still recovering from the pandemic’s impact, while many parts still grapple with the economic damage it inflicted. At the same time, Africa still suffers the effects of having to shoulder a disproportionate disease burden compared to other continents.
Despite the disease burden, the continent still imports most of its healthcare supplies, and its trade deficit continues to increase. Rectifying this situation and providing for a more significant portion of its own healthcare requirements would greatly support the continent in its effort to become “healthier” at a lower cost, saving precious foreign currency and promoting competitive growth through intra-African and global trade.
The panel affirmed that three conditions must be present for trade to improve welfare levels and fulfil the mission of leveraging intra-African and global trade to reduce poverty and increase employment among participating nations.
The first of these is financial development. When domestic private credit extension as a share of GDP reaches 18%, trade begins to reduce poverty. Education is the second factor. A better-educated labour force translates into enhanced capabilities and productivity.
The third factor is governance. Though trade oils the machinery of growth, research has shown that in countries with higher levels of sound governance in all sectors of society, trade is far more effective at reducing poverty.
In practical terms, promoting intra-African trade and global exports of African goods means connecting buyers and sellers so that markets can be explored, and products and services can be evaluated and adopted.
Pooling procurement can help simultaneously realise the promise of African industry and lessen the continent’s reliance on imports
In African countries, more attention must be paid to forming strong local and international links and taking the necessary steps to ensure that all potential importers and exporters are fully aware of regulations, legislation and other important factors impacting potential partners.
The AfCFTA Agreement presents its signatories with an opportunity to aggregate volumes across the continent and leverage Africa’s power. Pooling procurement can help simultaneously realise the promise of African industry and lessen the continent’s reliance on imports.
This should be accompanied by a review of the incentives offered to industry by countries such as India, which include investment opportunities in different economic zones, soft trade loans and subsidised land, water and electricity, as well as tax breaks. If similar benefits could be introduced across Africa, the continent’s trade development would likely increase.
Though African countries may not be able to offer the same depth of incentives that a country such as India can, a start could be made through the removal of tariffs to help close the gap. The African tradition of exporting raw materials and then importing products containing these same materials at massively increased prices is counterintuitive.
The concept of “trading as one” may require adjustments across the continent, but as AfCFTA matures, there is no doubt that the present concerns about intra-African trading and its potential impact on local businesses in participating countries will dissipate as the promises of growth and prosperity are realised.
This article was sponsored by Standard Bank.