Consider this: it’s cheaper for exporters to ship goods from Dar Es-Salaam to China – some 9,400km away – than to Kampala, a 10th of the distance.
Or this: many African countries are net importers of commodities from overseas – even though their neighbours are major producers of them. Kenya and Nigeria, for example, import the bulk of their sugar from overseas, rather than importing from regional producers in South Africa and Swaziland.
It’s not hard to get a sense of the structural flaws afflicting Africa’s economy.
For Edward George, commodities and trade specialist at Ecobank, the roots of the problem have a long history. “The real problem is the way that Africa was set up,” he says. “Its infrastructure was developed just to get stuff out of the ground, send it to the coast and ship it out.”
The lack of highways and railways linking neigh-bouring countries is an extraordinary impediment to intra-regional trade.
The practicalities of addressing this shortfall requires cooperation between private and public sectors – another channel that is under-developed in many African nations.
Regional politics, bureaucracy and regulations are also part of the mix.
“Yes, transport infrastructure is needed. But if you look at the time goods take to get from ‘A’ to ‘B’ in Africa, a lot of that is spent just sitting at the border,” says Paul Collier, a professor of economics at Oxford University and director of the Centre for the Study of African Economies.
“These policy impediments are the more severe obstacle: delays at the border, quantity restrictions, corruption, tariffs. Those are the things that need to be removed, and their removal needs to be linked to improved market access.”
Efforts to promote regional trade in Africa have been on the agenda for decades, with little tangible progress to show for it. But recent developments suggest that genuine progress towards a meaningful pan-African free trade zone may finally be imminent.
The leaders of 26 African nations gathered in Johannesburg in June to begin the negotiation process for a proposed Tripartite Free Trade Area (T-FTA). This would involve the unification of three of the continent’s largest trade zones – COMESA (the Common Market for East and Southern Africa, but which also includes parts of north Africa), EAC (the East African Community) and SADC (the South African Development Community).
This would enable the tariff-free movement of goods and services across 26 countries stretching from Cairo to Cape Town, with a combined GDP of $1 trillion, encompassing 600 million people.
While the timeframe is vague – the negotiation period is expected to last three years, with provisional expectations for the establishment of a free trade area by 2017 and a common market by 2023 – many experts believe that conditions to realize such an ambitious proposal may finally be in place.
“Since the financial crisis there is a new dynamism and energy in Africa. People want to harness the moment and this momentum,” says Mthuli Ncube, chief economist at the African Development Bank.
Roger Nord, senior adviser to the African Department at the IMF, says: “The political will is there at the highest level and that’s already a big step. But on the ground there are a lot of things that still need to be done to be able to make that possible.”
How to do this goes beyond simple practical measures, however. Ncube, for example, has called for the prioritization of one-stop border posts to speed up the flow of goods across borders and to simplify the bureaucracy. But is that the answer or is the problem not just the practicalities of frontier crossing but the national psyches and angsts of the participants?
Collier believes that any solution runs deeper than specific measures. African governments have to be convinced of the practical advantages of closer integration, and to overcome long-standing fears that dismantling barriers could lead to the flooding of their markets with goods and labour.
“There needs to be a greater appreciation that the downside is much less than most African states fear,” he says. “What’s been the block over the last 50 years is an exaggeration of the losers relative to the gainers.
“The typical perception is that if African countries liberalize with each other, everything gets concentrated in a few lucky winners. Actually it’s the opposite: there are a handful of unlucky losers, but nearly everybody gains.”
THE PACE OF CHANGE
Given all of these obstacles, some have questioned whether such an ambitious free trade scheme can be effective, and whether African governments can be persuaded to provide the infrastructure to facilitate greater regional trade.
“To convince them that it would be economically advantageous, that’s the difficult thing, because also it will cost a lot of money to set up the properinfrastructure for Africa to connect itself together,” says George.
For some, the T-FTA is trying to do too much too soon.
The sentiment is right, says Collier, but attempting to incorporate African countries under one body in one go, with their unique languages, tribal affiliations and regional concerns is an endeavour that runs the risk of being a victim of its own well-meaning optimism.
Instead, he believes that it makes sense to fine-tune the workings of each of the existing communities and address their shortcomings first before merging into a larger whole.
“If you think of how Europe integrated: first, you had a group of six, and then another group of seven. And then the six gradually got bigger and has now moved to 27 – it’s been an incremental process,” Collier says. “Start with what you’ve got, make those things work, and then others will want to join.”
And even if progress is made towards such an ambitious free trade area, others question whether intra-regional trade can ever play anything other than a secondary role in terms of the continent’s overall trade flows. “Intra-regional trade will definitely grow, but to expect it to begin to overtake trade with the rest of the world – frankly this is too optimistic,” says Ncube.
Instead, he believes that, in the short to medium term, the priority for African governments should be to negotiate more favourable terms in their trade and investment relationships with external partners.
“Governments need to negotiate better for these scarce resources and make sure they get a good deal out of it, because once you’ve mined it out of the ground you never get it back,” he says.
DIVERSIFICATION
Nevertheless, while doubts remain about the scope to increase internal African trade, experts agree that rather than viewing efforts to boost regional trade as in some ways separate from Africa’s trade and investment links with external partners, both trends in fact should be seen as part of the continent’s increasing moves to diversify and integrate more fully into global value chains.
“I wouldn’t see regional integration efforts as turning inward, rather as another step in the direction of trying to create stronger domestic and regional economies as a basis for global integration,” says Nord. “Closer regional economic integration is tied to successful global economic integration and needs to be seen in that light.”
The abolition of tariffs, construction of infrastructure aimed at boosting cross-border trade and easing of labour restrictions should reduce costs, enhance productivity and encourage the development of more complete and coherent supply and production chains in Africa.
“African economies are not sufficiently diversified, and manufacturing sectors are weak, so they’re not producing products that are demanded within the region itself, which then results in these goods being imported from outside Africa,” says Ncube.
Enlarging Africa’s manufacturing presents opportunities at a time when rising prices are beginning to undermine the cost advantage that enabled east Asian economies to dominate global manufacturing for the past decades. It potentially provides a long-term basis for more equitable trade relationships with external partners.
In part this can be seen to be happening already. According to the African Development Bank, the continent’s trade with emerging partners in Latin America, Asia and the Middle East has doubled in nominal value over the past decade, and now accounts for 37% of the continent’s total exports, while China has overtaken the US to become Africa’s biggest trading partner.
FDI numbers are hazier, but African nations have seen significant investment from emerging partners in recent years; according to the US think-tank The Heritage Foundation’s China Global Investment Tracker, sub-Saharan Africa accounted for 14% of overall Chinese investment between 2005 and 2010.
Despite this, most African economies remain disproportionately reliant on overseas commodity exports; trade with other African countries accounted for just 12% of the region’s total trade in 2010, and this share has remained flat over the past decade.
Sub-Saharan Africa has enjoyed unprecedented economic growth over the past decade, emerging relatively unscathed from the recent global downturn and with its governments largely free from the crippling debts that have held back the continent’s development in decades past.
International lenders, including the World Bank, the IMF and the African Development Bank, all predict 5%-plus growth for sub-Saharan Africa this year, and similar rates in 2012.
ZOOMING OUT
Yet for all the talk of vigorous economic growth and Africa’s south-south trade miracle, the gathering global economic storm clouds are a timely reminder that Africa’s economic fortunes remain heavily dependent on the whims of the global economy.
But there are interesting trends within the global economy that might be advantageous. “Potentially over the next decade manufacturing in China will start to go offshore, and Africa can capture some of that,” says Collier.
“It depends on infrastructure and indeed the ability to get these specialized clusters that can trade cheaply with each other. So African regional integration would benefit from the process of Africa breaking into global markets. It’s not an either/or: they’re complementary.”
He says this trend could address the missing piece in the Africa growth story: job creation. “The big failure of African economies has been in respect to labour markets. There are not enough jobs for young people, so if you could get an offshoring of Chinese manufacturing jobs, that would help enormously and tighten African labour markets.”
Furthermore, with African commodity producers benefitting from strong demand and prices, he believes it is vital to encourage action while countries are operating from a position of relative fiscal and financial strength, otherwise, much-needed reforms are likely to be delayed or shelved.
“Liberalizing trade during boom times is relatively easy politically, and that’s what we’ve got across Africa, we’ve got boom times,” Collier says. “Now is the right time to bite the bullet.”
Likewise, progress on regional trade is bound up with governments’ efforts to diversify their economies away from commodity production.
“Being dependent on commodity exports might be fine when prices are high and demand is booming but can be difficult during downturns. This price volatility is a challenge,” says Nord, “so diversifying away from that is an economic objective for many, and regional trade is an obvious avenue to pursue.”