Intra-Africa trade hurdles: beyond politicsComment on this story
AMONG Africa’s policy wonks, underperforming trade across the continent within the region is a favoured subject.
To unravel the puzzle, they reel off facts and figures at conferences and workshops, pinpoint trade hurdles to overcome and point to the vast opportunities that lie ahead if only African countries could integrate their economies. It’s an interesting debate, but with little to show for it until now.
The problem is partly the mismatch between the high political ambitions African leaders hold and the harsh economic realities they face.
Case in point: they have set up no less than 14 trading blocs to pursue regional integration. Yet they had shown “a distinct reluctance to empower these institutions, citing loss of sovereignty and policy space as key concerns”, said Trudi Hartzenberg, the executive director at the Trade Law Centre (Tralac) for southern Africa, an organisation that trains people on trade issues. As a result of this reluctance, she said, “regional institutions remain weak, performing mainly administrative functions”.
Trade flourishes when countries produce what their trading partners want to buy. With a few exceptions, this is not yet the case with Africa. It produces what it doesn’t consume and consumes what it doesn’t produce.
It’s a weakness that often frustrates policymakers; it complicates regional integration and is a primary reason for the low intra-regional trade, which is between 10 percent and 12 percent of Africa’s total trade.
Comparable figures are 40 percent in North America and roughly 60 percent in western Europe. Over 80 percent of Africa’s exports are shipped overseas, mainly to the EU, China and the US. If you throw into the mix complex and often conflicting trade rules, cross-border restrictions and poor transport networks, it’s not surprising that the level of trade has barely moved the needle over the past few decades.
Not everybody agrees intra-Africa trade is that low. Some experts say a big chunk of trade is conducted informally and across porous borders. Most borders, they note, are poorly managed or informal trade statistics are simply not included in the official flows recorded by customs officials.
“We don’t have a way of capturing these types of activities because they’re informal,” Carlos Lopes, the head of the UN Economic Commission for Africa (ECA), said in an interview with Africa Renewal. The ECA, he added, was planning to plug this information gap with a more precise picture of economic activities in Africa and give economic planners a better data set with which to work.
To accelerate regional integration, the World Bank is advising African leaders to expand access to trade finance and reduce behind-the-border trade restrictions, such as excessive regulations and weak legal systems. Nevertheless, saddled with weak economies, small domestic markets and 16 landlocked countries, governments believe they can achieve economic integration by starting at the regional level and working their way up, merging the regional trading blocs into an African Free Trade Area.
But with 14 different trading blocs, critics say that’s just too many. Some blocs have overlapping members and many countries belong to multiple blocs.
Yet, the challenge is not simply the number of trading blocs, experts say, but their track record. Governments need to implement trade agreements. On this score, African countries performed poorly despite their strong political commitment to regional integration, Hartzenberg noted in her report, “Regional Integration in Africa”, published by the World Trade Organisation.
“In some cases, the challenge is that there may still not be a clear commitment to rules-based governance in African integration; [not] taking obligations that are undertaken in international agreements seriously,” Hartzenberg said in response to questions from Africa Renewal. “Some argue that [African governments] need policy space to address the development challenges they face – but this does appear inconsistent with the signing of many regional agreements.”
Lack of capacity to implement their obligations, she added, was also to blame.
The African Development Bank (AfDB) shares this view. Its analysis of regional integration and intra-African trade imputed slow progress to “a complex architecture of regional economic communities”. While this arrangement had yielded positive steps towards common regional targets, the bank said, “progress has been disappointing”.
Hartzenberg gave the example of the 15-member SADC, which launched a free trade area in 2008. Despite SADC’s decision to remove trade restrictions, she said, some countries had not eliminated tariffs as stipulated by the agreement. Worse still, in some cases countries that had removed the tariffs had since reinstated them.
“This can be argued to demonstrate a lack of political will to implement agreed obligations. It could well be that some member states recognise belatedly the implications of the agreement they have signed and no longer want to be bound by these obligations.”
Lack of progress in implementing agreements along with the absence of reliable transport, energy and information technology infrastructure make the journey towards regional integration long and arduous. “Road freight moves incredibly slowly, while major ports are choked for lack of capacity,” the AfDB said.
Even with the gains Africa was making in upgrading regional infrastructure, Ibrahim Mayaki, the head of the New Partnership for Africa’s Development (Nepad), the AU’s development arm, found that the continent still faced serious infrastructure shortcomings across all sectors, both in terms of access and quality. Nepad has just completed a 30-year plan that focuses on regional trans-border projects like the 4 500km highway from Algiers in Algeria to Lagos, Nigeria.
Africa requires huge investments to develop, upgrade and maintain its infrastructure. The AfDB estimates the region will need to spend an additional $40 billion (R427bn) a year on infrastructure to address not only current weaknesses, but also to keep pace with economic growth.
Many of the trade deals Africa signs with its partners ignore the continent’s efforts to promote intra-Africa trade, according to trade analysts.
Nick Dearden, a former director of the Jubilee Debt Campaign and now with global advocacy group World Development Movement, accuses the West of pushing for free trade models that benefit their interests, not Africa’s. He said many African countries were “locked into trade agreements, which keep them dependent on one or two commodities”.
Writing on his blog hosted by The Guardian, Dearden said the EU was trying to foist economic partnership agreements (EPAs) on African states. EPAs require EU trading partners to lower their tariffs on imports and exports reciprocally.
Dearden warned that EPAs thwarted Africa’s integration efforts and he instead advised African leaders to follow South Korea’s example of using a “range of government interventions” to boost trade. These include, among others, protecting industries, controlling food production and banking, and passing strong regulations to ensure people benefit from trade and investment.
Lopes makes the same point. He favours what he calls “sophisticated protectionism”, but cautions African leaders to “strike the right balance”.
He views sophisticated or smart protectionism not as a choice between state and market. His argument is that there cannot be industrialisation without some form of smart protectionism; and without industrialisation, Africa’s efforts to integrate its economies and increase intra-region trade are less likely to succeed.
Free trade enthusiasts, however, argue that protectionist policies could shrink the size of the global economy and leave everybody worse off.
There is much that African countries need to do to increase intra-regional trade. They need to increase investments in infrastructure. And they need to eliminate or significantly reduce non-tariff barriers that are major roadblocks. It will take much more than political commitments; it will require practical steps on the ground even if they come with costs.
This article is provided by the UN’s Africa Renewal features service.