SENIOR officials of three African economic blocs are finalising talks on a trade “super bloc” that would forge a common market spanning the continent from the Cape to Cairo.
The Tripartite Free Trade Area (TFTA), which brings together the East African Community (EAC), Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA) is to be launched at a summit of heads of state and government on Wednesday, aimed at establishing a common framework for tariff preferences along with other commitments.
The “Cape to Cairo” trade pact creates a 26-country market with a population of 625 million and gross domestic product worth more than $1 trillion.
“The deal essentially will facilitate free movement of goods across the 26 member countries without duties,” Peter Kiguta, director general of East African Community (EAC), told AFP. Officials say the trade pact was almost finalised apart from some outstanding issues that were being discussed.
The TFTA has been widely welcomed by African and world business leaders, in a region where only 12% of total trade on the continent is among African countries. By comparison, intra-regional trade is 21% in South America, 50% in Asia, and 70% in Western Europe.
Governments like the pomp and flair of launching big regional trade blocs, but the trade pacts have been criticised for their ineffectiveness and dissociation with the reality on the ground.
In most cases, there’s a big mismatch between political ambitions, and the economic realities that African countries face. Case in point: over the past five decades, no less than 14 regional trading blocs have been launched, but the share of intra-African trade has remained modest.
It’s often simply a structural issue; to use the cliche, Africa produces what it doesn’t consume, and consumes what it doesn’t produce.
Still, Africa’s trade story is a complex one, and sometimes depressing – but there is much optimism and many opportunities for growth.
Here are 10 facts about Africa’s trade with Africa that you probably didn’t know, mostly drawn from the Economic Development in Africa 2013 report by UN Conference on Trade and Development (UNCTAD):
1. In nominal terms, the level of intra-African trade was $32 billion in 2000 and $130 billion in 2011. It’s an impressive increase, but actually, most of it was driven by price increases, not larger volumes. While the value of intra- African trade rose by a factor of 4.1 from 2000 to 2011, in volume terms, it rose by only a factor of 1.7.
2. One of the main reasons Africa trades so little within itself is the multiplicity of national borders, which act as barriers to trade. With 54 countries, Africa has many small national markets. The GDP of 29 countries in Africa (more than half of the total) in 2012 was less than $10 billion. By contrast, that same year, 266 of the Fortune 500 companies had revenues that were higher than $10 billion.
3. Many countries in Africa like to protect their local markets and producers by imposing tariffs against imports from the region. On average, an African exporter selling goods outside the continent faces an average protection rate of 2.5%. However, if the same good is exported to an African market, the exporter faces an average applied protection rate of 8.7%.
4. The high protection rates are particularly sharp between sub-Sahara and North Africa, and they can go in wildly divergent routes. For example, on average, Ethiopian exports to Tunisia face a protection rate of 50.4% while a Tunisian exporter to Ethiopia faces a protection rate of 15%. But it’s the opposite for the Morocco-Nigeria relationship: a Nigerian exporting to Morocco faces an average protection rate of 17.6%, while Moroccan exports to Nigeria face an average protection rate of 65.7%.
5. Intra-African trade as a share of world trade is higher among non-fuel exporters (16.3% in 2007–2011) than among fuel exporters (5.7% in the same period). Major fuel exporters in Africa, such as Nigeria, Angola and Gabon, tend to be highly dependent on markets in Europe and North America for revenue, and consequently their intra-African share is very low.
6. But for those who don’t have large natural resource endowments, their exports tend to be more diversified, and some, like Kenya and Cote d’Ivoire have a relatively developed manufacturing sector. Between 2007 and 2011, nine countries in Africa (all non-fuel exporters) exported at least 40% of their goods to Africa: Benin, Djibouti, Kenya, Mali, Rwanda, Senegal, Togo, Uganda and Zimbabwe. The highest overall was Mali at 53.5%.
7. On the import side, 11 countries imported at least 40% of their goods from Africa in the period from 2007 to 2011, they all tend to be small, and/or landlocked: Botswana, Burkina Faso, the Democratic Republic of the Congo (DRC), Lesotho, Malawi, Mali, Rwanda, Sierra Leone, Swaziland, Zambia and Zimbabwe. The highest overall was Botswana, at a staggering 82.1% of its imports coming from the region.
8. South Africa is a real heavyweight on the African trade scene, a major source of imports for nearly every country in Africa. South Africa counted among the top five import destinations for 47 out of African 52 countries between 2007 and 2011. Only Burundi, Guinea- Bissau, Niger, Sudan and Tunisia did not count South Africa as a major import partner.
9. The export side is more diversified, but even here South Africa is a major player. 26 countries counted South Africa, and 13 countries counted Nigeria, among their five main export destinations. In addition, 12 countries counted Egypt and 6 countries counted Algeria among their five main export destinations. This indicates the critical role that Algeria, Egypt, Nigeria and South Africa could play in strengthening intra-regional trade in Africa, due to their economic might.
10. Agriculture is the sector in which Africa has surprisingly poor trade figures. Although it is the backbone of many economies in the region, it accounts for just a small fraction of official trans-border trade. Between 2007 and 2011, Africa imported only 15% of its food items from the rest of Africa.
11. African countries export a very narrow range of agricultural products to the continent. For example, only Benin and Botswana count meat among their top five exports to the rest of Africa. Burkina Faso, Djibouti, Ethiopia, Mali, the Niger, Rwanda and the Sudan are the only countries to count live animals among their top five intra-African exports. By the same measure, rice is exported only by Benin and Cape Verde; maize only by Malawi and vegetables only by Eritrea, Ethiopia, the Niger and Somalia.
12. Sugar was the number one product agricultural product traded in the African market, followed by molasses and honey, and fish in third place. Given the availability of arable land in Africa (up to 60% of the world’s unused arable land) and the import demand for food, there should be scope for broadening the range of agricultural goods produced and traded within Africa.
13. But the official trade figures fail to capture the booming informal trade in Africa, which is estimated to contribute 43% of the official GDP of the continent, thus being almost equivalent to the formal sector, according to data from the UN Economic Commission for Africa. Though data is scanty, informal cross-border trade in SADC is thought to amount to $17.6 billion per year, representing 30 to 40% of total intra-regional trade in SADC.
14. In the Horn of Africa, cross border trade in livestock through Ethiopia/Djibouti, South Sudan/north-western Kenya, and eastern Uganda/western Kenya is estimated to be worth $5million per year. In this region, exports of livestock to neighbouring countries in fact at times exceed official trade by a factor of 30 or more, hence making up over 95% of total trade in livestock.
15. One report from USAID estimates that each of the three million informal cross-border traders in West Africa conducts an annual average of $20,000 in transactions, amounting to an aggregate amount of four billion dollars. Overall informal exports to West Africa from Nigeria is estimated to be between $1.5 and $1.9 billion, and up to 15% of Nigeria’s imports enter Ghana informally, largely along the Benin–Nigeria border.
-Additional reporting by AFP