Regional trade across the globe is a complex interaction between people, companies and organisations. Supply chains traverse countries and regions. Trade has become an everyday business, and its performance largely depends on connectivity by roads, rail and sea, telecommunications, financial markets and information processing.
Despite such knowledge of what facilitates trade, Africa’s regional trade potential remains under-exploited. The World Bank notes that trade between countries on the continent represents 12 percent of the total economic activity compared to 40 percent in Asia and 60 per cent in Europe.
To bridge this gap, African nations instituted the African Continental Free Trade Area (AfCFTA) agreement on January 1, 2021. This marked the dawn of a new era in intra-regional trade facilitation.
The agreement aims to eliminate import tariffs on 97 percent of goods traded globally and address non-tariff barriers. It opens up a market of more than 1.3 billion people and is expected to boost intra-African trade while encouraging direct investment in the continent from the rest of the world.
While the agreement focuses on facilitating trade and services and easing the regulatory measures and technical trade barriers, a lot needs to be done. For Africa to boost intra-regional trade from the 12% reported by the World Bank to the target of 20 pecent, it needs to make significant changes in technology, infrastructure, and policy reforms. For one, boosting intra-African trade requires the continent to encourage more investment opportunities for product diversification. Currently, there exist narrow patterns of trade depending on primary products involved in low levels of inter-country trade.
Since most African countries mainly export raw materials to import finished products, there is little that the African countries are interested in importing from each other. There is a need for export diversification and product sophistication, which will allow for the inclusion of more small and medium-sized enterprises (SMEs), encouraging innovation as markets expand.
By improving the quality of exports for African countries, the continent will build resilience regarding movements in demand resulting from economic downturns in importing countries and price dips. This will go a long way in shifting African economies to produce higher-value-added products and services and reduce the existing over-dependence in global trade.
UNCTAD says Africa’s untapped export potential stands at $21.9 billion, equivalent to 43 percent of intra-African exports. UNCTAD adds that an additional $9.2 billion export potential can be achieved if Africa implements partial tariff liberalization under the AfCFTA over the next 5 years.
Currently, trade between African countries comprises 61% of processed and semi-processed goods. This suggests significant potential benefits from greater regional trade ideal for transformative and inclusive economic growth.
But perhaps infrastructure is the most effective solution that will make AfCFTA fly and open a world of opportunities in Africa. Harmonizing logistics in the continent is key to enhancing the efficiency of cross-border trade through seamless cargo movement.
On average, African countries rank between 1.77 and 3.43 out of 5 on the Logistics Performance Index. The index measures the ease, speed and simplicity of moving goods and services across countries. It also analyzes cross-border clearance processes, among other challenges hampering trade.
Time, infrastructure, and entry barriers are the biggest challenges which Africa logistics harmonization can help mitigate. Today, for East Africa to trade with West Africa is a cumbersome process that can best be handled by either air, which comes at a high cost, or sea, which comes with long waits for delivery.
— The writer is Group CEO & Managing Director, Siginon Group email@example.com