Low trade among African countries a worrying signal
What you need to know:
- The report, released last week, shows that only five countries in Africa are trading within the continent where progress in governance has been threatened by worsening security, democratic backsliding, the Covid-19 pandemic, and being held hostage by deteriorating security and shrinking participatory environment.
Even as three major regional blocs in Africa urge Tanzania, South Sudan and the Democratic Republic of Congo to sign up a trade agreement that will expand their reach, a new report warns trade amongst African nations still remain the lowest globally with a paltry five countries out of 55 carrying out their trade within the continent.
This is despite the implementation of the 1.2 billion-strong market under the continental free trade area (AfCFTA) in January 2021.
Latest Mo Ibrahim Index report (2022) on African governance shows that the government’s wavering commitments to open up the continent through improved transport network infrastructure and reduced restrictions to free movement of persons and labour have adversely affected intra-African trade, which stands at less than 13 percent.
This compares unfavourably with Europe, Asia and the Americas whose intra-continental trade stands at 66.9 percent, 63.8 percent and 44.4 percent respectively.
The report, released last week, shows that only five countries in Africa are trading within the continent where progress in governance has been threatened by worsening security, democratic backsliding, the Covid-19 pandemic, and being held hostage by deteriorating security and shrinking participatory environment.
The report notes that despite government efforts to promote regional integration and a relaxation of visa regulations for travel among African countries intra-regional trade has still declined at an accelerating pace since 2012.
“Intra-continental trade remains the lowest of any world region. The dependence on external markets leaves the continent highly exposed to crises and shocks in other parts of the world, as showcased by the impact of Covid-19 and the ongoing Russia-Ukraine war,” says report.
The AfCFTA, launched in January 2021, commits signatories to removing tariffs on 90 percent of goods for other signatories, to progressively liberalise trade in services and address other non-tariff barriers.
“By lowering these barriers, the hope is that intra-regional trade will increase, and both spur economic transformation and increase resilience to shocks,” says report.
All African countries except Eritrea are signatories, and 44 countries out of 55 had ratified the agreement as of October 2022.
Countries yet to deposit instrument of AfCFTA ratification include Benin, Botswana, Comoros, Liberia, Libya, Mozambique, Madagascar, Somalia, South Sudan, and Sudan.
Boost intra-African trade
According to the United Nations Economic Commission for Africa (UNECA), the AfCFTA could boost intra-African trade by around 40 percent.
According to the Mo Ibrahim index report, AfCFTA is work-in-progress and that intra-continental transport remains key to its success.
According to the report, intra-regional trade has declined at an accelerating pace since 2012.
In 33 African countries, intra-African trade has declined as a share of the total trade since 2012 while in 41 African countries, intra-African trade still accounted for less than a quarter of the total in 2021.
The report notes that the AfCFTA is still a work in progress and must be accompanied by progress in other initiatives such as the Protocol on the Free Movement of Persons and the Single African Air Transport Market.
“Projects under the Programme for Infrastructure Development in Africa, designed to establish transnational transport corridors and telecommunications networks, must be completed,” says report.
“Without the relevant infrastructure to ease movement within the continent, intra-regional trade will continue to be costly and inaccessible, regardless of tariff reductions. The success of related digital platforms will also be instrumental in building intra-African supply chains.”
In 41 African countries intra-African trade was still less than a quarter of total trade in 2021.
According to the report the Economic Community of West African States (Ecowas) leads the way in Regional Integration due to government efforts and open visa regimes.
However, from a trade integration perspective, the Southern African Development Community’s (SADC) share of intra-African trade is over twice that of Ecowas.
Last year, a study by UNECA on selected African countries showed that things are not working on the ground after the AfCFTA came into effect on January 1, 2021.
The survey conducted in seven countries — Angola, Côte d’Ivoire, Gabon, Kenya, Namibia, Nigeria and South Africa — shows that firms have a neutral to slightly negative overall perception of the environment for investing and trading in goods across Africa.
The AfCFTA Country Business Index survey, launched in 2018, showed that the private sector has a negative perception of trade in goods, suggesting that more work needs to be done to remove tariff and non-tariff barriers.
AfCFTA, which brings together 55 countries with a combined GDP of $3 trillion, was signed in Kigali, Rwanda, on March 21, 2018.
Under the agreement, 90 percent of goods originating from an exporting country within the free trade area would be subject to preferential treatment (zero import tariffs), with projections that the pact could boost intra-Africa trade by 33 percent.
Meanwhile, a trade agreement combining the markets in three major regional blocs in Africa could be up and running once Tanzania, South Sudan and the DR Congo sign up.
The Tripartite Free Trade Area (TFTA) agreement involves members of the East African Community (EAC), the Southern Africa Development Cooperation (SADC) and the Common Market for Eastern and Southern Africa (Comesa).
These blocs had negotiated a pact that will allow countries uniform tariffs on imports and exports within the sphere of the blocs, providing certainty on trade among 29 countries in the three blocs.
“Of the 29 member states, we need a minimum of 14 for the agreement to come into effect. So, we need three more to reach the threshold,” said Dr Christopher Onyango, Director of Trade and Customs at Comesa Secretariat.
“Out of those that have not ratified within the EAC are Tanzania, the DR Congo and South Sudan which are at an advanced stage of ratification.
Other countries whose ratification is still pending include Malawi, Lesotho and Comoros from the South and even Ethiopia from the North,” said Dr Onyango.
So far, 22 countries have signed the agreement while eleven member states namely Egypt, Uganda, Kenya, South Africa, Botswana, Burundi, Rwanda, Namibia, eSwatini, Zambia and Zimbabwe have ratified it.
This week, trade experts from 17 countries under the Comesa-EAC-SADC Tripartite Agreement met in Nairobi, to pore over gaps in the TTNF.
They met to review progress made on various focus areas needed to make the TFTA operational and urged the three eastern countries to agree on tariff offers to operationalise the agreement.
It provides a framework for addressing multiplicity of memberships to various RECs, which is a challenge in regional integration.
For instance, the Southern Africa Customs Union (SACU) and EAC Customs Unions have exchanged tariff offers that average 90 percent of their tariff books to be liberalised immediately.
The SACU consists of Botswana, Lesotho, Namibia, South Africa, and Swaziland.
Dr Onyango said the purpose of negotiating tariff offers across the three regional trading blocs was to ease trade among the 29 countries.
Principal Secretary in Kenya’s State Department for Trade Mr Alfred K’Ombudo said the agreement should kick off immediately.