Transforming Trade in Africa

For a continent as big and diverse as Africa, regional integration is a mammoth task. But the longer African nations delay it, the more slowly the continent will develop and intra-regional trade will fail to take off. While 60 per cent of the European Union’s trade is within the EU area, and 25 per cent of Asian trade is within Asia, the comparable figure for Africa is only around 10–12 per cent.

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For intra-regional trade to truly flourish, governments across Africa must create more ‘trade friendly’ regulation and reliable infrastructure(s). Regional economic integration, facilitating such trade across Africa, has made some significant contributions but the pace has been limited by notable challenges. For intra-regional trade to flourish, governments across Africa must create a more ‘trade friendly’ regulation and infrastructure, in particular:

Work together to create regional transport corridors. Currently, transport costs in Africa average about 11.4 per cent of the value of exports, compared to around 6.8 per cent for developed economies. Remove barriers to the mobility of labour. Today, Africans need visas to get into at least two-thirds of other Africa countries, exacerbating skills deficits. Enhancing and supporting regional technology infrastructure, such as the emergence of a digital trade settlement system called Bank Payments Obligation (BPO). Addressing unreliable and costly energy supply, and the relatively low penetration of information, communication and technology networks.

Also, making African currencies convertible, therefore lowering the cost of intra-regional trade. Currently, payments have to be settled in international currencies, such as dollars or euros, with high intermediation costs. And last but not least, work towards and create less restrictive fiscal and regional policies to encourage intra-regional trade.

Despite the challenges that lie ahead, various initiatives have made a significant contribution towards regional integration

Overcoming The Challenges

Financial market integration has taken a step forward through the set up of monetary unions, such as the West African Economic and Monetary Union, the Central African Economic and Monetary Union, and the Common Monetary Area in Southern Africa. We have also seen more regional banks available, and helping to facilitate cross-border trade.

BPO, the new digital trade settlement system, has increased the speed, reliability and convenience of international trade, while mitigating risks and reducing costs for the buyer and seller. And new bilateral trade deals in 2015, for example between Uganda and Kenya and between Rwanda and the Democratic Republic of Congo, should enable faster clearance of goods and reduce the cost of doing business in the region.

The main challenge to integration has been in national plans, which look great on paper, but are a challenge to deliver because of technology, infrastructure, transport and budgetary constraints.

If intra-regional trade became easier, there’s no telling what it could do for the continent’s overall trade levels and, ultimately, its growth potential

To move regional integration forward, governments in Africa can collaborate with, and draw on the expertise and experience of the private sector to shape trade policies and establish priority areas for effective and sustainable trade in Africa. The private sector, especially the financial sector, can assist by using strong balance sheets to make capital accessible. The public sector, as the catalyst of monetary policy, can review overlapping and restrictive policies to make integration more effective. The telecommunications industry on the other hand, can assist by making the latest technology platforms accessible to the public sector.

Africa’s current demographics are set to make the continent home to the world’s youngest population by 2040. An expanding middle class, now put at 355 million, raises Africa’s profile as a market and a destination for investment. If intra-regional trade became easier, there’s no telling what it could do for the continent’s overall trade levels and, ultimately, its growth potential.

Photo Credit: African Business

About Richard Etemesi

Richard Etemesi is Standard Chartered’s CEO of South Africa and the southern African continent. Prior to his current role, Richard was Chief Executive Officer for Kenya and Area General Manager for East Africa. His core responsibilities were for the overall growth and development of business within the sub-Saharan region. In his 24 years with Standard Chartered, he has worked in various roles across multiple locations. He has also been based in Kenya as a financial management consultant with Coopers & Lybrand Associates.