Increasing the volume and quality of intra-Africa trade for social economic transformation

Sindiso Ngwenya Trade, Industry & Investment

African States and development partners have invested heavily towards supporting integration and the promotion of intra-Africa and extra-Africa trade. These investments have gone a long way to assist the countries, through their respective regional economic groupings, in implementing integration programmes such as on trade facilitation. Instruments and protocols have been developed particularly under the Free Trade Area (FTA) concept which is one of the most transformation initiatives in regional trade.

There has been mixed fortunes in achieving the set goals. For example, little progress has been achieved in terms of transposition of these regional trade facilitation instruments at national level. Delays and lack of enthusiasm by member States to ratify and to implement some of the regional commitments persist.

A recent transposition study done by the Common Market for Eastern and Southern Africa, (COMESA) found out the following; that the supply side constraints, possible revenue losses from tariff reductions and the competition associated with liberalization, as the root causes of slow progress in the signing, ratification and eventually implementation of regional commitments. These were repeatedly mentioned by the COMESA Member States and apply to countries in other regional economic communities as well.

In cases where implementation of regional commitments has taken place, still there is little evidence to show that this has led to improvement in intra and extra- COMESA trade. For example, Africa’s share in world exports was about 6% in 1980 and over the years despite high levels of trade facilitation efforts, Africa’s global trade share has dropped to about 3.3%.

On the other hand, the overall intra-African trade is still around 15%, a figure very low compared to levels of intra-regional trade in Europe (59%), Asia (52%) and North America (37%). It is evident that the lack of value addition in Africa’s export composition means that Africa’s export fortunes remain contingent on commodity price movements and as a result remain vulnerable to external shocks.

Africa’s poor trade performance (currently a paltry 3% of global trade) is primarily caused by the inability by African economies to add value to their primary commodities. As a result Africa’s share of manufactured exports to its total exports is only 10% and has been stagnant for a number of years. The problem of Africa is not solely of trade liberalization/trade facilitation. It is largely a function of its economic structure that is oriented towards trading in low value commodities as opposed to high value manufactured goods. The recent EU cooperation policy documents; the German Marshall Plan with Africa (2017), Africa Union agenda 2063, the African Development Bank’s industrialization strategy for Africa (2016-2025) dubbed “Industrialize Africa”, the Regional Economic Communities (RECs) strategy papers confirms this fact.

The above policies are all characterized by the desire to assist Africa to move away from over-reliance on export of primary resources in the agriculture, forestry and mining sectors to more value added exports of light manufactures (e.g. food, textiles, chemicals, pharmaceuticals, services etc.). The following facts illustrate the extent of commodity dependence;

Out the 54 African countries, 6 depend on oil and gas exports for over 70% of their total merchandise export revenues; another 22 depend on a single non-fuel primary commodity for over 50% of their export earnings; and overall, 34 countries depend on only up to 3 primary commodities for at least half of their foreign exchange earnings.

An analysis of how Europe developed its economies and trade performance reveals that, in general the process was accompanied by use of modern technological innovations. This process brought with it more efficient technologies and scientific intellectual knowledge that allowed the average worker to produce much more than ever before. The process was accompanied by global value chains characterized by high levels of importation of raw commodities from Africa and exportation of finished manufactured.

It is also important to learn from the export led industrialization processes in Asia that took place between 1960 and 2000 led by the so called “Asian Tigers”. These countries concentrated their efforts in developing value chains in sectors they had comparative advantages; in particular light manufactures in the textiles sector, followed by food processing.

It is clear from the above case studies that promoting value-added light manufactures and value-added exports will help Africa to mitigate the adverse effects of export instability and high terms of trade variations as a result of high dependency on raw materials. This will reduce African countries’ exposure to external shocks and risks associated with fluctuations in commodity demand and prices. Given the above challenges it is important that Africa concentrates its energies in implementing backward linkages that encourage the supply of input to its economies through transfer of technology, generation of value-added activities within the continent and enhancement of regional ownership.

In addition, forward linkages should also be encouraged within the continent in order to ensure high level of processing of primary goods prior to export through, for example, the establishment of processing plants, milling companies, refineries, petrochemical industries, and the production of fertilizers, biogas etc.). The above scenario demands that the African region develops local supply industries through joint venture, research and development and transfer of technology.

Countries can participate in a regional/global value chain either as an exporter of raw materials, semi-processed or finished goods or an importer of raw material, semi-finished or finished goods. Countries that tend to benefit from global value chains are those whose companies import cheap raw materials from other countries to use in their production process in order to export high value finished goods downstream.

 

Africa’s participation in the global value is dominated by the exportation of raw material and primary goods that realise little value. On the other hand, Africa spends a lot of foreign currency importation finished consumer at the expense of capital goods that add value to their production process. It is in this context that African economies need to better benefit more from the regional and global value chain by enhancing the upstream activities through improved domestic and foreign investments. It has been seen that apart from selling raw commodities, Africa has a comparative advantage in agro-processing and light manufacturing.

 

The focus on industrialization as a precursor for market integration is consistent with the new strategic orientation of the African Union agenda 2063, the African Development Bank and the African Regional Economic Communities (RECs). In addition to this, the EU’s agenda for change policy document and the Germany Marshal Plan for Africa encourage Germany and EU to focus more on African private investment, fair trade, entrepreneurship, economic diversification, and the establishment of production chains.

 

Transformational initiatives such as the launch of the Tripartite arrangement that brings together the Common Market for Eastern and Southern Africa (COMESA), the East Africa Community (EAC) and the Southern Africa Development Community (SADC) provides a framework to address some of the key challenges of integration.

The Tripartite Free Trade Agreement (TFTA) that was signed on 10th June, 2015 in Sharm El Sheik, Egypt is anchored on three pillars, namely: market integration, infrastructure development and Industrialization with parallel tracks on free movement of persons and liberalization of services. The Strategic priorities of the Tripartite were informed by the fact that notwithstanding more than three decades of trade liberalization not much achievement has been made.

COMESA in particular, introduced the first 10 percent tariff reduction long back on 1st July, 1984 under the erstwhile Preferential Trade Area for Eastern and Southern African States (PTA). However, this trade liberalization and integration approach was not accompanied by key ingredients such as economic transformation, industrialization, technology acquisition, research and development and innovation leading to minimum impact in terms of achieving inclusive, resilient and sustainable development and integration of COMESA economies. The COMESA’s experience can be extrapolated to EAC and SADC. Hence, the importance of ensuring that the tripartite pillars are implemented in such a way that duplication is avoided and synergies and complementarities are

COMESA member States recognized as early as 1981 when concluding the PTA Treaty which came into force on 30th September, 1982 that for efficient trade facilitation to take place there was a need to establish common policies, standards norms and practices. It was, and still is in recognition of this fact that member States mad commitments to develop regulations for transit trade that would replace national documentation and regulatory requirements. This explains why COMESA has the most comprehensive trade and transit policies and instruments that mirror those of the European Union. These include but are not limited to: Uniform Road user charges, COMESA Carrier License, Harmonized axle load limits and vehicle dimensions, COMESA Custom Bond Guarantee Scheme, Automated System of Custom Data Management (ASYCUDA) and EUROTRACE, COMESA Virtual Trade Facilitation System (CVFTS), Web-based Transit Data Transfer Module and a Simplified Trade Regime (STR).

 

The advent of ICT and related software tools in the 21st century is an opportunity for Africa to leapfrog in trade and transit facilitation. By moving towards a digital economy would disrupt the age old bureaucratic procedures, processes and institutional arrangements that has over the years seen the implosion of different agencies, both public and private that increase the cost of doing business. For example, there is no need for heavy capital investments in border facilities. What is required through ICT and software applications is to integrate all agencies, not only at the borders but within the Common Markets.

 

Written by

Sindiso Ndema Ngwenya is the fifth Secretary-General of the Common Market for Eastern and Southern Africa (COMESA) since it was transformed from the PTA in 1994. He brings with him over 30 years of service in industry, regional and multilateral levels covering the public sector, private sector and quasi-government institutions. Before his appointment, Mr. Ngwenya was the Assistant Secretary General of COMESA in charge of Programmes a position he held for ten years. In this position, he was responsible for overseeing the development and implementation of COMESA programmes. In addition, he oversaw and supervised the operations of COMESA established institutions such as the Leather and Leather Product Institute (LLPI), the Clearing House and the Regional Investment Agency. In industry, Mr Ngwenya was involved in the design and implementation of programmes and projects in the road, airline and railway sectors. At the regional level, he was instrumental in the formulation of the PTA (now COMESA) regional integration programmes culminating in the launch of the COMESA Free Trade Area on 31st October 2000. In 2010 he was the winner of the Southern Africa Trust Drivers of Change award in the Government category and was cited by Judges for "His dedication to poverty eradication and equitable development in Africa through enabling broader markets by business. Through his leadership, a future is being crafted out for Africa that looks promising "