To boost intra-African trade by at least 25-30 per cent and enhance the continent’s competitiveness, the African Union (AU), in 2012, set 2017 for the establishment of a Continental Free Trade Area (CFTA). Two years to the deadline, lack of political will, harsh visa policies and dependence on narrow range of primary products, among others, have continued to stall the realisation of the set goal, reports Assist. Editor CHIKODI OKEREOCHA.
It’s a clear and depressing verdict: Africa is not trading within itself, despite its potential in terms of population and rich agricultural and mineral endowments. Trade among African countries accounts for a meagre 10 per cent of their total external trade, the lowest of any continental grouping, according to the United Nations (UN) Economic Commission for Africa (ECA).
The continent’s share in world trade is also not impressive, standing at less than three per cent. This was why in a bid to stimulate intra-African trade by at least 25-30 per cent and, ultimately increase the continent’s share in global trade and competitiveness, African leaders came up in January 2012 with the idea of establishing a Continental Free Trade Area (CFTA).
Essentially, their hope was that CFTA would lead to a significant growth of intra-Africa trade and also assist Africa use trade more effectively as an engine of growth and sustainable development.
It was expected to help Africa participate in global trade as an effective and respected partner. The AU Commission noted, for instance, that between 2000 and 2010, the creation of the Common Market for Eastern and Southern Africa (COMESA) FTA worked magic, leading to a six-fold increase in intra-COMESA trade. So, the AU leaders, after their 2012 week-long meeting in Addis Ababa, the Ethiopian capital, set 2017 as target for CFTA. However, two years to the deadline, the strategy appears unrealisable, The Nation has learnt.
Top on the list of issues posing serious hurdles for the realisation of the target, it was gathered, is inconsistent visa policies. There are also issues around Africa’s lack of right regulatory framework and political will to halt the multiplicity of national borders that have continued to pose barriers to trade, as well as African economies’ dependence on narrow range of primary products, among others.
The mono-product nature of most economies in Africa, high cost of production due to dearth of critical infrastructure are said to have also combined to frustrate efforts at achieving the target. The situation has left sour taste in the mouths of business operators, particularly manufacturers whose activities are supposed to help increase the level of trade within Africa.
For instance, Nigeria’s foremost industrialist and Africa’s richest man Aliko Dangote recently echoed the frustrations of African businessmen and manufacturers when he lamented that issues around issuance of visa by most African countries remain a hard nut to crack by investors seeking to expand the frontiers of investment in Africa.
Speaking during the inauguration of the new 2.5 Million Metric Tonnes Per Annum (MMTPA) Dangote Cement plant in Mugher District in Ethiopia, he said only 14 out of the 54 African countries, offer visa-free, or visa-on-arrival to citizens of all African countries, a situation that constitutes serious barrier to intra-African trade.
Dangote listed the 14 countries to include Seychelles, Mali, Uganda, Cape Verde, Togo, Guinea Bissau, Mozambique, and Mauritania. Others are Rwanda, Burundi, Comoros, Madagascar, Somalia and Senegal. He noted that on the other hand, American citizens visiting most African countries get visa at the point of entry. While describing this development as unhealthy for business, he argued that Africa must therefore, relax its visa policies to achieve true economic integration. He urged other African countries to borrow a leaf from Senegal, which he said has started the issuance of visas on arrival to all nationalities.
That is not all. Dangote, who is President, Dangote Industries Limited (DIL), also said apart from the need for African countries to relax their visa policies, deliberate efforts must be made to encourage Africans, not just foreigners, to invest in the continent to stimulate intra-African trade and business. “Dangote Cement is currently investing in 16 African countries, with plans to invest in many more over the next few years. There are a number of other successful pan-African brands today, such as MTN, Shoprite and Ecobank.
“We need to encourage this trend to see more investments in Africa by Africans,” he said.
The pan-African investor is not done. He spoke of the need to encourage the private sector to collaborate with governments across Africa to address infrastructure deficit, which has plagued the continent for decades. Apart from the need to ensure political stability on the continent, he also said economic integration in Africa would become a reality only when barriers among countries are broken to allow for free flow of goods and services.
Dangote was right. Africa remains the most fragmented continent in the world, with 54 countries and numerous border crossings, which impede trade. For instance, for traders and businessmen who ply the Lagos (Nigeria)-Accra (Ghana) route, the journey through Togo and Benin can take a full day, punctuated by arduous border checks, harassment and solicitations allegedly from customs officials. This is despite the fact that only a few hundred kilometres separate Lagos from Accra.
Such barriers violate the principle of free movement of people and goods within the 15-member Economic Community of West African States (ECOWAS). It is also due to the slow implementation of regional integration agreements aimed at eliminating tariff and non-tariff barriers in the region. This situation partly explains why Africa is not trading within itself. The level of intra-African trade, according to experts, compares unfavorably with other regions of the world.
While only 12 per cent of total trade on the continent is among African countries, intra-trade among the European Union (EU) is around 70 per cent, 52 per cent for Asian countries, 50 per cent for North American countries and 26 per cent for South American countries.
Curiously, no less than 14 regional trade blocs are said to have been launched over the past decades for the purpose of stimulating intra-African trade. But this has not yielded much result, as the share of intra-African trade remained unimpressive. More curious is the fact that Africa boasts tremendous agricultural and mineral resources. Apart from holding 60 per cent of the world’s uncultivated arable land, it is also rich in oil & gas. With relatively cheap labour, young and highly entrepreneurial population, a growing middle class with spending power, large consumer market, and an increasingly stable polity, Africa’s economic future should be looking brighter.
But unfortunately, agriculture is the sector in which Africa has surprisingly poor trade figures.
Despite being the backbone of many economies in the region, it accounts for just a small fraction of official trans-border trade.
Between 2007 and 2011, for instance, Africa imported only 15 per cent of its food items from the rest of Africa, according to data gleaned from the Economic Development in Africa 2013 report by UN Conference on Trade and Development (UNCTAD). The report noted that African countries export a very narrow range of agricultural products to the continent, adding that there is need to broaden the range of agricultural goods produced and traded within Africa.
The report aligns with the position being canvassed by President/Chairman of Council, Institute of Business Development (IBD), Mr. Ifeanyi Obibuzor. He said for African countries to capture more trade opportunities they need to diversify their products. While noting that the current challenge of falling oil prices, which affect some oil-producing countries in Africa particularly Nigeria, should indeed, be seen as an opportunity to galvanise activities to diversify their economies, he said: “The oil price crash is a good starting point. It is going to make us think out of the box. No country survives as a mono-economy. Across the world, economies are driven by micro-enterprises.”
Indeed, one of the challenges facing African countries is how to deal with the Micro, Small, and Medium, Enterprises (MSMEs) sector, which is acknowledged as being responsible for a significant portion of production, trade and services. While the informal sector where the MSMEs play remains the driving force of most economies in Africa, experts says that the sector is largely unregulated, has little access to finance, and is often not taxed and its contribution to the economy is largely unrecorded. What this means is that if the continent must pursue more trade opportunities, there is need to focus on the MSMEs with a view to addressing some of the issues that hold them down particularly infrastructure.
The consensus is that there is need to increase investment in trade-related infrastructure and other trade facilitation measures to reduce red tape, transaction costs and expedite the movement of goods, services and people across borders. Although, spending on infrastructure has been on the increase in the last two decades, it has been observed that actual spending does not match identified needs. According to the African Development Bank, African countries need to spend around $93 billion a year to upgrade their infrastructure, but only spend about half of this.
Beyond the need to step up the tempo of investment in infrastructure particularly power, the Registrar/Chief Executive Officer, IBD, Mr. Paul Ikele, says that the leadership must demonstrate enough political will to harness the abundant resources in Africa. According to him, Africa’s economic future looks bright. Hear him: “Africa is highly endowed; Nigeria is endowed; Ghana is endowed, but let’s look at those opportunities. By utilising their resource capabilities, companies in Africa can improve the lives of people in our continent through increased investment, creating jobs, increasing skills, and developing and providing goods, technologies and innovations.”
Will Africa demonstrate the required strong and lasting political resolve to remove the identified barriers to intra-African trade? Will they put the right regulatory framework in place to address the high cost of doing business on the African continent, which has seen foreign investors either holding back or preferring other investment destinations despite Africa’s potential for high returns on investment?
These are some of the issues agitating the minds of operators and stakeholders as the continent has only two years left before the launch of CFTA that would boost intra-African trade.
