Call to Promote Intra-African Trade

One way to speed up Africa’s economic transformation is through deeper trade integration. Official statistics put intra-African trade at a mere 13% of the continent’s total trade. That is abysmally low. Higher volumes of intra-African trade are essential so that African countries can do business with each other more frequently and with wider margins.

The merits are clear. Firms and businesses are exposed to bigger markets, new opportunities, and a larger pool of capital (including human capital) and, ultimately, grow their turnover and returns. Consumers buy from a wider variety of products and services at a relatively cheaper cost, and attain a higher consumer welfare status, Businesslive reported.

Labor benefits from skills upgrades and attractive remuneration should be offered by trading firms. This sets in motion a chain of other economic activities that support and spin off from regional trade. Governments also reap rewards such as a positive balance of payments, a fiscal boost from a wider tax net, and more revenue to invest in public infrastructure.

This is a standard international trade position applicable throughout the world; it is therefore not surprising that regional trade deals are a core strategy in countries’ economic policies. So why are intra-African trade volumes so low and, more importantly, how can we increase it? Is it a matter of wrong or ineffective policies? Or a lack of business activity in Africa to take advantage of regional markets and build intra-African trade?

First, there are teething pains and bottlenecks that complicate intra-regional trade. These include tariff disparities or excesses; red tape and unwieldy administrative customs costs; transport costs; confusing taxes, regulations and standards; and credit constraints. Even more worrisome are the apparent contradiction in trade and investment regulations and the lack of policy harmonization between Africa’s many regional economic groupings.

These constraints are not new, but trade and industry policies fail to address the core practical issues.

Second, there is untapped potential in Africa’s high levels of small and micro-sized business activity, which can contribute significantly to intra-African trade with appropriate policy support. Much is said about developing this sector, yet little is done in the way of policy. Critics even argue that these firms are too tiny and insignificant to drive their own economic activity in a sustained way, let alone venture into regional trade.

It is time for African governments to look past turning lofty ideas into policy initiatives for trade and industry development. Policies must instead be reworked to fit local economics and drive intra-regional trade to its zenith across the continent.