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Increasing Trade Within Africa

Increasing Trade Within Africa
The continent of Africa makes enough food to feed its entire population. However, there are still plenty of citizens who go to bed hungry and live in poverty. Due to the general struggle of exporting goods, Africa can barely get its products out to other countries, much less within the region, because goods cost much more than they normally would. However, there are organizations, such as USAID and legislation such as the African Free Continental Trade Agreement (AfCFTA) that are working on reducing trade tariffs and increasing trade within Africa.

Terrifying Tariffs

Africa’s infrastructure was designed to send out goods and other resources to other areas in the world, not for trading within the region. This dilemma has created many roadblocks to trading across borders. One of these is that the price of trading outside the continent has risen dramatically. Specifically, “the cost of goods in the region is nearly 40% above retail because it costs that much to get it to consumers,” according to USAID.

Trade within the region of Africa only makes up 13% of the total. According to USAID, the continent drags behind other global superpowers in trade. In fact, Asia is responsible for 40% of trade in the region, the EU is responsible for 60% of trade and North America has 31% of total trade.

Fighting the Good Fight

Food insecurity is one of the most significant impediments to economic prosperity in Africa and the result of a lack of increasing trade within Africa. More than 27 million people in the region are still food insecure and require assistance, amounting to a 39% increase since 2016.

However, USAID is working with the government in Africa and private sector organizations on reducing the costs of doing business, and increasing trade within Africa. USAID Trade and Investment Hubs are working to improve the opportunities for investment. “For every $1 of public money spent, the hubs leverage $9 in private sector investment.”

There are other solutions too. Under the African Growth and Opportunity Act, which reduced both the cost of importing/exporting goods by half, Africa has begun back-and-forth trade with the U.S. Over 10 years later, “U.S. businesses have exported $37 billion worth of goods to East Africa,” USAID reported.

Another effort toward increasing trade in Africa is the African Continental Free Trade Agreement Area Agreement, (AfCFTA), “a landmark trade agreement,” signed in 2018.

The AfCFTA, An Overview

The AfCTFA pressures countries to remove tariffs on 90% of goods and will create a market that has, “over a billion consumers” and a total GDP of more than $3 trillion, according to a Brookings report. This would make Africa “the largest free trade area in the world.”

Thanks to the fact that the AfCFTA has been increasing trade within Africa, the number of goods trading within the region has increased from around 10% in 1995 to about 17%. However, as stated before, the region’s total trade with itself still remains low compared to other global superpowers such as Europe, Asia and North America.

However, according to the Economic Commission for Africa (ECA), the AfCFTA will increase the number of agricultural products traded within the country by 20 to 30%. By accepting the agreement, state revenue, income for farmers, and investments in modern agricultural practices will increase. ECA wrote a report on the AfCFTA and explained that “the AfCFTA potentially embodies a ‘win-win’ approach such that all countries across Africa and vulnerable communities within these countries receive benefits from the agreement,” according to a Brookings report.

A United Nations Conference on Trade and Development (UNCTAD) report in 2021 showed that Africa’s, “untapped export potential amounts to $21.9 billion, equivalent to 43% of intra-African exports.”

Due to COVID-19, the date of free trade in Africa pushed back to January 1, 2021. Just a month before free trade was supposed to begin, an African coffee and cocoa merchant named Meron Dagnew visited the AfCFTA Secretariat in February 2020. “I am hoping to not pay as much as 35% tariffs on my goods… I could then make a profit, expand my business and hire more people,” she said.

The lack of modern transportation systems holds back traders like Dagnew to ship their goods. According to Africa Renewal, “African countries could rake in $20 billion yearly by simply tackling non-tariff barriers that slow the movement of goods.”

There are plenty of blockades to increasing trade within Africa, such as tariffs, food insecurity and a lack of modern agricultural practices. However, thanks to the help of organizations such as USAID, and legislation such as the African Free Continental Trade Agreement, Africa is slowly making their way towards being able to provide for each and every citizen and promote growth within the region’s hard-working traders.

– Henry Hyman
Photo: Flickr

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The AfCFTA is Laying the Groundwork to Battle Poverty

The AfCFTA Lays the Groundwork
There is a continental shift happening in Africa by the name of the AfCFTA or the African Continental Free Trade Area. While this shift may not be like the literal seismic ones, it is no less earth-shaking. Here is how the AfCFTA is laying the groundwork to battle poverty.

About the AfCFTA

As of January 1, 2021, the AfCFTA is the largest free trade conglomerate in the world. Fifty-five countries entered the AfCFTA, connecting 1.3 billion people across the African continent and resulting in a combined gross domestic product (GDP) of $3.4 trillion. Expectations have determined that 30 million Africans will be able to improve their income, thus allowing them to leave poverty. It is a daunting task, but the promise could turn Africa’s relationship with the world on end.

The dramatic shift is finally coming to fruition after the AfCFTA began in 2018. The novel Coronavirus pushed the progressive agenda back to a 2021 release date. However, in order to make the area the world-changing force it can be, experts have noted that the AfCFTA has some obstacles.

How the AfCFTA is Laying the Groundwork to Aid Business

Simply put, the AfCFTA is an agreement among African governments to greatly reduce or eliminate tariffs on trade within the continent. This shot in the arm for African industry opens up trade within Africa and also makes goods and services available to off-continent markets more attractive.

Within 20 years, predictions have determined that the AfCFTA will bring $34.6 billion and a further $85 billion in trade facilitation across African borders without any sign of letting up. Further analysis suggests there is a notable connection between positive trade facilitation and industrial growth.

A Case Study

For example, the regional coffee trade has always had to compete with European products that have greatly reduced tariffs. Many are hopeful the AfCFTA will level, if not enhance, the playing field for local producers, such as Meron Dagnew. Dagnew has lived with the tariffs her whole professional career as a coffee producer and knows the benefits the AfCFTA should bring.

Dagnew said that “I am hoping to not pay as much as 35% tariffs on my goods; I am hoping that soon I can take my value-added cocoa and coffee to [other] African countries without problems… [and] then make more profit, expand my business and hire more people.” As a result, she is a prime example of AfCFTA’s efficacy.

The AfCFTA effectively eliminates 90% of the tariffs, opening up entirely new trade possibilities for the 55 nations involved in AfCFTA. This will allow coffee-producing countries, like Ghana and Côte d’Ivoire, to be competitive with their European counterparts, such as Nescafé. Despite the promise of rosier days for the continent, a number of concerns have experts warning of developmental concerns.

Infrastructure

Infrastructure equals connectivity. In order for Africa to experience proper industrialization, raw materials need to go in and finished products need to go out safely and efficiently. Additionally, for Africa to achieve connectivity, everything from physical roads to electricity needs attention.

Many refer to this combination of industrial needs as an “infrastructure deficit.” It is one of the biggest challenges to industrial growth itself.

The Politics of Growth

Supply-side constraints have rattled Africa with the continent currently needing to import basic-needs goods and rely on foreign production. In response, government policies have aimed to support a shift to more domestic production and restructure rules (and aid) to further new industries.

The COVID-19 pandemic has laid these inefficiencies bare, making the continent even more reliant on non-domestic goods. African banking also intends to extend credit incentives to new businesses that alleviate this dependency and foster intra-continental trade.

For example, the AfCFTA could raise intra-continental trade in agricultural products by 20% to 30%, improving the balance of payments. Food import bills have become a major driver of these external imbalances and policy needs to positively favor Africa.

Elimination of Tariff and Non-Tariff Obstacles

In a sense, this is the literal logistics of the issue, and it combines the previous two. Through policy and infrastructure, the trade disparity improves along with bettering logistics.

Removing tariff and non-tariff obstacles improves the movement of goods and services across regional borders, along with the transfer of the objects. The enforcement of non-tariff agreements also becomes crucial.

For example, the Single Customs Territory (SCT) in the East African Community has helped the area improve its logistics and shipping times. Ultimately, the end customer benefits as well, driving up exports between 30%-50%. This idea thrives predominantly in regions that are landlocked.

Synopsis

The African Continental Free Trade Area has the potential to be a game-changer. However, there are palpable concerns that need solving for the area to achieve its full potential. All-in-all, these are exciting times for a continent marred with troubles.

The AfCFTA may hold the key to the industrialization, development, modernization and reconfiguration of the continent’s politics. Furthermore, the AfCFTA is laying the groundwork to lift billions out of poverty.

– Christopher Millard
Photo: Flickr