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19September2017

Eliminating barriers to regional integration and intra African trades will unite the Region

Although improving, Africa is still the worst region in the world to do business. African countries dominate the lower reaches of the World Bank’s Doing Business in rankings.  Some of the factors responsible for dismal performance of these countries have been at the centre of the regions ability to trade within.  While there are differences in the performance amongst the sub regions with in the continents in relation to the performance of intra-regional trade, the aggregate performance remains low. Much of the problems are the same problems plaguing the member nations.

Paranoia and political naivety   

It has been argued that free trade is misunderstood by many African leaders and people and hence despite the adoption of the agreements in paper, pressure groups within countries continue to hoodwink leaders at taking appropriate actions to back the agreements. Often times, the expected impact of freer trade regime and consequently competition on domestic production are controversially presented while key areas of opportunities such as wider market for goods produced, impact of expanded market competition on consumer prices, increased variety and quality as well as the opportunities for domestic companies to benefit from innovation, specialisation and economies of scale are played down. This political angle to trade policy and the sustained passion to have trade policy sovereignty continue to exist and derail the appropriate implementation of the agreements.

Non-tariff barriers are bigger especially the physical and geographical characteristics of market in the region

The biggest barriers are however non-tariff as we have seen in the Nigerian situation where tariff has reduced to the barest minimum since implementation of CET and adoption of ETLS. The physical and geographical characteristics of many sub-Saharan countries are often at play in the low trade volume. Sub Saharan Africa consists of 48 countries whose entire gross national income in 2011 was barely higher than that of Netherlands. The region perhaps harbours some of the world poorest people with 50% living below chronic poverty level. The region is also characterised by low population density with the least urbanised locations in the world dispersed over a large landmass. Hence, agglomeration of economic activities is substantially low. The effect of low population density on productivity in Africa is reinforced by the fact that 30% of the population lives in landlocked countries.

The challenges of infrastructure and personnel management across many West African borders are another source of barriers to intra-African trades

Most borders within the region are rustic with immigration offices at these borders behaving like a cartel. At every check point, money is expected to be paid before a person or goods are allowed to pass through. In this respect, cross border business linkages in the region remains very cumbersome and adds avoidable premium on costs of trades. Most of these developments contradicts the regional integration agreements and negates the ECOWAS Charter. It has been estimated that a 20% reduction in border crossing time in Africa could generate about 15% reduction in cost of transportation. According to a World Bank report, fixing these problems alone could generate an extra US$20 billion annually across the continent.

In addition, the activities of custom officials and border patrol agents’ smacks of poorly communicated policies to both traders and the officials. The result is wholesale confusion at border crossings which limits regional trades as a result of the heightened uncertainties. At the end, the entire benefits of regional integration agendas as well as trade liberalisation schemes are lost. In other words, there is still a lot the government and policy makers have to do to support its obvious commitment to the regional integration agreement and other plans.

Aviation infrastructure within the continental especially the West African sub region is largely suboptimal with intramodal connectivity a major problem in many countries. In other words, even where goods are flown into many of these countries, connecting transport from the airports to the market poses greater problem in many cases. In this regards, the damages of wars are consequential.

Where these constraints are reduced to minimum, the expanded market opportunities that the freer exchanges suggest for SSA manufacturers should result in higher productivity and economy of scale with attendant increase in margins. If manufacturing production activities can respond promptly to the expanding market opportunity, manufacturers in the continent would never feel threatened by the incidence of dumping as the competitive landscape gets bigger.  It can also be argued that with a uniform tariff system and improved customs services, the incidence of intra African smuggling would be substantially reduced with implications for custom revenue in the different member countries. 

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Despite sizeable growth potential, intra-African trade is considerably low

The impact of the sustained weak global economy and the attendant uncertainties has had mild impact on Africa; most countries continue to post solid growth. The World Bank analyst estimated that African economy grew by 4.9% in 2011 just shy of the 5% pre crisis (average of 2003-08). When South Africa, the region’s biggest but slower economy, is excluded, the regional growth averaged 5.9%. This trend is expected to be sustained in 2012 with improved performance in 2013. But this performance could be better perhaps if the region’s 59 countries with over a billion population trades more amongst themselves. The impressive performance highlighted above has been driven largely by external demand for the enormous natural resources of the continent. EIU argues that the rising demand for these resources by emerging economies of Asia and Latin America as demand from developed world wanes sustained the continent’s growth on trend.

Key attempts at increasing intra-regional trade remain work in progress

Intra-African trade remains very low despite the efforts of the regional member state governments (through the regional organisation, the Economic Community of West African States (ECOWAS) and the West African Economic and Monetary Union (WAEMU- OEMUA)) to integrate the economies of member states through a common external tariff (CET) regime and the ECOWAS trade liberalisation scheme (ETLS). The full adoption and implementation of the CET was meant to be a platform for the negotiation of an expanded regional Economic Partnership Agreement (EPA) with the European Union.

While some progress has been made, for instance in the adoption of the CET and commencement of the ETLS in relation to approved products, non-tariff barriers remain high in many countries. Some member nations, including Nigeria, are also requesting for the creation of additional band into the CET established bands to protect its industries. And in recent times, some of the trade-related fiscal policies especially in relation to the import prohibition and tariff measures aimed at boosting agricultural production may contrast with regional trade agreements.

African trades still very low on the global trade map

According to the World Trade Organisation (WTO) trade statistics for the third quarter of 2012, intra-regional trade in the European Union accounted for an average of 61% of the total import and export US$2,800 billion and 31.1% of total global trade in the quarter.  Africa’s contribution to global trade was insignificant and was summed up with that of the Middle East and others. This group accounted for only 8% of the global trade within the period. However, this was an improvement over 2011 when this group accounted for only 3.2% of global trade. The sub Saharan Africa’s share of world trade has ranged between approximately 1.3% and 2.2% over the last two decades. At the core of the shallow trade value and volume from Africa is the low intra-regional trade activities.

According to IMF Direction of Trade Statistics, only 4.7% of sub-Saharan Africa (SSA) trade was transacted with other Africa and Middle East countries in 2011. In the first eight months of 2012, this increased to 5%. In other words, the amounts of trades concluded within SSA region were substantially smaller. In 2011, Nigeria exported only N553.18b value of goods, representing 3% of total exports to the ECOWAS region. During the same year, only N132.722b value of goods, representing only 1.4% of the total was imported into Nigeria from other ECOWAS countries. The proportion of Nigeria’s total export and import to Africa in 2011 were 10.9% and 8.8% respectively. The rest went to and came from the Americas, Europe and Asia.

It’s time to harness the opportunities that intra-regional trade portend

The key issues remain how it has been more easy and convenient for countries in the region to trade with countries outside the region yet near impossible to operationalize free exchanges amongst themselves. A number of factors have been identified for this lacuna which includes the non-tariff barriers; the infrastructural challenges plaguing these countries; politicisation of regional agreements among others. Countries such as South Africa and Nigeria that have attempts to close these barriers have enjoyed tremendous benefits of regional trade and integration. On that gauge, it is imaginable what the continent and the sub regions within it can achieve in growth via robust intra continent exchanges.  It is time these barriers are bridge, time policy makers in the continent get to work at localising benefits of free exchanges with regional peers, time the bourgeoning continental domestic demand is better served by continental supplies. 

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