Unleashing Africa’s potential in a changing world trade

By Francisca Emeka- Amaugo

Africa is currently home to 1.3 billion people, a figure projected to rise to 2.75 billion by 2060 when the continent is forecast to have a combined annual output of $16 trillion and an increasingly middle-class market.

And yet, although the continent will, in just 40 years, have a market with more people than India and China combined, there is little mainstream discussion of its trading practices and partnerships.

Since the 1960s, several initiatives have been undertaken to enhance trade integration in Africa. However, substantial tariff and nontariff barriers remain in place.

In recent years, African leaders have shown a renewed push for regional integration by signing the agreement on the African Continental Free Trade Area (AfCFTA).

The AfCFTA has the potential to transform regional trade and thereby lift growth and support livelihoods across the continent. This paper lays out the benefits that successful AfCFTA implementation could unlock for Africa in terms of income, jobs, and other benefits.

It is based on an empirical analysis of the obstacles to trade in goods and services and regional value chain integration along with a discussion of how regional trade integration and supporting policies could help African countries cope with ongoing global and domestic trends.

The empirical analysis investigates the role of trade policy and the broader trade-enabling environment in determining the bilateral goods trade flows and country-level trade in services.

It sheds light on how the implementation of AfCFTA and supporting policies could boost trade and income as well as help African countries integrate into regional value chains.

The findings suggest that plausible reductions in tariffs and nontariff barriers under AfCFTA, along with improvements in broader trade-enabling environment (trade infrastructure, financial development, and domestic security), would substantially boost intra-African trade in goods and services, and support integration into regional value chains.

Further, regional trade integration could be an important element of a strategy for African countries to cope with rapid population growth, climate change, and emerging geopolitical fragmentation.

A specialist in African trade policy, and former head of the African Trade Policy Centre at the UN Economic Commission for Africa, Professor David Luke, looked at what Africa trades and found a clear difference in the type of trade being carried out between African countries and with the rest of the world.

“Trade with the rest of the world in goods is mainly commodities, and in services, mainly tourism, while intra-African trade – the trade between African countries – is more diversified in value-added goods such as manufactures and processed food and services such as transport services, financial services, business services etc.

“But intra-African trade is small accounting for only 18 per cent of Africa’s total trade. We found that over 60 per cent of this trade, although small, is diversified while Africa’s trade with the rest of the world is about 80 per cent commodities, with a heavy concentration in minerals and fossil fuels.”

“If fully implemented,” he adds, “liberalised trade on the African continent offers an incentive for the restructuring of African economies through diversification, agricultural and industrial development.

“Economic modelling suggests the deal could be worth as much as $450 billion for the continent by 2045. The biggest prize, he explains, is that the trade deal offers African countries a credible pathway to follow the play book of successful development experiences in countries that attained rapid transformation and diminished levels of poverty within a few decades through carefully designed trade policy interventions, effective institutions and other economic and social policy reforms.