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Wednesday, 11 March 2015 00:00
Integration and knowledge economies hold the keys to Africa’s growth
BY Wanjohi Kabukuru
[Lamu, Kenya] The island nation of Seychelles is 2019km from its nearest mainland Africa’s neighbour Kenya. And, the distance between it and Europe is 7553km. Ideally one would expect that Seychelles would trade more with Kenya, Tanzania and mainland Africa than Europe. But this is not the case even though efforts to trade with its African Union (AU) counterparts exist.
“What we have seen recently is that there is an increased demand from countries like Kenya. But it costs us more to export to Kenya than to Europe.” Seychelles Finance, Trade and Blue Economy minister Jean Paul Adam said this in 2013. At the time Adam was the Foreign Affairs minister. What could be the reason behind the high costs? “It is because the shipping lines and links used by the cargo vessels go north-south not east-west. There is a problem with shipping lanes. To export to Mombasa port in Kenya from Seychelles’ Port Victoria the vessel has to go to Dubai then go to Kenya which increases the costs of doing business.” Adam explained.
In five sentences Adam’s explanation revealed the unseen side of intra-African trade that rarely features in economic discussions in the continent. The untapped maritime trade lanes and their potential for integration within Africa is a topic that is hardly discussed in economic, political and business policy forums in the continent. While the difficulties of travelling and conducting business within the continent are always a common feature, maritime business and sea lanes are always missing on the agenda or forgotten.
For the last 50 years Africa has pursued integration as a tool to fast track its development. While progress has been made it has not been commensurate to the five decades that ushered post colonial Africa. “African trade is a classic conundrum wrapped in a mystery inside an enigma. There is absolutely no logical explanation for the state of affairs in many if not all African countries.” John Akhile Snr writes in his 448-pages book, Unleashed: A new Paradigm of African Trade with the World. “In more than 50 years most African countries have failed to reinvent themselves by metamorphosing their economies into exporters of manufactured and processed goods using the raw materials that they sell globally. It should have taken less than 15 years to accomplish; it took the Asian Tigers an average of about a decade to achieve the feat of becoming export driven economic successes.”
Volumes of political pronouncements, treaties, summits and studies have yet to be translated into reducing the inequality gap that plagues much of Africa and enhances trade and connectivity in the continent. “All that Africa needs is to implement the various treaties and frameworks that have been deliberated upon by its leaders.” Steve Kayizzi-Mugerwa who is the vice president and chief economist of the African Development Bank (AfDB) told the African Economic Conference (AEC) which was held in Addis Ababa, Ethiopia in early November 2014.
Statistics’ from the World Trade Organisation (WTO) indicate that normal intra-African trade still remains at the low end of 11 per cent as compared to other continents which are beyond 20 per cent. WTO’s findings are similar to those by the United Nations Conference on Trade and Development (UNCTAD). “Over the period from 2007 to 2011 the average share of intra-African exports in total merchandise exports in Africa was 11 per cent –accounting for $130.1billion – compared with 50 per cent in developing Asia, 21 per cent in Latin America and the Caribbean and 70 per cent in Europe.” UNTAD’s 2013 report Intra-African Trade: Unlocking Private Sector Dynamism says.
Going back to the charter of the Organisation of the African Union (OAU) which was succeeded by the African Union (AU) it is evident that the political will to forge closer ties among African states has largely existed in word but not in deed. Nothing captures this irony better than the Abuja Treaty which was signed in 1991 and became operational in 1994. It is now 21 years since the Abuja Treaty establishing the African Economic Community (AEC) came into effect. African leaders continue to express their desires to reap from the AEC windfall but little of this is even known in much of the continent. This treaty is pegged on faster integration of the regional blocs whose ripple effect is expected to be a developmental contagion spurring continental progress. However this is yet to be effected and appears to be bogged down by bureaucracy with African entrepreneurs employing creative tactics to cope with the labyrinth of officialdom. “Although trade agreements are signed by governments, it is the private sector that understands the constraints facing enterprises and is in a position to take advantage of the opportunities created by regional trade initiatives.” UNCTAD says.
This disconnect between what the government says and what the business community experiences on the ground was well captured by Nigerian and Africa’s richest man Aliko Dangote during the sidelines of the September 2014 US-Africa summit when he repeated his oft-quoted simple analogy on Africa’s integration. “I need a visa in almost 38 countries, which means an American has more access into Africa than myself.” Dangote who trades in half a dozen African countries knows the pains of integration very well.
While there are numerous pacts all aimed at achieving both continental and regional cooperation and ensuring better trade ties within the continent itself it is their realisation that is always wanting. In the recent past a flurry of trade related excitement has been the vogue rekindling the spirit of Abuja 1991. Starting in June 2011 the grand Free Trade Area (FTA) aimed at bringing together 26 African nations spanning the Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC) and South African Development Community (SADC) was mooted. Six months after the tripartite GFTA was agreed upon the AU heads of state summit revisited the issue of boosting integration through trade and resolved to fast track a continent wide free trade area by 2017.
All existing intra-African trade treaties have espoused similar objectives such as free movement of persons, goods and services, trade liberalization, development of regional infrastructure among others. Incidentally the available statistical facts on the ground attest to a different ideal altogether. “Africa remains a marginal player in the world trade accounting for only 2.8 per cent of world exports and 2.5 per cent of world imports.” UNCTAD says.
Narrowing it down to the building blocks of the continental regime within the regional economic communities, the same scenario plays out again. “The long and short explanation of regional integration is that it is supposed to create jobs by propping up the markets and opening up newer opportunities while creating wealth and reducing inequality.”Dr Stephen Karingi the director of infrastructure, trade and integration at the United Nations Economic Commission for Africa (UNECA) says.
In terms of intra-regional trade the African Development Bank’s (AfDB) 2012 study Border Posts, Check-Points and Intra-African Trade: Challenges and Solutions says that the Central African Economic and Monetary Community (CEMAC) ranks lowest as compared to Africa’s other regional economic bodies. The study also found out that the abolishment of entry visas among member states, harmonization of custom clearance procedures, elimination of tariffs on goods traded among member nations and a 14-year old customs union and common market have made the West African Economic and Monetary Union (WAEMU) to be the best performing regional economic bloc “in terms of intra-community trade.” The joint AfDB, World Bank and World Economic Forum’s “The Africa Competitiveness Report 2013” gives SADC the top marks in Africa on the enabling trade index (ETI) with three of its member states South Africa, Mauritius and Botswana ranking high. The only other countries matching the three SADC member states are Rwanda and Morocco.
Piling up on the findings of all these studies is the 2014 Africa Regional Integration Index produced by UNECA which makes similar conclusions. UNECA’s integration index concludes that the continent continues to have “some of the highest trading costs of any region in the world surpassed only by Eastern Europe and Central Asia.” Trade and travel barriers between African countries outnumber those between African countries and the rest of the world.
According to Karingi who has spent the better part of his life studying trade dynamics and challenges of integration a lot of effort has been directed at institutionalizing the close to eight main regional economic blocs and it is only in the last decade that the input of the private sector has been appreciated fully. “When we talk to private sector players they tell you that they are not very much involved in the process of regional integration in Africa.” Karingi says. “At the end of the day government’s don’t trade, it is the private sector which trades. I don’t think the private sector will complain for the sake of complaining. We reduce tariffs so assist private sector to trade, governments are just facilitators.”
A study conducted in 2010 by the Africa Trade Policy Centre (ATPC) seeking to find out the potential of “African suppliers to supply African markets” came up with interesting findings. It found out that “the exports of countries like South Africa, Nigeria, Algeria, Kenya, Egypt and Cameroon fit with the imports of most African countries.”
The report concluded that the “lack of diversification and competitiveness” undermined regional integration and generally stunted intra-African trade. “In the global economic classification, African countries as a bloc occupy a very low position.” Dr Karingi says.
AfDB’s report notes that Africa’s main difficulty in realising the benefits of trading with each other revolves around poor communications infrastructure on roads, ICT, railways ports and airports, political instability, cumbersome custom procedures and weak export bases. Bribery and corruption on border stops and check-points along transport corridors are also in the list of ills hindering intra-African trade with the 1238 kilometre Abidjan-Bamako corridor standing out for its notoriety on this vice.
Carlos Lopes the executive secretary of the UNECA however has a different take on the whole discussion on intra-African trade that calls for a second look at the statistics quoted in numerous reports. “Yes it is true we have 11-12% trade with ourselves but it is important to note that most of intra-African trade is informal. I like to say most of it is below the belly and over our heads. Below the belly because it is informal and above our heads because some of the transactions are so sophisticated that the authorities cannot capture.” Lopes’ says. “So the informal and the sophisticated transactions are not really factored in some of the statistics’. We have among the best roaming telecommunications complete with financial applications and large Pan African banks operating in more than 10 countries and I don’t think most of the trade has been captured in the statistics.”
Incidentally UNCTAD holds the same position as Lopes’.
“Adding informal cross-border trade to official figures for intra-African trade would increase the share of intra-African trade in total trade.” UNCTAD report says. “Although there are no systematic statistics on this form of intra-African trade, surveys undertaken in some regions reveal that it represents a large share of officially recorded trade.”
Informal trade in SADC could reach $17.6 billion annually according to UNCTAD’s estimates which also says that the informal exports from Uganda to Kenya, South Sudan, Rwanda and the Democratic Republic of Congo between 2009 and 2010 was worth $790 million and $520 million. “This is a good indication that we have to do a lot of formalizing and facilitating Intra Africa trade and also statistics collection. Africa has been distracted by negotiating trade with bilateral partners more than negotiating trade within itself for boosting its own intra African market.” Lopes’ says. “The thinking here has been that what really brings the money or the value are these negotiations on the side, but it is proven by research that intra-African trade can multiply multifold our GDP whereas this negotiations with international bilateral partners are bringing very little development.”
In capturing the enormity of the impact of under development in infrastructure in the continent Kayizzi-Mugerwa says that transport costs in Africa are 136 per cent higher than in other region in the world. For Africa to come out of its present difficulties the continental lender suggests that some $32 billion is invested in the continent’s road network over a period of 15 years. Such an investment would “generate trade expansion worth $250 billion” Kayizzi-Mugerwa argues.
Karingi summarises that what now remains is for the continent to refocus its energies on itself and actualizing continental agreements. “The global environment has changed dramatically and the continent has come with its own homegrown frameworks, which need to be consummated and implemented. If we do that African can compete with the Europe.” Karingi says. “The priority is actually regional integration and regional value chains. We have spent too much time pursuing economic partnership agreements and Doha agreements. The things that are useful for Africa are no longer on the table. In that reality Africa has to consider its continental realities first.”