• Tuesday, October 03, 2023
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5 ways Africa can unlock inter-regional trade benefits

FG moves to curb export rejects, unlock benefits of AfCFTA

High intra-African trade is a key driver for growth and development in the continent, according to the African Union (AU). However, issues around high tariffs, protectionist policies, infrastructure deficit, dampen its prospects.

Reports from the AU reveal that intra-African trade accounts for approximately 14 percent of total trade in Africa, which is low when compared to significantly higher percentages achieved by Europe, North America, and ASEAN, which have reached intra-regional trade levels of around 60 percent, 40 percent, and 30 percent respectively.

The African Continental Free Trade Area (AfCFTA) which was established in 2018 provides an opportunity to correct this situation; its implementation is moving at a snail’s pace according to trade experts.

This is despite estimates by various trade and economic authorities that AfCFTA could boost intra-African by about 33 percent and cut the continent’s trade deficit by 51 percent, as it provides the world’s largest free trade, creating a single continental market with a population of about 1.3 billion people and a combined GDP of approximately $3.4 trillion.

According to the IMF in its Trade Integration in Africa report themed “unleashing the continent’s potential in a changing world’, optimising these opportunities will require investment in physical and human capital, a robust macroeconomic and business environment conducive for private sector-led growth, and a modernised social safety net that supports the most vulnerable during the transition to a higher growth trajectory.

The IMF in this report also highlights ways through which interregional trade benefits can be unlocked, five of which are listed below:

Comprehensive policy reforms

According to the IMF, the implementation of comprehensive reforms on Africa’s trade practices is a key to unlocking benefits for the continent as it could increase the median merchandise trade flow among African countries by 53 percent.

It added that African countries where trade liberalisation did not yield higher growth in the past tended to be characterised by adverse macroeconomic conditions, including contractionary policies.

“For comprehensive reforms to be sustained and generate the largest possible benefits in terms of income and employment creation, they need to be embedded in policy and institutional frameworks that safeguard macroeconomic stability and promote a favourable business environment,” it stated.

It added that policymakers would need to both complete the implementation of the steps agreed under phase I of AfCFTA which include member countries will need to agree on rules of origin for the remaining 12 percent of goods (relating to automobiles, textiles, and clothing) and complete the process of submitting tariff schedules.

“Strong policy frameworks that ensure sustained macroeconomic stability and promote a favourable business environment are important enabling conditions. These need to be complemented by efforts at improving governance, increasing efficiency and productivity of physical and human capital, and strengthening financial development. All these reforms would promote higher private sector-led investment and greater trade integration,” it stated.

Infrastructure development

The IMF noted that improvements in trade infrastructure, financial development and security would have significant positive effects on African countries’ trade.

“Beyond restrictive trade policies, the largest factor weighing on intra-African trade is the challenging trade environment, comprising such factors as transport infrastructure, telecommunication infrastructure, financial development, human capital, institutions, and restrictive product and labour market regulations,” it stated.

It noted that the impact of improvements in trade infrastructure and financial development was larger for trade over longer distances, as both improvements reduce trade costs, which tend to rise with distance.

However, the African Development Bank (AfDB) estimates Africa’s infrastructure needs amount at $130–$170 billion a year, with a financing gap in the range $68–$108 billion.

Reduction in tariff & non-tariff barriers

Ngozi Okonjo-Iweala, the director-general of, World Trade Organization (WTO), while speaking on trade integration in Africa, said that intra-African trade has a tariff of 435 percent which is too high to drive trade activities.

The IMF suggested that tariff and non-tariff barriers must be reduced among African countries to optimise trade benefits on the continent.

“Regarding merchandise trade, a lowering of tariffs and NTMs (non-tariff measures) between African countries as planned under the AfCFTA would lead to notable increases in trade and incomes. These reductions could increase the median merchandise trade flow between African countries by 15 percent and median real per capita GDP by 1.25 percent,” it stated

In addition, it said that NTMs were relatively high in Africa as it is estimated to be equivalent to an import tariff of 18 percent on average thus posing a substantially larger obstacle to trade than tariffs.

Leveraging technology & digitalisation

The IMF believed that global technological progress, including digitalisation, bring opportunities for Africa, adding that adoption of new technologies would enable gains in productivity and competitiveness and strengthen the continent’s growth potential.

“Digitalisation can promote growth of trade in services by making some previously non-tradable services tradable. This includes business services such as accounting, advertising, and IT services. It also creates opportunities for greater goods trade through e-commerce and improvements in the trade environment. For example, it can help accelerate border and customs processes and facilitate making cross-border payments,” the IMF said.

It further stated that the emergence of new technologies and digitalisation, in combination with a rapidly growing labour force, could create new and higher-paying jobs leveraging trade.

Highlighting possible utilisation of technology, it stated that the incorporation of data and the internet into production and consumption, cross-border flows, and finance will make the trade process more seamless, especially as it relates to more efficient customs processes and cross-border payments that help lower trade costs and thus improve the structural trade environment.

Read also: AfCFTA will reduce extreme poverty – Official

Trade diversification

The IMF observed that the AfCFTA has the goal of expanding intra-African trade and promoting economic diversification and industrialisation of its member countries, increasing competitiveness through economies of scale and diversification; promoting industrialisation, structural transformation, and gender equality; while laying the foundation for a future customs union and single market.

It added that by supporting diversification and growth, regional trade integration could boost countries’ resilience by reducing their overreliance on sectors that are at increased risk of being adversely affected by climate change-related natural disasters.

“More diversified and broad-based trade would reduce the impact of disruptions in specific markets and products that could result from shifts in global trade patterns; an improved trade environment would also provide diversification benefits in terms of resilience to shocks such as from natural disasters due to climate change,” the IMF said.