Business News of Wednesday, 21 November 2018
Source: Joseph Kobla Wemakor
2018-11-21
Trade between African countries is relatively low
Africa has a bigger opportunity to grow but has constantly been overlooked, despite all what the continent has got to promote trade and do business with itself.
What is required is inward and outward strategy acting in tandem to outwardly hold Africa’s place in the global economy through foreign investment and improved trading links; while internally driving regional trade integration.
It is not per chance that Africa’s recent growth is indicative of the Africa rising identity, it was in part realized owing to increased levels of foreign direct investment. Improvements to fiscal policies, governance, and frameworks that regulate, along with a move to diversify economies away from Africa’s traditional commodities-biased economies presented greater opportunities to foreign investors.
If Africa is going to capitalize on this base, it needs to work together on its shared future. Africa’s development must be underpinned by further regional integration and trade liberalization.
While the rest of the world becomes increasingly fractured and disparate, it is time for Africa to create ways to better integrate its fragmented markets which have long constrained growth and acted as barriers to trade.
Drumming home the agenda to promote Intra-Africa Trade, Director & Global Head of Communications and Events at Afreximbank, Obi Emekekwue recounts how opportunities eluded Africa as a result difficulty in accessing financial help to augment trade in Africa.
Mr. Emekekwue observed that to address the challenge of improving access to trade finance and trade services across Africa in the face of cuts in credit lines to Africa by international banks, Afreximbank approved trade finance lines of credit for over 34 banks across the continent amounting to a record 12.5 billion US dollars between 2015 and May, 2018 fiscal year.
According him, to deliver on its mandates, Afreximbank is implementing its Fifth Strategic Plan dubbed “IMPACT 2021: Africa Transformed”, which looks forward to facilitating a 50 percent growth in Intra-African trade, getting it to reach 250 billion US dollars in 2021, from the current estimated 170 billion US dollars, and bringing the Intra-African trade share of total African trade to 22 per cent.
Intra Africa Trade will enhance the promotion of trade within the various sectors of Africa, especially within the western regions of Africa; trade policies have been developed to boost exports into member states as well as to the rest of the world. Imports into the region are therefore seen as complementary to the exports of goods and services.
External trade of ECOWAS is dominated by a number of products and generates local value added due to the reduction in fuels coming from extractive industries. These represent three-quarters (75%) of exports (excluding re-exports) and are provided mainly by Nigeria (73%).
Cocoa and cocoa food preparations (5% of exports), precious stones (3%) and secondarily cotton, edible fruit, rubber, plastics, wood and wood products, fish and shellfish (about 1% each), form together with fuel, the major export products of the West African Economic Community.
The African Export-Import Bank (Afreximbank) that has its headquartered in Cairo is the foremost Pan-African multilateral financial institution devoted to financing and promoting intra-and extra-African trade.
The Bank was established in October 1993 by African governments, African private and institutional investors, and non-African investors. Its two basic constitutive documents are the Establishment Agreement, which gives it the status of an international organization, and the Charter, which governs its corporate structure and operations. Since 1994, it has approved about $60 billion in credit facilities for African businesses, including about $8.5 billion in 2017.
Afreximbank had total assets of $11.9 billion as at 31 December 2017 and is rated BBB+ (GCR), Baa1 (Moody’s), and BBB- (Fitch).
The setbacks and the way forward
Early this year, leaders of 44 African countries gathered at Rwanda to sign a deal to create one of the world’s largest free trade blocs. 10 out of the 44 countries including Nigeria refused to sign due to the claim that they were not thoroughly informed.
The deal which is expected to take shape within six months to increase prosperity for about 1.2 billion Africans through the development of business models and Intra-African Trade at this stage has limiting factors that when not observed critically, could stifle its progress.
Trade between African countries is relatively low. The challenge has accounted for just about 10% of all trades on the continent – compared to 25% in south-east Asia.
The establishment of the free trade area will be the catalyst that will boost trade, the ambition is to take further steps that echo the creation of a customs union like that of Europe that will fast-track the existence of a common market with the single currency.
The Executive Vice President, Business Development and Corporate Banking, at the African Export-Import Bank (Afreximbank) Amr Kamel, expressed regret that Africa still suffered from a deficit of expertise in structured finance even though it was widely acknowledged as a highly effective trade financing tool.
Addressing the opening of the Fundamentals of Structured Trade Finance Seminar and Workshops, in Casablanca Morocco on November 7, Mr. Kamel observed that Afreximbank remained committed to equipping African financiers with the knowledge required to structure bankable trade and trade-related project finance transactions.
Mr. Kamel further maintained that Africa, irrespective of the challenges had much to learn from the economic transformation of Morocco, noting that “Many years of modernizing and expanding its infrastructure has successfully transformed Morocco into a commercial crossroads between Africa and the West.”
Some challenges that have bedevilled progress of Intra-Africa Trade are the relatively low level of manufacturing that takes place on a continent where trade often means selling raw materials to the outside world, crippling policies gnawing at the growth of startups and a high cost of transportation coupled with difficult immigration difficulties.
Other challenges which seem to have retarded the progress of Intra-African Trade are the fluctuating foreign exchange due to the import of finished goods into Africa.
The way forward for trade liberalization in Africa
For efficient liberation of trade to thrive among African countries in order to foster development, it would require implementation of effective measures by the Economic Community of West African States(ECOWAS), the African Union(AU) and all stakeholders backed by strong political will on part of all African leaders to bring about the needed change.
Measures such as creation of local industries to cut down on import and reduce the need for denominated foreign exchange, enactment of favourable policies to promote Intra-African trade across the entire African Region must be implemented.
In addition, there should be an easy way of ensuring free movement of traders, goods and services across the entire Africa region barring the requirement of visa(s) application including other cumbersome immigration laws which limits free flow of trade.
To add up, the upcoming Intra-African Trade Fair (IATF) 2018 which is scheduled for December 11 to 2018 in Egypt is obviously an avenue for solution that would augment the beginning of proper trade within the entire Africa region.
Dubbed the “Inaugural Intra-African Trade Fair” is the first of its kind in Africa, consisting of a 7-day trade show that provides a dedicated forum to hold high-level trade discussions, facilitates the dissemination of investment and market information and creates an unrivalled platform to enable buyers, sellers and investors to meet, exchange ideas and conclude business transactions.
Proudly promoted by the Afreximbank in collaboration with the AU and array of stakeholders, IATF is expected to host over 1000 exhibitors who will have an opportunity to showcase their goods and services, engage in Business to Business(B2B) exchanges and meet with consumers from across Africa and the Diaspora.
Earlier, six engagement sessions in Africa’s major trade hubs: Egypt, South Africa, Nigeria, Cote d’Ivoire, Kenya and Uganda were already held with the intent to spread the word about the first Intra-African Trade Fair and engage with key industry and government players in each region. Expert panels were convened in each location and they led a discussion on how to increase the levels of Intra-African trade in their region.
The IATF will reveal the need and how Africans should take advantage of business opportunities. It would equally serve as a platform where exporters will be trained on how to access the African market twinning arrangements with other African or global entities.