Pan-African Trade Can Underpin the Continent's Growth

Economy and Work

Pan-African Trade Can Underpin the Continent's Growth

Commentary
Posted on: 7th September 2022
Jan van Limburg Stirum
Agribusiness Advisor – Ghana

Speak to a farmer in Ghana today about the prospects of their industry and more often than not, they will tell you about the country’s proximity to Europe and the availability of transport links for perishables to European markets. Rarely do they mention that Ghana is one of the world’s fastest growing markets or that six of the world’s ten fastest growing urban centres are on the African continent. This lack of commercial interest in the continent from African countries is a missed opportunity.

As African markets emerge, pan-African trade has the potential to lead large parts of the continent into long-term industrialisation. These markets can fuel the move from prevailing extractive and raw material exports – driving other nations’ economic growth – to processing and manufacturing the goods Africa will need in ever-increasing quantities. Why do many African countries continue to undervalue the potential of the region’s growth?

A Source of Other Countries’ Revenue

Today, there is a clear trend: exports from Africa travel north, not to Nigeria or Egypt, but to European and North American markets. Most of these exports are raw materials, for instance, agricultural products and extractive commodities such as oil, gas and minerals. The economic potential of such exports is limited and vulnerable to market volatility.

In 2021, primary produce accounted for 65 per cent of all African exports to the European Union, while 68 per cent of shipments to Africa carried manufactured goods, often created from the same African inputs. These return as petrol or Michelin tyres, having fuelled employment and growth beyond the continent, to then be sold in African markets as imported luxuries.

Ghana is an obvious example of this anomaly. It is the world’s second-largest cocoa producer, contributing massively to the raw material base of a retail industry valued at more than $100 billion. Ghana earns only an estimated $2 billion from this industry. The bulk of the profit goes to processors and chocolate producers based in countries such as Belgium, the United States, Switzerland and the Netherlands.

Covid-19 as a Catalyst 

The Covid-19 pandemic was a major blow to economic growth and development. Yet, the crisis spurred an increased focus on pan-African economic relations, accelerating the drive towards pan-African trade through the elimination of intra-African trade barriers and the development of regional value chains.

Globally, the economic response to the Covid-19 crisis was marked by a lack of international coordination. Pan-African relations were a notable exception to this trend. As Western countries turned inwards, African nations increasingly turned to each other, sometimes through necessity as partners further afield withdrew.

Regional Value Chains Need to Underpin African Growth

The fact that raw materials and extractives account for an uncomfortable majority of African exports to other continents – in pan-African trade, they represent far less – provides a glimpse of the opportunities available with increased continental cooperation.

The African continent is projected to be the world’s largest market by 2040, with its population already exceeding one billion. Compare this to the strikingly low numbers of pan-African trade (currently not surpassing 20 per cent of total exports across the continent) and the opportunities seem obvious. However, exporting primary goods to industrialised markets outside of Africa is often cheaper and easier.

While regional trade blocks such as the Economic Community of West African States (ECOWAS) continue to draw attention and praise from African lawmakers, they are limited in scope, and tariffs and friction in trade between African nations often remain higher than between nations and partners beyond the continent. For a country like Ghana, this is starkly reflected in the fact that, before the pandemic, only 11 per cent of the country’s imports originated in Africa and only 15 per cent was exported to African markets.

It can therefore be more profitable to assemble a cast of African raw materials in Europe, at times even with African labour, than to use African markets as a base for processing and manufacturing. For a European horticulturalist in Ghana today, it is cheaper and easier to transport all inputs from Europe, from greenhouse frames to cardboard boxes.

The African Continental Free Trade Area (AfCFTA) aims to eliminate friction, but more needs to be done, and faster, to develop the value chains that will carry the opportunities created by trade harmonisation. The upcoming Kwahu Summit in Ghana will bring together African political and business leaders to discuss practical solutions that underpin the AfCFTA. This is encouraging; however, such initiatives need to move beyond eloquent commitment to targeted action. This includes building legal, physical and digital infrastructure, revising tariff regimes and strengthening intra-African transport links. In short, the groundwork must be laid for Africa to become its own best trading partner, as it will certainly be its largest.

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