Trade & investment
5 reasons #TradeMatters for Africa
The African continent is home to over a quarter of the world’s population yet only accounts for around 3% of global trade. On the occasion of ICC’s World Trade Agenda Day in Nairobi, Kenya, business leaders are discussing how trade can spur jobs and growth in Africa.
On 7 June 2017, ICC is hosting local and global business leaders in Nairobi, Kenya for a series of top-level discussions on the future of global trade and our rules-based trading system. Organised in partnership with the Qatar Chamber of Commerce and Industry and the Kenya Private Sector Alliance, World Trade Agenda day places the spotlight on Africa and the how trade can fuel economic growth across the continent.
As the day’s discussions proceed, here are five key reasons that trade matters to Africa:
1. Trade has lifted hundreds of millions out of poverty
Often referred to as one of the most successful anti-poverty catalysts in history, trade has lifted up to one billion people out of poverty by some calculations. Many of these beneficiaries are spread across Asia, where greater integration into global markets has driven unparalleled growth and development in China and other emerging economies. While worldwide poverty rates have declined in recent decades, 40% of people living in Sub-Saharan African remain in absolute poverty.
Given its impressive track record, many economists believe that trade is key to the economic prospects of many African nations. According to Akinwumi Adesina, President of the African Development Bank, US legislation giving African countries preferential trade access to the United States has already allowed non-oil African exports to the US to reach US$4.5 billion annually, creating countless jobs. Given Africa’s fast-growing population and immense resources, further trade links could stimulate mass job creation and lift many more Africans out of poverty.
2. Africa is underrepresented in world trade
Despite the fact that Africa accounts for over a quarter of the world’s population (a share that is quickly increasing), the continent’s share in world merchandise trade stood at only 3.3% in 2014. Moreover, African countries barely trade with each other, even though regional economic integration is often crucial to development. Intra-African trade makes up only 10% of the continent’s total trade, with most exports going to the world’s advanced economies.
3. The WTO’s Trade Facilitation Agreement has huge potential for Africa
Having entered into force in early 2017, the World Trade Organisation’s (WTO) Trade Facilitation Agreement (TFA) is a global deal on border measures that aims to make it easier for companies to trade. The agreement is a game-changer for Africa, which is home to some of the world’s most cumbersome cross-border trade procedures in the world. Customs delays in Sub-Saharan Africa are the longest in the world, where it takes 15 days on average to clear imports from customs.
Time-consuming and opaque border procedures hurt small and medium-sized companies (SMEs) the most, many of which lack the resources or connections that bigger players benefit from when dealing with customs. Levelling the playing field through simpler transparent rules would mean that many African SMEs could export their products to global markets for the first time. The Organisation for Economic Co-operation and Development estimates that TFA implementation would increase the number of products exported from Sub-Saharan Africa by 16% while increasing the number of export destinations by 28%.
4. Africa is suffering from the trade finance gap
World trade relies heavily on reliable sources of financing, where banks help mitigate traders’ risks by bridging the time-lag between the manufacture of goods, shipment and the receipt of payment. This is especially true in Africa, where risks may be considered greater than in other regions yet a growing trade finance gap that now stands at US$1.6 trillion has been making it difficult for operators on both ends of African trade to gain access to the financing they need.
According to ICC’s 2016 Global Trade Finance Survey, much of this is due to the unintended effects of global financial crime regulation that lead international banks to pull out of ‘risky’ countries. ICC has led a United Nations effort to review the causes of the trade finance gap, which hits developing economies in Africa the hardest. In the Central African Republic, for example, only one correspondent banking relationship—a bilateral agreement to handle basic trade finance services—remains.
5. Digital trade can transform African economies
The e-commerce boom has swept countries around the world, in some cases sparking new waves of SME-led growth. In China, it is estimated that the Internet giant Alibaba created 33 million jobs in its home country, as each third party vendor that uses its platform has created at least three further jobs. E-commerce is also intensely international. Companies that use online sales platforms have been shown to be up to five times more likely to export than companies that have no Internet presence.
As Internet access continues to accelerate throughout Africa, local companies can connect to domestic suppliers and foreign customers in an easier and more direct way. While improvements in infrastructure and regulatory structures remain critical for many African countries to fully take advantage of new technologies, the enormous potential of e-commerce for Africa mean that trade matters more than ever for the continent.