Regional trade could help solve Africa’s economic woes, so what’s holding it back?
A common market like the one in eastern and southern Africa can bring great benefits, but only if governments look beyond short-term solutions.
Edwin Moyo takes a stroll through his maize field, smiling as the lush green leaves of his crop brush against each other in response to the breeze. Busy amid the serenity of his two-hectare farm in the west of Zimbabwe, his patient tending looks likely to pay off, as the rainy season did not disappoint. The thick maize cobs spread out across the field are now the envy of his neighbours.
Moyo’s friends at the local pub have advised him to look to the export market if he wants a favourable return, as the local grain marketing board has let down farmers on payments, year after year. He plans to sell his maize in nearby Zambia, but he is in for a nasty surprise. Just about every farmer in the region is selling the same crop Moyo has worked so hard to grow. Worse still, Zimbabwe’s government, facing a dire food deficit, already plans to import maize from Uganda, further dampening his prospects.
Edwin’s story is the same for many farmers and traders in eastern and southern Africa. Regional integration in Africa has long been touted as a pathway to rapid economic growth and development. But Africa remains the world’s least connected continent in terms of commerce and ease of movement for production.
The Common Market for Eastern and Southern Africa (COMESA) is a trade bloc comprising 21 member states, modelled more or less along the lines of the European Union. But COMESA states producing and exporting similar commodities have tried to protect their domestic industries, which has led to low trade between members.
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Other barriers, which include years of dithering on trade agreements made and the advent of the Covid-19 pandemic, have all led to sluggish intra-African trade and competitiveness.
Time to diversify
In 2019, up to 68% of all European exports were to trading partners on the same continent, while intra-regional trade in Asia stood at 60% of all exports. These levels can be attributed to high levels of industrialisation, export diversification and trade policy coherence. In contrast, the vast majority of Africa’s economies lack globally competitive industries and services.
In a recent COMESA research paper, it was established that intra-COMESA exports were 112% below its average exports to African countries outside the bloc. The region’s efficiency in exports was found to be low, at 47.1%.
COMESA’s research shows that intra-regional trade is weakened primarily by the absence of product diversity. In other words, everybody is producing and doing the same thing for one reason or another. The top five COMESA exports include tobacco and tobacco substitutes, ores, slag and ash, essential oils and resinoids, plus sugars and confectionery. Mineral fuels remain among COMESA’s top exports to the rest of the world.
A policy paper from the Brookings Institution think tank argues that internal trade can help member states’ industries to become more competitive through economies of scale as well as by eliminating less productive players in the market. This type of trade can also establish and strengthen commodity value chains, as well as attract much-needed foreign investment.
Protection at a price
Problems ranging from poor environments for doing business to protectionism are stifling intra-regional trade, as examples from several countries illustrate. In Zimbabwe, for instance, the advisory firm Morgan and Co. found that domestic demand for commodities was shrinking due to the country’s economic challenges. High customs duties levied on imported raw materials make locally manufactured products expensive at both domestic and regional levels.
In an example of protectionism, Kenya recently successfully applied to COMESA for a two year extension of a ‘sugar safeguard’, a measure that shields its local sugar industry by limiting imports from other member states. Elsewhere, in its 2020-21 budget, the government of Uganda announced exorbitant import duties on some regional products. Critics argue that protectionism is a short-term solution that can push countries out of accessible markets.
Factors such as these, along with low levels of industrialisation, clearly make the implementation of COMESA trade integration programmes difficult. But the proliferation of non-tariff barriers such as embargoes, sanctions, levies and quotas, makes intra-regional trade even harder.
A further problem has been introduced by the global pandemic, after countries introduced restrictions on the movement of goods and people. According to Keith Rockwell, director for information and external relations at the World Trade Organization (WTO), the pandemic has allowed many African countries to backslide on free trade agreements, with lorries delayed at border crossings and drivers required to spend time in quarantine.
“Our economists expect Africa's exports will fall by 5.2%, less severe than in other regions, but they expect that the rebound will be smaller too, with growth of 3.1% in 2021,” said Rockwell.
One way to boost trade would be for COMESA governments to eliminate tariffs between member states, a measure required by the broader African Continental Free Trade Area (AfCFTA) agreement of 2018. States would face a marginal fall in tax revenue, but according to at least one study by economists, governments should easily be able to absorb these losses.
Promoting this type of intra-African commerce is one way of diversifying the continent’s products and export markets. Such a diversification is crucial for attaining the full benefits that trade can offer. Additionally, member states need to harmonise macroeconomic, legal and regulatory policies to ensure that economic growth catalyses trade within the region.
Until this happens however, for farmers like Moyo, talk about the benefits of COMESA membership will remain in the abstract. In the meantime, the best he can do is to continue with his age-old farming methods, just to make ends meet.
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