Is Africa Winning from Trade Integration?

Earlier this year the GED Team published the Study “The Forgotten Continent – The effects of mega-regional free trade agreements on Africa”. In it we looked at how agreements like the TTIP, the TPP or the FTAAP could affect Africa. With our new two-part video series, we want to take a second, closer look at the African economies and their potential future role in the world of global trade.

Trade integration in Africa – Part 1:

This Blogpost in short:

• Ever since colonial times Africa has been treated as a raw material supplier for the rest of the world.
• Today, especially fast rising Asian powers like china invest heavily in African natural resources.
• Trade within the African continent only makes up around 12% of total African trade.
• A large Africa Free Trade Zone could be the answer to this problem, countering the isolating effect of previous more regionally confined agreements.

As we discussed in previous posts, the history of African trade integration is not a pretty one. Once exploited as a raw material sandbox for colonial powers through much of the two previous centuries, even in today’s times of independence many African economies still have to rely heavily on their commodity export revenues to achieve any domestic growth. All too often, long term sustainability has to take a backseat to short term profits.

Still there is certainly no lack of demand for Africa’s many natural resources such as oil, diamonds, various metals and rare earth elements. Especially fast growing Asian economies such as China are keen to claim their share in Africa’s riches. In 2009 China overtook the US as Africa’s single largest trading partner and while a recent dent in Chinese growth figures has slightly slowed down Chinese investment into African economies, their long term interest in the market has only grown. According to China’s premier, Li Kequiang, the People’s Republic wants to double its current trade volume with the African continent of almost $200 billion annually to $400 billion by 2020.

The results of this for Africa are growing exports, rising foreign direct investment and an increase in overall GDP growth and average income levels per capita. Whether this is a sustainable strategy for the future though remains highly questionable.

So what does the situation look like within Africa?

Africa consists of 54 very different economies, each with their own individual interests, problems and chances. With their heavy reliance on raw material exports to non-African countries though, only about 12% of African overall trade takes place between African economies. That is only about a fifth of the intra-European trade percentage. Historically, a lack of continent wide infrastructure has always meant that trade between African nations took place for the most part within single regions and blocs of neighboring countries. Today, these blocs have transformed into regional free trade areas such as the South African Development Community (SADC), the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA), and even though better infrastructure is now in place, trade on the African continent is still largely confined to these isolated blocs.

Do regional free trade areas in Africa then have more of a trade isolating effect than a trade boosting one? Right now hopes are high in Africa for the coming Africa Free Trade Zone to resolve this problem and boost further intra-African Trade integration. The ambitious agreement, once fully implemented, will combine the aforementioned three large regional agreements into one and talks are being held about extending the zone to encompass all 54 African economies in the not too distant future.

But will an all African free trade zone truly bring the internal trade boost Africa has been seeking? At this point, it is simply too early to tell. For now Africa still remains largely dependent on commodity exports outside of Africa and with buyers like China, who are willing to invest big money into African markets to secure their dominant position, there is no clear end to this in sight yet.

Interested in more?

Read our study here or click here for part two of our video series on African trade integration where we will take a closer look at the example of South Africa!