Progress in Intra-African Trade

Transcription

1 Distr.: LIMITED UNITED NATIONS ECONOMIC AND SOCIAL COUNCIL ECONOMIC COMMISSION FOR AFRICA E/ECA/CTRC/7/5 16 May 2011 Original: ENGLISH Seventh Session of the Committee on Trade, Regional Cooperation and Integration Addis Ababa, Ethiopia 2-3 June 2011 Progress in Intra-African Trade.

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3 I. Introduction 1. African countries and their regional economic community blocs are pursuing integration through free trade and developing customs unions and a common market. Eventually, these efforts are expected to converge in an African Common Market (ACM) and an African Economic Union (AEU), whereby economic, fiscal, social and sectoral policies will be continentally uniform. Through such an economic marketplace, Africa can strengthen its economic independence and empowerment with respect to the rest of the world. 2. Trade has made and will continue to make a tremendous contribution to many developed and developing countries. It enables countries to specialize and export goods that they can produce cheaply in exchange for what others can provide at a lower cost. Trade also provides the material means in terms of the capital goods, machinery and raw and semi-finished goods that are critical for growth. This is a driving force behind economic development. If trade is a vehicle to growth and development, then removing the barriers that inhibit it can only help to increase its impact. Thus, free trade is an important instrument for removing such impediments and promoting greater levels of trade among African countries. 3. This report presents figures and analyses concerning Africa s trade flows and patterns, with particular reference to intra-regional and intra-african trade. It provides data on the direction and structure of Africa s intra-continental trade and with the rest of the world to identify the nature and scope of intra-african trade between 2000 and These figures are based on data from the International Monetary Fund (IMF) Direction of Trade statistics (DOT) of February 2009 and on trade data from 1995 to 2006 using the United Nations Conference on Trade and Development (UNCTAD) Handbook 2008, which, unlike IMF DOTS, permits trade flows by products to be analysed. II. Direction of Africa s Trade Table 1 illustrates the direction of exports by regional blocs to Africa and to global markets. Table 1: Direction of exports of regional blocs in $US millions, average between 2000 and 2007 Rest of RECs AFRICA CHINA ASIA EU JAPAN USA World WORLD CEMAC CEN-SAD CEPGL COMESA EAC ECCAS ECOWAS IGAD IOC MRU SADC UEMOA UMA Source: Compiled from IMF DOTS, February The data show that the major export destinations are the EU and USA, which constitute an average of 57 per cent of the exports of the regional blocs. For some blocs, the EU and USA comprise more than 60 per cent of their export markets. However, China in particular and Asia in general are increasingly becoming important export markets for Africa.

4 Page 2 5. Table 2 presents the percentage shares of the various sources of Africa s imports. As for exports, the major sources of imports to Africa lie outside the continent. The EU continues to be a major source of imports. Table 2: Average per cent share of import sources between 2000 and 2007 REC Africa China Asia EU Japan USA ROW World CEMAC CEN SAD 100 CEPGL COMESA EAC ECCAS ECOWAS IGAD IOC MRU SADC UEMOA UMA Source: Compiled from IMD DOT III. Growth of trade 6. The data in table 3 show the growth of trade on three fronts: intra-bloc trade, overall intra-africa trade, and Africa s trade with the rest of the world. 7. All blocs demonstrated moderate growth in intra-trade between 2000 and Intra-bloc exports generally registered an average growth rate of 15 per cent, compared with an overall growth in intra-africa exports of 25 per cent, suggesting that trade that is confined to the regional blocs is less optimal than Africawide trade. This would argue for redoubling efforts to harmonize community markets to create a larger Africa-wide marketplace, given that countries trading interests are not necessarily confined within their respective regional borders. It is also in recognition of this reality that at its Sixth Ordinary Session in Kigali on 2 November 2010, the Conference of African Ministers of Trade passed a resolution to fast track the establishment of an African Free Trade Area (FTA). 8. It is encouraging to observe that intra-african trade grew faster than Africa s trade with the rest of the world by about 10 per cent during the last 10 years.

5 Page 3 Table 3: Average per cent trade growth rates, Intra-REC Trade Intra-African Trade Trade with rest of the world RECs Exports Imports Exports Imports Exports Imports CEMAC CENSAD CEPGL COMESA EAC ECCAS ECOWAS IGAD IOC MRU SADC UEMOA UMA Average Source: ECA, compiled from IMF DOT, February IV. Assessing intra-african trade performance by country General assessment 9. This part examines the performance of individual African countries with respect to intra-african trade by looking at the extent and range of the products countries traded within continental Africa and with the rest of the world. Based on average trade data in value terms between 2000 and 2007 according to IMF DOT statistics, we examine in table 4 the value and share of countries exports to and imports from Africa. Table 4: Exports to and imports from African countries in $US millions Country Average Exports Average Share (%) Country Imports Share (%) South Africa 5, South Africa Nigeria 3, Zimbabwe Côte d Ivoire 1, Zambia Kenya Ghana Zimbabwe Côte d Ivoire Egypt Nigeria Zambia Mozambique Libya Mali Algeria Morocco Tunisia Egypt Senegal DRC Morocco Kenya

6 Page 4 Angola Angola Mozambique Tanzania Cameroon Uganda Togo Libya Djibouti Tunisia Tanzania Cameroon Ghana Senegal Uganda Malawi Mauritius Mauritius Gabon Algeria SACCA Excluding RSA Burkina Faso Mauritania Benin Malawi Somalia Benin Sudan Ethiopia Madagascar Niger Niger Congo DR Guinea Congo Rep Gabon Sudan Rwanda Burkina Faso Ethiopia Guinea Togo Liberia Liberia Madagascar Gambia Mali Mauritania Seychelles Congo Equatorial Guinea Equatorial Guinea Guinea Bissau Djibouti Somalia Chad Chad Sierra Leone Gambia Seychelles Burundi Burundi Sierra Leone Guinea Bissau CAR Comoros Rwanda Cape Verde Cape Verde CAR Comoros SACCA excluding RSA São Tomé1 & Príncipe São Tomé & Príncipe Total Total Source: ECA, compiled from IMF DOT, February As it can be observed from the data, South Africa remains a dominant player both in terms of exports to and imports from Africa. South Africa is followed by Nigeria, Côte d Ivoire and Kenya. On the import side, besides South Africa, countries like Zimbabwe, Zambia and Ghana were major importers of goods from the African continent. 1 SACCA consists of Botswana, Namibia, Lesotho and Swaziland.

7 Page 5 V. Intra-African trade potential 11. This section covers Africa s potential to supply its import needs from its own sources in the different project categories. Its data are based on average trade flows between 1995 and 2006 in terms of Africa s exports to the world (including to Africa) and its imports from the rest of the world. 12. Table 5 shows that between 1995 and 2006, Africa exported on average about $15 billion worth of goods in the basic food category against imports of about $21 billion. This information suggests that Africa registered negative terms of trade in this product category. Matching Africa s exports to the rest of the world against its imports from the world in this category also suggests a certain deficit in basic foods or lack of self-sufficiency in this product category. Similar tendencies occur in terms of manufactured goods, machinery, transportation equipment and chemical products. 13. However, the continent appears to be well-endowed in the categories relating to beverages and tobacco, and ores, metals and precious stones. It also appears to have a huge endowment in the fuels product category, where its world exports exceed its imports by a significant margin. This implies that Africa is more than capable of supplying its import needs in fuel. Table 5: Africa s world exports and imports: Average trade figures in $US, Exports Imports Difference Product Categories to World from World Basic food 14,875,274 21,052,701-6,177,427 Beverages and tobacco 1,934,175 1,653, ,458 Ores, metals, precious stones 19,304,114 3,931,312 15,372,801 Fuels 81,278,815 17,188,542 64,090,273 Manufactured goods 19,442,801 34,861,887-15,419,085 Chemical products 6,829,963 16,684,141-9,854,178 Machinery and transport equipment 9,685,665 53,868,421-44,182,756 Product total 153,350, ,240,722 4,110,086 Source: Compiled from UNCTAD Handbook A trade similarity or trade intensity index was also applied to gauge Africa s trade potential. The index is generally defined as the ratio of the share of a given country s exports to a partner to the share of that partner s similar index in the global imports of that commodity. The results showed that the exports of countries such as South Africa, Nigeria, Algeria, Egypt and Cameroon fit with the imports of most African countries. Algeria, Nigeria and Cameroon in particular have a high import-export similarity index with most African countries because of their major export commodity, which comprises mineral fuels, mineral oils and related products -the major export commodities of almost all African countries. South Africa and Egypt, on the other hand, are capable of exporting processed or manufactured commodities that are demanded by the rest of Africa. South African exports, for instance, are dominated by minerals and precious metals, followed by iron and steel and manufactured products, while Egypt s are dominated by mineral fuels and to some degree manufactured goods.

8 Page The potential is there for some African countries to supply exports to other countries on the continent. The question that arises is whether these potential suppliers are competitive enough to replace traditional African trading partners such as countries of the Organization for Economic Cooperation and Development (OECD) and emerging Asian countries such as China. 16. Table 6 shows the results of revealed comparative advantages (RCA) of manufactured exports of some African countries that have the potential to supply other African countries (South Africa, Egypt, Cameroon, Nigeria, Algeria and Kenya), compared with the current major African suppliers (Western Europe, the United States, Japan and emerging China and India). From the table, it can be observed that the African suppliers have RCAs less than half the level registered for OECD countries as well as China and India. In Africa, South Africa, followed by Egypt and Kenya, are relatively in good shape in terms of RCA, but their RCA is still below that of major trading partners outside Africa. This further demonstrates how challenging it is to exploit the potential for intra-africa trade. Table 6: Revealed comparative advantage for potential African suppliers Average ( ) Algeria Cameroon Egypt, Arab Rep Kenya Nigeria South Africa China India Japan Korea, Rep Germany Italy Netherlands France United Kingdom United States High-income OECD Sub-Saharan Africa Source: Computations based on WDI, World Bank (2008). 17. In addition to the RCA shown above, table 7 provides additional indicators of competitiveness between potential African suppliers and current OECD export suppliers to the continent. The consumer price index (CPI) ratio, as an indicator of general prices, is used for this purpose. As this table shows, in all African countries identified as potential suppliers, their domestic price is much higher than that of Africa s current export suppliers, or trading partners. The African potential suppliers do not fare better either in the relative level of their real effective exchange rate, export unit price, or in the composition of their exports with these countries. This again shows how limited the potential for intra-africa trade is.

9 Page 7 Table 7: Comparative advantage indicators of African potential versus current suppliers Potential CPI ratio of African suppliers potential suppliers with* Real effective exchange rate index of African potential suppliers Hightechnology exports (% of manufacture d exports)** Export unit price ratios of African potential suppliers OECD China India OECD China OECD China India Algeria Egypt nd! nd! Cameroon Kenya nd! nd! 5.20 nd nd! nd! Nigeria South Africa Source: Based on World Development Indicators (World Bank, 2008). Note: There are no data for OECD as a group in WDI, except for the first column, CPI. Thus, a simple average value of Italy, Japan, Korea, the Netherlands, Sweden, United Kingdom, United States and France for the year is used to represent Africa s major OECD trading partners. ** The comparable figure for OECD, China and India are 22, 24 and 4.7 per cent, respectively. 18. This analysis shows that given geographic proximity, economic size and cultural affinity, African countries have a great potential to increase intra-africa trade, but its realization is constrained by the lack of diversification and competitive position of potential African export suppliers. This makes the short-run potential of intra-africa trade very modest. 19. This does not mean, however, that there is no future for intra-africa trade. Its realization will require addressing head-on the present constraints to export supply and diversification. These are one of the key challenges to intra-africa trade and regional integration. This, in turn, requires unpacking what is behind supply constraint, competitiveness and the record of poor diversification in the continent. The first step towards fixing this is to identify the constraints and begin to address them. The next section tries to highlight some of these issues. VI. Supply and other constraints limiting the potential of intra- African trade 20. Intra-African trade owes its current modesty to a lack of diversification and competitiveness. These constraints can be attributed to factors including the nature of African economies, lack of or poor condition of trade-related infrastructure (including trade logistics), and other trade facilitation and supply bottlenecks. Some of these major difficulties are further explained below. Nature of African economies 21. The relatively small weight of intra-regional trade in Africa, despite the existence of several (and frequently overlapping) RECs, is due largely to their structure of production and the composition of exports. Many countries still specialize in a few primary commodities, while most of their imports consist of manufactures, thus the potential for intraregional trade is limited because of this lack of diversification and competitiveness. For instance, the low level of intraregional trade in ECOWAS, according to Shams (2003), is explained by the high dependence of most member countries on exports of primary commodities and by a trade liberalization scheme that has strict rules of origin. Access to the regional market is especially difficult for those

10 Page 8 firms and sectors in their early stages of development, given the low degree of internal integration. Such firms have to rely on imported inputs, and the content of domestic value added in their products is often too small to satisfy the rules of origin. Weak trade infrastructure 22. In many cases, formal trade liberalization is unsuccessful partly because fundamental aspects of trade logistics, such as infrastructure, were compromised. According to Longo and Sekkat (2001) a 1 per cent increase in the stock of transportation and telecommunication infrastructure in the exporting country boosts its exports to other African countries by about 3 per cent. As presented in table 8, constraints such as poor infrastructure, or its complete absence, make trade physically difficult, if not impossible, independently of the trade regime. For instance, the length of paved roads as per cent of total roads in Africa is about five times less than that of highincome OECD countries (and nearly two-thirds of the OECD level in North Africa). The telephone coverage is much worse for North and sub-saharan Africa compared with that of OECD. 23. The end-result of this infrastructure bottleneck is the fact that transport costs are 63 per cent higher in African countries compared with the average in developed countries (UNECA, 2004). They are estimated at 14 per cent of the value exported in the first group of countries, against 8.6 per cent in the second. Freight cost, as a percentage of the imported value, stood at 11 per cent for North African countries, i.e., 111 per cent more than industrialized countries and 25 per cent more compared with the average in developing countries. Table 8: Infrastructure indicators in Africa (average) compared to OECD countries Infrastructure indicators Roads Telephone High-income countries (OECD) Africa North Africa Sub-Saharan Africa Sub-Saharan Africa excluding South Africa Sub-Saharan Africa excluding South Africa and Nigeria Source: Based on World Bank, ADI (2008a) and WDI, World Bank (2008b). 24. Deficient telecommunications services also tend to isolate African States from one another. Consequently, it is much easier and more comfortable for businessmen in Africa to deal with their counterparts in Europe and North America than with their fellow Africans (Yeboah, 1993). 25. Intra-Africa trade is further hamstrung by the absence of market information. While the standard trade theory assumes that such information about product availability in foreign countries, their characteristics and prices is accurate and costs nothing, in Africa, where communication links among countries are few and indirect, relevant market information may be expensive for both importers and exporters (Yeboah, 1993). Multiplicity and inconvertibility of currencies 26. Multiple currencies also raise international trade costs, as those in business are confronted with the cost of currency conversion and related market uncertainties. CEMAC and UEMOA are monetary unions, anchored on the CFA franc as a common currency. In the Common Monetary Area (CMA), the South African rand circulates freely as a common currency under a floating arrangement embracing countries such as Namibia, Swaziland and Lesotho. Countries of the East African Community have floating currencies. Most of the non-

11 Page 9 UEMOA members of ECOWAS also have floating exchange rates. Although these are encouraging trends, the multiplicity of African currencies and exchange-rate arrangements (including their associated uncertainties) argues for the establishment of clearing mechanisms in the short run and some kind of monetary union in the long run. 27. The issue of multiple non-convertible currencies is further compounded by inefficient payment mechanisms, insurance requirements and customs guarantees. Documentary credit payment, which is popular in Africa, is characterized by cumbersome procedures. Its basis is a series of checks in which the progress of goods towards the buyer is pinned to the progress of payment to the seller. The process is time-consuming, requires the physical movement of documents between different banking establishments in two different countries, is not well-understood and is often badly managed. It has been reported that half of all requests for payment are rejected on the grounds of documentary inconsistencies (Njinkeu and Fosso, 2006). Other trade facilitation challenges 28. Delays at African customs are, on average, longer than in the rest of the world: 12 days in sub-saharan countries compared with seven days in Latin America, less than six days in Central and East Asia, and slightly more than four days in Central and East Europe. These delays add a tremendous cost to importers and exporters (ECA, 2004), and they increase the transaction costs of trading among African countries. 29. Each transport day lost due to customs and related problems is equivalent to a tax of about 0.5 per cent (Hummel 2000, reported in Global Economic Prospects, 2005, World Bank). The situation is worse when crossing borders between African countries. 30. In addition, delays and complicated procedures related to insuring goods and customs guarantee requirements raise the cost of exporting from Africa and compromise the continent s competitiveness. It is estimated that each day of delay reduces the export volume by about 1 per cent. At this rate, if Uganda, for example, reduces its factory-to-ship time from the current level of 58 days to 27 days, its exports would increase by 30 per cent (Njinkeu and Fosso, 2006). Table 9 shows how competitiveness in African trade could be adversely affected by delays in customs clearing, the cost of doing business, the business regulatory environment and macroeconomic management, where African countries rarely register good ratings. Table 9: Indicators of competitiveness related to trade facilitation for selected countries SSA North Rwanda outh Africa Angola Botswana Egypt Africa Average time to clear customs na (days) Trade rating (1=low to Na 4.0 na 4.0 6=high) Cost of business start-up procedures (percent of GNI per capita) Business regulatory Na 4.0 na na environment rating (1=low to 6=high) Macroeconomic management rating (1=low to 6=high) 3.5 na 4.0 Na 3.0 na na Source: World Development Indicators, World Bank, 2008.

12 Page 10 IV. Conclusions and policy implications 31. This Policy Brief has examined the nature of the potential for intra-africa trade. The analysis suggest that although results from a gravity model suggest a potential for intra-africa trade, realizing this potential and hence the effort to advance regional integration through intra-africa trade is challenged by the similarity of exports and imports and the relative competitive position of African suppliers. This is the result of weak infrastructural basis, weak productivity and weak trade facilitation. 32. The issue is fundamentally about addressing supply constraint and the competitiveness of African exports and their diversification. One fundamental policy direction in this regard is to go beyond liberalization to the actual creation of trade potential through providing infrastructure, and intensifying trade facilitation and diversification. This effort may be problematic, as most African countries find themselves at differing levels of development and have limited resources. However, effective regional integration schemes should address these challenges through multi-country infrastructure plans and coordination. 33. Advances in regional integration and intra-africa trade growth are also conditional on other important policies implemented by individual or group of countries. Rodrick (2006, cited in Biggs, 2007) for instance noted that Bangladesh s relative factor endowments are similar to those of China: abundant labour and scarce human and physical capital. But China has an export bundle that is 50 per cent more sophisticated than that of Bangladesh, a difference that must have a great deal to do with policy. China has made a determined effort to transfer technology into the country and to diversify exports while Bangladesh has not. China, Vietnam and India have successfully integrated their economies into the world market, not through open liberalization, but by identifying and promoting exports and diversification that best suited their initial condition, political economy and institutional constraint (Biggs, 2007). Similarly, Africa s policy towards regional integration and intra-africa trade need not be a one-size-fits-all policy prescription. It should be tailor-made to suit both regions and individual countries. Such a policy also needs to consider diversification the central issue, as the lack of exportimport similarity is a chief hindrance to intra-africa trade and regional integration. 34. Finally, deeper determinants of progress are related to issues of geography, incentives, capability, infrastructure, institutions and initial conditions (Biggs, 2007). A sustainable solution needs to address these problems in the medium to long term. This should be carried out in a phased and coordinated fashion at national, regional and continental levels.

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