Trade in Africa: Still Quite an Adventure, but Worth It.
By Valimbavaka Raherimanjara
What does a gloomy day need? A cup of hot cocoa, a bar of chocolate or a slice of a moist vanilla cake? Whichever you decide, a good dose of dopamine-inducing treat can always do us good. But have you wondered where these products come from?
638 million vanilla beans consumed in the United States in a year come from Madagascar, and about 44% of the global cocoa demand comes from Côte d'Ivoire. This implies that produce from African countries features in people's daily lives worldwide. So how does a continent rich in resources have some of the poorest countries in the world? What is missing in the way African countries trade?
How does Africa trade?
To this day, some African countries still carry out the colonial period's production, consumption and distribution patterns. We export raw materials like cocoa, to other parts of the world and buy back value-added products, like chocolate, at a very high price that we cannot afford. The colonial regime introduced the monoculture model into African economies, which preferred exportable cash crops over food crops, thus eliminating intra-Africa trade and undermining Africa’s attempt at manufacturing. This was decades ago, yet this still influences the current manufacturing system in the continent.
Africa has 17% of the world's population, but only 2.8% of world trade in 2019, and 2% of industries. The share of processed products in Africa's exports to other continents is only 17%. By focusing on commodity products in the international trade scene, Africa continues to depend on developed countries. The trade policies of African countries should therefore be oriented towards the transformation of these raw materials before export, and also towards the diversification of products, so as not to depend on the same resources.
“Africa needs to see itself as the leader of the Fourth Industrial Revolution” Nancy Kaoungira
Should development involve industrialisation? A simple answer would be that developed countries are currently industrialised countries. Natural resources create wealth and employment opportunities, and even more opportunities through their transformation. Having natural resources is not enough; it will require competent human capital, investment in infrastructure, political stability, and an appropriate trade policy. Katanga, for example, is the richest province in the DRC. You will find almost all the mineral resources there: gold, silver, diamonds, uranium, and even 34% of the world's cobalt reserves. However, because of the government's inability to invest properly in the mining sector, the DRC has not been able to lift itself out of poverty even though Katanga's mineral resources account for more than half of the country's tax revenues.
"There is no wealth but of men" Jean Bodin
Successful industrialisation depends on human capital that is inclusive of women and youth. For example, in Benin, more than two million people depend on cotton cultivation. The cotton industry alone employs 30% of the country's workforce. Unfortunately, higher education institutions specialising in the textile and clothing industries are rare in Africa.
Instead of depending on expatriate professionals, we need to develop these skills ourselves. Innovation and industrialisation are therefore closely linked to education and vocational training. With a young population estimated to exceed 830 million by 2050, African countries must anticipate their skill needs and address the issue of mass unemployment. The African Union provides a list of professional skills needed to make Africa a foremost industrialised continent. These skills include agricultural engineers, food security specialists, urban and regional planning specialists, energy and mining engineers, space technology specialists, etc. If African countries do not consider developing training and industry-specialised schools, resources and wealth will continue to be mismanaged and the population will continue to miss out on the benefits.
There should be a concentrated effort to create policies that allow young Africans to find professional fulfilment in the continent, and also to allow them the opportunity to acquire the necessary skills close to home. These policies should persuade young people to participate in the transformation of Africa and make the development of the continent a priority.
“Infrastructure is key, but also how it’s used, and that’s political,” Paul Kagame
Infrastructure such as railway lines were built by the colonial power to transport mineral resources directly to ports for export. Unfortunately, regions not rich in exploitable natural resources were left out of infrastructure development. To this day, transport infrastructure in Africa remains inadequate and poorly maintained. The price of road transport in Africa remains among the highest in the world, representing up to 70% of the value of imported goods. In Central Africa, 80% of freight transport is by road, which has thus become the main means of transport providing access to the sea for imports and exports of goods. The price of transporting one tonne of goods over one kilometre along the Douala - N'Djaména corridor is three times higher than in Brazil and over five times higher than in Pakistan. The productivity of the industrial sector depends on good infrastructure for transporting raw materials and finished products.
Also, only 30% of the African population has access to electricity, compared to 70-90% in other parts of the developing world. Electricity is vital in industrial processes as everything has to be streamlined and mechanised using electric motors. Due to the lack of energy, small and large businesses are suffering, causing Africa to lose about 4% of its annual GDP. The cost of electricity is also very high in the continent, as energy consumers pay an average of 14 c$/kWh for electricity while those in South Asia pay only 4 c$/kWh. One of the main reasons is that 46% of African power plants run on fuel oil compared to only 6% in the rest of the world. This situation encourages companies that need energy stability to produce their own energy. While this is a good initiative, it could also send negative signals to potential investors, who may feel that in their investment budget, they must include the costs of producing their own energy. This begs the question: who will be paying for infrastructure spending in Africa?
Despite the fact that Africa's infrastructure financing needs have never been met, the main donors of African infrastructure remain African governments. However, Africa's weak industrial base and lack of cost recovery due to non-payment for electricity means that governments do not have sufficient revenue to fund new infrastructure. This provides an opportunity for the private sector, and bilateral and multinational donors to step in. China is the largest external donor of infrastructure in Africa, whose strategy is part of the "One Belt One Road" project, which aims to link China to Europe by land and sea. But the quid pro quo or concessions often demanded for infrastructure loans is access to resources for their exploitation. This can be seen in the case of oil in Angola and minerals in Guinea. African countries have to invest in their infrastructure while ensuring the protection of their economic interests. To do so, they will need to collect and mobilise private savings, have stable fiscal structures to collect taxes to cover their needs and prevent tax evasion.
“Once we have the infrastructure in Africa, it should not be blocked by borders”, Jacob Zuma
Intra-African trade has higher potential benefits for transformative and inclusive growth as 41% is made up of processed products. Unfortunately, intra-regional trade is still dependent on imports from outside the region. In 2019, Africa's intra-regional trade represented only 4.4% of total continental trade. The level of intra-African trade is 16%, as compared to 60% in Europe. More trade on the continent means more opportunities to retain investment, more chances to have thriving industries across Africa, and therefore more chances to have job-rich growth.
The African Continental Free Trade Area will lead to the creation of a single continental market of more than 1.3 billion people, with a combined annual output of $2.2 trillion. These promising figures are, however, masked by the fear of competition for some African countries, with fear that AfCFTA will only strengthen the wealth of already powerful countries at the expense of those trying to find their way to development. Some countries are also concerned with losses in tariff revenues and the unequal distribution of costs and benefits if they ratify the AfCFTA. But no major action can be taken without risk, and no one can move forward without deciding to take steps forward.
Politics will sit at the heart of a functional trade system. Focusing on building supply, technical and financial capacity will play a role in preparing African countries for the benefits that the AfCFTA promises. More so, improving Africa's skill base and improving regulatory convergence between African countries will go far in ensuring cooperation among countries. No one can deny the importance of trade for economic growth and poverty reduction. But making it work requires goodwill and the right trade policies.
Valimbavaka is a native of Madagascar who has lived most of her life in the capital Antananarivo. Se studied finance and accounting at the National Institute of Accounting Sciences and Business Administration in Madagascar (INSCAE Madagascar) and at the University of Poitiers in France. She currently holds two Masters degrees in accounting, management control and auditing, as well as two Masters of Research in management sciences. While doing these Masters, she worked full time as an accountant and corporate financial auditor in an audit firm in Antananarivo.
In 2019, she obtained the Chevening Scholarship, which allowed her to complete a Master's degree in Public Administration and Public Policy at the University of York. Having graduated in January 2021, Val is currently a public policy analyst. However, her interest lies more in economic policy issues in Madagascar and economic policy decision-making in Africa.
In her spare time, Val plays Valiha (the traditional Malagasy harp), an instrument she chose to learn to play, in particular, to symbolise her love for her country.
You can connect with her on Twitter @RAHERIMANANJAR1 and Linkedin - VALIMBAVAKA RAHERIMANANJARA
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