Im­pact Se­ries: 04–21

Africa’s Trade Potential:
Escaping the Colonial Past by
Building a Self-Sustaining Future

Michael Blanga-Gubbay
Senior Research Fellow at the Kühne Center for Sustainable Trade and Logistics at the University of Zurich

Outline

Africa accounts today for 17% of the world’s population, but less than 3% of global GDP. With a fast-growing population, the continent is projected to reach 4.3 billion inhabitants (39% of the world’s total) by the end of the century. This big domestic market could represent a significant opportunity, but the economy of the continent is not growing at the same pace. In fact, Africa is still struggling to overcome its colonial past, and to gain from its current (new-colonial) dependency from China. The consequences of this can be seen in the extremely low share of intra-African trade and the underdeveloped within-continent infrastructure network. The newly implemented African Continent Free Trade Area (AfCFTA) could prove to be a pivotal step forward, paving the way for self-sustaining economic growth and long-lasting social and geo-political stability on the African continent.

Full Article

An economic and geo-political outlook

The African con­ti­nent is char­ac­ter­ized by deep de­mo­graph­ic and eco­nom­ic het­ero­gene­ity. Tak­en as a whole, it counts more than 1.34 bil­lion in­hab­i­tants, or 17% of world’s pop­u­la­tion, mak­ing it the sec­ond most pop­u­lous con­ti­nent. It is also the fastest grow­ing con­ti­nent (Fig­ure 1): with a growth rate of more than 2.5% per year, to­tal pop­u­la­tion in Africa is pro­ject­ed to reach 4.3 bil­lion (and al­most 40% of world’s to­tal) by the end of the cen­tu­ry. Nige­ria – Africa’s most pop­u­lous coun­try – has now 200 mil­lion in­hab­i­tants and oc­cu­pies the 7th po­si­tion in the world rank­ing. The coun­try is ex­pect­ed to quadru­ple its pop­u­la­tion by 2100, and to be­come the sec­ond most pop­u­lous coun­try in the world, sec­ond only to In­dia.

The big do­mes­tic mar­ket could rep­re­sent a sig­nif­i­cant op­por­tu­ni­ty for eco­nom­ic growth. Nev­er­the­less, the con­ti­nent is fac­ing chal­lenges in re­al­iz­ing its full po­ten­tial. There are sig­nif­i­cant eco­nom­ic de­vel­op­ment gaps both be­tween Africa and the rest of the world, as well as among African coun­tries. These gaps, rather than nar­row­ing, are con­stant­ly in­creas­ing. Look­ing at the evo­lu­tion of GDP over time (Fig­ure 2), it is ev­i­dent that this di­ver­gence is widen­ing steadi­ly.

Even when com­pared to emerg­ing economies, Africa is lag­ging be­hind in terms of eco­nom­ic de­vel­op­ment and pover­ty re­duc­tion. This can be seen also in terms of GDP per capi­ta (Fig­ure 3): from the 60s till mid-90s sub-Sa­ha­ran Africa had a high­er GDP per capi­ta than East Asia, now East Asia’s GDP per capi­ta is more than 5 times larg­er than the sub-Sa­ha­ran African one. More­over, pover­ty is still ex­treme­ly wide­spread in Africa where 32 out of 48 Least-De­vel­oped Coun­tries are lo­cat­ed.

Africa is lagging behind in terms of economic development and poverty eduction.

In to­day’s dom­i­nant dis­course, the de­vel­op­ment tra­jec­to­ry of many sub-Sa­ha­ran African coun­tries is con­sid­ered a fail­ure, where­as that of East Asian coun­tries is pic­tured as a suc­cess.

One of the main ex­pla­na­tions for this di­ver­gence is to be found in the colo­nial past of Africa, which still has se­vere reper­cus­sions to­day. One of the main longterm out­comes is the deep so­cial and po­lit­i­cal in­sta­bil­i­ty of the re­gion. African coun­tries are among the most un­sta­ble in the world (Fig­ure 4). Ac­cord­ing to the Frag­ile State In­dex pro­duced by the Fund for Peace – which uses a 12 fac­tors sys­tem to de­ter­mine the rat­ing of each na­tion, in­clud­ing se­cu­ri­ty threats, eco­nom­ic im­plo­sion, hu­man rights vi­o­la­tions and refugee flows – nine­teen of the twen­ty-five most frag­ile states are in Africa.¹

African countries are among the most unstable in the world.

The eco­nom­ic ef­fects of the col­o­niza­tion era, of the un­suc­cess­ful de­col­o­niza­tion, and of the po­lit­i­cal in­sta­bil­i­ty of the con­ti­nent can be eas­i­ly seen by an­a­lyz­ing the ac­tu­al African pat­terns of trade.

Africa is lagging behind in terms of economic development and poverty eduction.

Africa is a mar­gin­al play­er in glob­al trade (Fig­ure 5). To­tal trade from Africa to the rest of the world av­er­aged $760,463 mil­lion in cur­rent prices in the pe­ri­od 2015–2017, com­pared with $481,081 mil­lion from Ocea­nia, $4,109,131 mil­lion from Eu­rope, $5,139,649 mil­lion from Amer­i­ca, and $6,801,474 mil­lion from Asia.² Even with this low share of par­tic­i­pa­tion to glob­al trade, Africa de­pends heav­i­ly on trade with the rest of the world, mak­ing the con­ti­nent ex­treme­ly vul­ner­a­ble to ex­ter­nal trade shocks. More con­crete­ly, the share of ex­ports from Africa to the rest of the world ranged from 80 to 90 per­cent in 2000–2017. The only oth­er re­gion with a high­er ex­port de­pen­dence on the rest of the world is Ocea­nia. Con­verse­ly, the share of in­trare­gion­al ex­ports in to­tal ex­ports is low­est in Africa, com­pared with oth­er re­gions. In­tra-African ex­ports were 16.6 per cent of to­tal ex­ports in 2017, com­pared with 68.1 per­cent in Eu­rope, 59.4 per­cent in Asia, 55.0 per- cent in Amer­i­ca.³ On the bright side, Africa, along with Asia, is the only re­gion with a ris­ing trend in in­tra-re­gion­al trade from 2008 (Fig­ure 6). A boost in re­gion­al trade is cru­cial to help Africa re­duce its vul­ner­a­bil­i­ty to ex­ter­nal trade shocks.

With re­gards to the prod­uct and sec­toral com­po­si­tion of in­tra-African trade, even if the con­ti­nen­tal mar­ket re­mains lim­it­ed in size, in­trare­gion­al ex­ports ap­pear to be more di­ver­si­fied and less pri­ma­ry com­mod­i­ty-de­pen­dent than ex­ports from Africa to the rest of the world (Fig­ure 7).

Africa depends heavily on trade with the rest of the world, making the continent extremely vulnerable to external trade shocks.

Min­er­al prod­ucts ac­count for one third of in­tra-African ex­ports and con­sti­tute half of to­tal ex­ports from Africa to the rest of the world. At the ag­gre­gate lev­el, in 2015–2017, ex­ports of man­u­fac­tures ac­count­ed for 45 per cent of in­tra-African ex­ports, but only 20 per cent of ex­ports from Africa to the rest of the world.

The oth­er im­por­tant trend in African trade is the sharp growth of trade with Asia, and more specif­i­cal­ly with Chi­na. The ge­o­graph­i­cal lo­ca­tion of Africa’s main trad­ing part­ners has been chang­ing since 2000. While many coun­tries in Africa and Asia are cap­tur­ing big­ger shares, some coun­tries in Eu­rope, North Amer­i­ca, Aus­tralia and parts of South Amer­i­ca ex­pe­ri­ence gen­er­al­ly de­clin­ing shares (Fig­ure 8).

All of these trends are vi­su­al­ly sum­ma­rized in Fig­ure 9, which il­lus­trates the im­por­tance of trade be­tween Africa and oth­er re­gions. Eu­rope is still the biggest trad­ing part­ner for Africa, but its cen­tral role has been erod­ed by the in­creas­ing im­por­tance of Asia.

Some of these trends can be ex­plained also in light of the ex­treme­ly un­der­de­vel­oped in­fra­struc­ture net­work of the African con­ti­nent. In fact, the de­fi­cien­cies in trans­port in­fra­struc­ture part­ly led to the low trade lev­els with­in the con­ti­nent, and are still one of the biggest ob­sta­cles in re­vert­ing this trend. More­over, the ex­ist­ing con­ti­nent’s in­fra­struc­ture was pur­pose-built for the colo­nial ex­port of raw ma­te­ri­als — and lit­tle has changed since African na­tions achieved in­de­pen­dence be­gin­ning in the 1950s.

The net­work across Africa, in­clud­ing long-dis­tance and re­gion­al, is still of ex­treme­ly low den­si­ty and poor qual­i­ty, al­though the sit­u­a­tion varies con­sid­er­ably across coun­tries. While road is the main mode of trans­port, car­ry­ing 90% of pas­sen­gers and 80% of goods, more than 50% of roads are still un­paved.

Less than half the pop­u­la­tion has ac­cess to all-sea­son roads, which in­cludes ur­ban and smallscale roads. This is­sue is ex­ac­er­bat­ed by ve­hi­cle over­load­ing and in­ef­fi­cient road main­te­nance, par­tic­u­lar­ly in least de­vel­oped coun­tries.

In the last decades, Chi­na played a key role in build­ing the in­fra­struc­ture net­work of the con­ti­nent, and its pre­dom­i­nance is fast in­creas­ing. The In­fra­struc­ture Con­sor­tium for Africa es­ti­mat­ed that in 2018 Chi­na con­tributed $25.7 bil­lion of the over­all $100.8 bil­lion com­mit­ted to­ward African in­fra­struc­ture de­vel­op­ment projects. A 2017 McK­in­sey re­port es­ti­mat­ed that Chi­nese con­struc­tion en­ter­pris­es won al­most half of all en­gi­neer­ing, pro­cure­ment, and con­struc­tion con­tracts con­ti­nen­twide — in­clud­ing those fund­ed by non-Chi­nese sources like the World Bank.

Most of the projects are in the Trans­port, Ship­ping and Ports sec­tors (52.8%), fol­lowed by En­er­gy and Pow­er (17.6%), Real Es­tate (14.3%, in­clud­ing in­dus­tri­al, com­mer­cial, and res­i­den­tial), and Min­ing (7.7%). Chi­na’s em­pha­sis on in­fra­struc­ture con­struc­tion in­creased with the launch­ing of the Belt and Road Ini­tia­tive (BRI).

As of April 2020, 42 out of 54 African coun­tries have signed agree­ments with Chi­na to be part of it. Look­ing at the data, is seems that there are very few al­ter­na­tives for Africa to fi­nance its in­fra­struc­tures. The EU for ex­am­ple, de­spite be­ing (still) the con­ti­nent’s biggest trade part­ner, fund­ed only 6% of African in­fra­struc­tures in 2019, while Chi­na fund­ed 20.8% of them.⁴

How­ev­er, in re­cent years, con­cerns have been raised about the pro­lif­er­a­tion of Chi­nese in­volve­ment in Africa. Aca­d­e­mics, pol­i­cy­mak­ers, and oth­er ob­servers have stressed the risk of a new wave of colo­nial­ism in Africa: Chi­nese in­vest­ments in the con­ti­nent could re­sult in a “debt-trap diplo­ma­cy” i.e., the way for Chi­na to in­crease its lever­age over Africa through enor­mous debt.

AfCFTA: The potential for a self-sustained growth for Africa

There is still po­ten­tial for Africa to es­cape its colo­nial past and its in­creas­ing (new-colo­nial) de­pen­dence to Chi­na. This could hap­pen main­ly by ex­ploit­ing the big po­ten­tial of the boom­ing African do­mes­tic mar­ket. So far, one of the main dif­fi­cul­ties of the con­ti­nent is still re­lat­ed to the fact that the mar­kets are small, frac­tured, and part­ly iso­lat­ed. Af­ter gain­ing in­de­pen­dence, many African coun­tries at­tempt­ed to fos­ter eco­nom­ic de­vel­op­ment by es­tab­lish­ing sev­er­al Re­gion­al Eco­nom­ic Com­mu­ni­ties (REC), or by ex­ploit­ing cross-bor­der agree­ments that ex­ist­ed even dur­ing the colo­nial pe­ri­od. These at­tempts have been just par­tial­ly suc­cess­ful. Nowa­days there are eight Re­gion­al Eco­nom­ic Com­mu­ni­ties (RECs) that are rec­og­nized as the build­ing blocks of the African Eco­nom­ic Com­mu­ni­ties by the 1991 Abu­ja Treaty.⁵ How­ev­er, sev­er­al RECs have over­lap­ping mem­ber­ships and seem to com­pli­cate in­stead of fa­cil­i­tat­ing trade re­la­tion­ships among the African coun­tries. Fig­ure 10 gives a vi­su­al rep­re­sen­ta­tion of the ex­tent through which these re­gion­al agree­ments over­lap among them­selves. It is cru­cial to uni­fy the trade regime across the con­ti­nent in or­der to pro­mote the flow of goods and ser­vices with­in the African bor­ders.

There is still potential for Africa to escape its colonial past.

The new­ly com­menced African Con­ti­nen­tal Free Trade Area (AfCF­TA) could rep­re­sent the right step for­ward to tack­le all of these chal­lenges, and the nu­mer­ous failed at­tempts to es­cape eco­nom­ic stag­na­tion. The agree­ment was first signed on March 21, 2018 by 44 of the 55 African coun­tries.⁶ While this rep­re­sent­ed a huge suc­cess, there were two no­table hold­outs: Nige­ria and South Africa, the two largest economies in Africa. Fol­low­ing sev­er­al ad­di­tion­al rounds of ne­go­ti­a­tions, as of July 2019, 54 of the 55 African Union states had signed the agree­ment, with Er­itrea the only coun­try not sign­ing it. Af­ter months of de­lay be­cause of the COVID-19 pan­dem­ic in Africa, the AfCF­TA of­fi­cial­ly (but large­ly sym­bol­i­cal­ly) launched on Jan­u­ary 1, 2021. The free-trade area is the largest in the world in terms of the num­ber of par­tic­i­pat­ing coun­tries since the for­ma­tion of the World Trade Or­ga­ni­za­tion.

The AfCFTA free-trade area is the largest in the world in terms of the number of participating countries since the formation of the WTO.

The trade agree­ment has am­bi­tious long-term goals of deep­en­ing in­te­gra­tion among African Union mem­ber States and build­ing a pros­per­ous and unit­ed Africa. Among the main ob­jec­tives of the AfCF­TA are the fa­cil­i­ta­tion, har­mo­niza­tion, and bet­ter co­or­di­na­tion of trade regimes as well as the elim­i­na­tion of chal­lenges as­so­ci­at­ed with mul­ti­ple and over­lap­ping trade agree­ments across the con­ti­nent. Through this agree­ment, African economies hope to strength­en the com­pet­i­tive­ness of the lo­cal in­dus­tries, re­alise economies of scale for do­mes­tic pro­duc­ers, bet­ter al­lo­cate re­sources, and at­tract for­eign di­rect in­vest­ments. The Phase I of the agree­ment, which cov­ers goods and ser­vices lib­er­al­iza­tion, was ne­go­ti­at­ed in 2018 at the Ki­gali sum­mit. Ne­go­ti­a­tions for Phase II be­gan in Feb­ru­ary 2019. These ne­go­ti­a­tions will cov­er pro­to­cols for com­pe­ti­tion, in­tel­lec­tu­al prop­er­ty, and in­vest­ment. The agree­ment re­quires mem­bers to re­move tar­iffs from 90% of goods (each na­tion is per­mit­ted to ex­clude 3% of goods from this agree­ment), al­low­ing free ac­cess to com­modi­ties, goods, and ser­vices across the con­ti­nent. The Unit­ed Na­tions Eco­nom­ic Com­mis­sion for Africa es­ti­mates that the agree­ment will boost in­tra-African trade by 52 per­cent.
The AfCF­TA rep­re­sents an un­prece­dent­ed op­por­tu­ni­ty to ad­dress high tar­iffs and trade costs across these re­gion­al eco­nom­ic com­mu­ni­ties, and to boost in­tra-African trade and hence ben­e­fit from re­gion­al in­te­gra­tion. This agree­ment could prove to be a piv­otal step for­ward, paving the way for self-sus­tain­ing eco­nom­ic growth and long-last­ing so­cial and geo-po­lit­i­cal sta­bil­i­ty on the African con­ti­nent.