Carlos Lopes

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Can trade make a difference in Africa?

5 August 2013
Can trade make a difference in Africa?

It is unquestionable that Africa is on a major ascendance path, a trend shared by the rest of the rising ‘South’. Despite the global economic downturn of recent years, the continent has experienced unprecedented growth. While erratic at times, there has been progress in the reduction of poverty, and the improved quality of life has brought economic opportunities for many Africans.

Trade has significant potential to help achieve sustainable development and has increasingly played an important role in the strong economic performance of African economies during the past decade. Indeed, trade performance has shown great resilience even in the face of the ongoing economic crisis.Still, Africa needs to look at its continuous economic growth in light of the three pillars of sustainable development – economic, environmental and social – and assess whether its ‘development meets the needs of the present without compromising the ability of future generations to meet their own needs’, as set out by the Brundtland Commission in its report Our Common Future. Last year’s United Nations Conference on Sustainable Development, Rio+20, unleashed the momentum for the facilitation of a green economy in Africa, and it remains critical that the continent direct its transformational agenda onto a sustainable development path.

How to enhance Africa’s competitiveness?

Intra-regional formal trade in Africa has historically hovered around 10% to 12%, although this could be much higher. These figures do not take into account statistical deficiencies and informal trade. Still, trade within regional economic communities is growing faster than African exports to the rest of Africa, and to the rest of the world. The Common Market for Eastern and Southern Africa alone has increased its intra-African trade almost fivefold since it launched its free-trade agreement in 2000. Southern African Development Community trade grew more than threefold and East African Community trade grew more than twofold.

Regional value chains, if properly exploited, can help Africa gain the critical capacity needed to compete as the continent moves up the global value chain, promoting cross-border opportunities that allow countries to contribute with different inputs to the production of intermediate and finalized products. This could lead to a multitude of positive outcomes, such as employment creation, productivity gains, income generation and the creation of backward linkages into the economy that could lift millions of people out of poverty. Trade has yet to serve a transformational process for the benefit of human development in Africa as it has done in many other developing economies, and it is through positive linkage to development that trade can play a pivotal role.

Developing the capacity and improving the quality of its human resources is another way for Africa to enhance its competitiveness. According to the Africa Progress Panel led by Kofi Annan, the former Secretary-General of the United Nations, Africa is on the brink of a demographic dividend with the current median age on the continent at 18. Over the past 10 years the number of youths aged 15 to 24 in Africa has increased from 133 million to 172 million. By 2020, that figure is expected to rise to 246 million. This ‘youth bulge’, could significantly tilt the current social dynamics – either in a positive or in a negative direction – as shown in the recent North African uprisings. Investment in skills development, technical and vocational training, as well as in higher university education is necessary to transform this natural resource into a profit for the entire continent. Neither should we lose sight of the benefits of commodities-based industrialization, nor the benefits of improving the performance of the agricultural sector, which still employs a majority of Africans. Governments have to play a better role through proper regulation of production, and put in place the right mix of trade and industrial policies needed to support local manufacturing industries that provide employment and create jobs.

Social and environmental constraints

Moreover, African leaders must implement policies that ensure access to capital, technology and labour. Measures must be put in place that create equity in global trade negotiations, ensuring fair trade and import tariff regimes for the continent’s growing industries. Up to 90% of Africa’s total income from coffee, calculated as the average retail price of a pound of roasted and ground coffee, goes to consuming countries. This clearly underscores the benefit to be realized and enjoyed by African countries if they were to increase value-addition processes.The provision of regular, affordable and reliable energy to industries must also be assured. And there must be adherence to minimum standards of sustainability in the exploration of mineral and natural resources.

What sustainable options are available?

Africa’s minerals sector has experienced the commodities boom of recent years but, sadly, this has not translated into greater returns on investment for African countries. A clear vision on the inclusive use and management of resources for Africa’s development and transformation is needed. As part of the Institutional Sustainable Development Framework set out in Rio, Africa must make better use of its natural resources and at the same time ensure that the benefits are passed on to future generations. The Africa Mining Vision endorsed by African Heads of State in 2009 seeks to do exactly this through a framework that integrates the triple goals of economic, social and environmental sustainability.

The possibility of simultaneous infrastructure and mining investments, for example by establishing natural resource-driven development corridors, offers a pragmatic approach to unlocking not only mining and infrastructure projects, but also other collateral economic and social opportunities – beyond national borders. This concept has worked well in Botswana, which has developed a policy of beneficiation, and South Africa, which has developed mining policies to establish backward linkages into its economy with a sustainable and equitable development dimension. Many opportunities also exist for the growth of the green economy through several ongoing initiatives at regional and national levels focused on mitigating the adverse impacts of climate change. In addition, efforts are on the way to develop sub-regional strategies for low-carbon economic growth. These efforts, when finalized, could help the continent make giant leaps towards sustainable energy solutions.

Better trade

For many years, Africa, has been a mere pricetaker in global trade relations, having little to no influence on markets. It now has an opportunity to transform itself into a price-maker. The expanded avenues for South-South cooperation, notably intra-African trade through the proposed continental free-trade area, break the monopoly held by developed countries by providing a better environment for African policymaking and choice in terms of trade partnerships. The fundamentals of policymaking, infrastructure, capital financing and ensuring linkages between trade and other parts of the economy must be worked upon to make this a sustainable reality.


Previously published in International Trade Forum Magazine