Africa needs to soften its borders, and expand intra-regional trade. This was a repeated call at this year’s World Economic Forum (WEF) in Davos, Switzerland.
In a panel discussion held at WEF and broadcast on CNBC, Sunil Bharti Mittal, chairman of Bharti Enterprises, put intra-Africa trade at 9% of the continent’s overall trade. “That needs to rise,” he said.
An Indian business conglomerate headquarterd in New Delhi, Bharti operates across 20 countries in Asia and Africa.
Mittal called attention to a common situation: products are shipped to Asia to be processed, only to be imported back to Africa. “You need to have much more alignment in Africa. The AU (African Union) needs to start discussing massive infrastructure linkages within the countries – wherever possible around the coastal areas, you need to link the continent,” he stressed.
South African industry has been saying this for years. And it seems the wheels of progress are slowly turning.
According to Minister of Trade and Industry, Rob Davies, South Africa is intent on enhancing intra-Africa trade.
In 2011 the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Southern African Development Community (SADC) met and signed a declaration launching negotiations for the establishment of the COMESA-EAC-SADC Free Trade Area (FTA).
“One of the flagships of work we’ve been engaged in is the SADC Comesa East African Community FTA (Free Trade Area). There will be another summit before the middle of the year – that will record quite a bit of progress that has been made,” he told Moneyweb.
At Brand South Africa’s WEF dinner, Finance Minister Nhlanhla Nene said: “As the second largest economy in Africa, accounting for nearly 30% of the continent’s GDP, South Africa can help promote mutually-beneficial trade in the region.
“South Africa can drive a faster pace of regional integration and improving individual linkages and accelerating the implementation of the targeted free trade area, promoting regional collaboration on policy actions that improve the efficiency of border crossings and reducing barriers to movement of labour.
“Any engagements have to be beneficial to the rest of the [continent] and our country,” Nene said.
During the CNBC panel discussion, Flour Mills of Nigeria chairman, John Coumantaros proposed to Zuma that South Africa and Nigeria set up direct bilateral trade, identifying what items each currently imports from third party [non-African] countries that the other could supply. “I think there’s a lot of room to make more efficient the trade balances [in] what we’re buying anyway from third parties between ourselves.”
President Jacob Zuma responded: “I totally agree – I think that’s what we’re trying to work on because in a sense what has hampered the intra-trade has been infrastructure.” He explained that to transport goods from South Africa to countries where South African companies [have a presence] takes a long time, owing to a lack of infrastructure.
Even if the parties were to agree to intra-trade, he said it would be “largely theoretical” without the necessary infrastructure in place. “That’s why we are focusing on infrastructure. We are looking at a South-North corridor and across (West-East) and that would make that kind of agreement possible.”
Zuma said “the collective leadership” was addressing the situation and work was being undertaken in some regions (presumably to integrate regions). “If we don’t have intra-trade; we don’t soften our borders; we don’t increase the economy among ourselves – we are not going to succeed. Three regions are now working to integrate and put together a huge area wherein the trade is going to be free among them – a huge population.”
More work to be done
Liberalising trade barriers is not without complexity.
Improving cross border trade is just the first step. The next step includes removing a range of non-tariff barriers to trade, import and export bans, and onerous and costly import and export licensing procedures, according to a World Bank report entitled De-Fragmenting Africa: Deepening Regional Trade Integration.
The next step is to reform regulations and immigration rules that limit the potential for cross-border trade and services.
These steps are likely to have significant consequences for South Africa, which is the dominant economy in the proposed FTA .
“I think our challenge is going to be that we won’t be able to trade with Africa in the same way,” said Davies. “As other countries begin to industrialise we are going to have to occupy different niches. They will be producing some of the goods which perhaps they have been sourcing from South Africa and countries outside of the region. I think we’re going to have to reposition ourselves. At the same time there are going to be demands for access into the South African market so we’re going to have to accommodate some of those.”
Another consideration is what increased intra-Africa trade will mean for business with our existing trading partners in Europe and Asia. Particularly as Davies mentioned that South Africa had invited China to invest in our industry.