Africa FICC - Africa’s External and Intra-Regional Trade

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Thursday, April 19, 2018 /03:10 PM / Ecobank Research

Africa is a major exporter of raw and semi-processed commodities to the global market, as well as a major importer of fuel, capital and consumer goods, and food. Total trade volumes reached an estimated US$778bn in 2016. Exports are dominated by crude oil, precious metals and stones, iron, manganese and copper ores, and cash crops (notably cocoa, coffee, tea and cotton). Imports mostly comprise petroleum products, machinery, electronic equipment, food and consumer goods. With the exception of a few commodities (e.g. cocoa), the region is a small player on the global stage, with total trade volumes amounting to just 2.4% of global trade flows in 2016.

The region’s leading trade partners are the EU (20% of total trade), reflecting long-standing historical ties, and China (13.6%), which continues to import large volumes of African commodities. India has displaced the USA as the region’s fourth largest trade partner, with 5.3% of flows, reflecting India’s rising demand for African crudes & soft commodities versus the slump in US demand for West African crude. South Korea (1.9%) and Japan (1.8%) are a key source of capital and consumer goods, notably electronics. Brazil’s trade flows have slumped to just 1%, mostly comprising sugar, meat and soya, as Brazilian demand for African crude has also fallen.
 

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According to official data, Africa’s intra-regional trade is poorly developed. Total intra-regional flows reached an estimated US$87.5bn in 2016, the equivalent of 11.2% of total flows. This compares with an average of 60% in the EU and Asia and 40% in North America.
 

However, official data fails to capture the level of informal trade across Africa. If this is included, it is likely that the proportion of Africa’s intra-regional flows is on a par with North America, and in many areas exceeds 50% of all flows. This informal trade is dominated by food, fuel and consumer goods, and by re-exports of raw and semi-processed commodities from neighbouring countries to global markets.
 

The SADC trade block – which is dominated by South Africa – accounts for 65.8% of all intra-regional trade, while West Africa makes up 14.5%. Intra-regional trade is less developed in other parts of Sub-Saharan Africa, averaging 7.8% in North Africa, 7.7% in Central Africa and 4.3% in the EAC.
 

The largest intra-regional trader is South Africa, with total flows worth US$29.4bn in 2016, around 20% of its total flows. This reflects the size of South Africa’s economy and the country’s role as a conduit for goods, services and investment into Southern and East Africa. Southern African countries make up the top five intra-regional traders by value, underlining the strong integration of the Southern African Customs Union (SACU).
 

Landlocked countries are heavily dependent on intra-regional flows, making up 10 of the top 20 intra-regional traders by value. In 2016 they were led by Swaziland (73.4% of the country’s total trade) Zimbabwe (67%), Lesotho (64.2%), Botswana (50%), and Rwanda (39%). West Africa’s trading hubs also handle large intra-regional flows, notably Togo (30.1%), Senegal (26.5%) and Cameroon (17.4%). However, countries that are heavily dependent on commodity exports to the world market have negligible intra-regional flows, notably Angola (3.9%) and Nigeria (2.8%).


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Africa’s road, rail & port infrastructure
Africa’s transport infrastructure is inadequate, with numerous blockages and capacity constraints. However, since 2000 a wave of investment has boosted port, road and rail capacity, strengthening historic trade corridors across Sub-Saharan Africa. It is estimated that the region requires US$110bn of investment per year over the next decade to close the infrastructure gap; current investment is short of this target, at around US$60bn per year, although this amount is rising.

Africa’s road infrastructure is disjointed, with isolated sections of paved highways interspersed with secondary trunk and dirt roads. Only one quarter of Africa’s road network is paved, making transport in many regions impossible during the rainy season. Road connections between the major ports and business hubs have improved in recent years, but the rural network remains poor.

Africa has a long-established network of ports, running along the Western coast from Dakar (Senegal) to Luanda (Angola), and along the Eastern coast from Durban (South Africa) to Mombasa (Kenya). Major investment is underway to boost capacity at the busiest ports, notably Tema/Takoradi (Ghana), Lagos (Nigeria), Luanda, Maputo (Mozambique) and Mombasa. A number of new ports are being developed, notably at Lamu (Kenya) and in Djibouti.

Africa’s rail infrastructure has traditionally served flows of commodities from the interior to coastal export hubs – notably mineral ores – resulting in few regional interconnections. However, the development of urban passenger services is slowly transforming the network, which will form the backbone of future development corridors.
 

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Africa’s Trade Corridors
Numerous constraints block the development of intra-regional trade. Overlapping trade blocks are a major obstacle: 27 African countries are members of at least two trade blocks, and 18 countries are members of three, creating a spaghetti bowl of interlinking trade regulation. High transport costs and poor logistics also hamper efforts to boost trade volumes. According to the World Bank’s Logistics Performance Index, Sub-Saharan Africa scores the lowest of all regions in the world on customs, shipping and tracking indicators, reflecting the weak capacity of the road, rail and port networks.

Key to unblocking intra-regional trade is the development of trade corridors. Long-standing corridors exist along the West African coast, running from Dakar to Lagos. There are also corridors from the coast to the interior, from Senegal and Côte d’Ivoire into the Sahel, from Cameroon into Central Africa, and from Mozambique, Tanzania and Kenya into Southern and East Africa.

More recently, regional development corridors have been developed, notably the Maputo Development Corridor, which links South Africa’s industrial Gauteng province to the port of Maputo. The most ambitious project is the Lamu Port and South Sudan Ethiopia Transport, or LAPSSET, project. This aims to build a port at Lamu on the Kenyan coast, with a road, railway and oil pipelines running to Ethiopia and South Sudan, and possibly into Central Africa and beyond.

Many other trade corridors have been proposed; for example, from Khartoum in Sudan across the southern Mediterranean to Agadir in Morocco, and from Dakar along the Niger River to Port Harcourt in Nigeria (the Niger Development Corridor). There will also be new coastal corridors, notably Angola’s Lobito Development Corridor, whose backbone will be the recently rehabilitated Benguela Railway. In the long-term this intra-regional infrastructure could connect into China’s ambitious One Road One Belt (OBOR) project, which comprises a land route running from China to Western Europe, and a parallel sea route which includes Kenya as its key hub in Africa.

The long-term goal for intra-regional trade is to create a single trade zone, the Africa Free Trade Zone (AFTZ). Joining together the three largest trading blocks in East and Southern Africa – SADC, COMESA and the EAC – the AFTZ would comprise 26 countries with a combined population of over 500 million and annual trade flows of US$500bn. However, efforts to create the block are advancing slowly, given the complexity of negotiations involving so many countries and interlinking trade flows.

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Related Link(s)
1. Africa FICC -  Global and Regional Outlook
2. Africa FICC -  Middle Africa’s Total Banking Assets Declined Slightly by 1% YoY
3. Africa FICC – Africa Accounts for An Estimated 9% of World Oil Output in 2016
4. Africa FICC - Soft Commodity Production in SSA 

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