If Africa is to fulfil its potential and ‘boom’, it must develop regional trade

By Annabel Palmer

Last week, Andrew Mitchell, at a speech to the London School of Business, joined an expanding list of businessmen, politicians and members of the public who view Africa as a continent of growth and prosperity.  The full text of the speech can be found under news items on our homepage.

 

The Secretary of State set out at the beginning of his speech to dispel a number of misconceptions about Africa, arguing that although the continent faces a number of great challenges, it is a continent of innovation, enterprise and opportunity, a continent that is ‘booming’.  Certainly, Africa offers a lot of opportunity for business and it is increasingly a continent of growth.  The IMF’s ‘World Economic Outlook’ report, published in April this year, stated that ‘real activity in sub-Saharan Africa is projected to expand by 5.5 percent this year and 6 percent next year’.  Ghana, for example, is projected to grow by 13 percent this year, as oil production commences in the Jubilee oilfield and growth in the non-oil sector remains robust.

 

The Secretary of State has joined an increasingly long line of experts who dismiss the view that Africa is, as the Economist famously claimed 11 years ago, a ‘hopeless’ continent.

 

In a speech at the Commonwealth Business Council Annual Forum in June, Henry Bellingham, Minister of State at the FCO, stated: ‘My travels to Angola, Nigeria, South Africa, Ghana, Kenya, Ethiopia and several other African countries have demonstrated to me that Africa has a lot to offer the global market.  The IMF forecasts that Africa will grab seven of the top ten places in the leagues tables of economic growth over the next five years’.

 

According to Gordon Brown in a speech made at the Royal African Society breakfast in June, despite global growth continuing to ‘structurally marginalise the poorest countries’, Africa has performed well in recent years with growth rates exceeding those of the developed world.

 

Today 8 of the 20 fastest growing economies in the world are from Africa.  Astonishing as it may sound, Ethiopia’s growth has been on a par with China’s over the last decade.

 

In 2009 despite the massive collapse in virtually all commodity prices Africa was the only region of the world not to record a single quarter of negative growth.

 

However, as Andrew Mitchell affirmed last Monday, Africa faces a number of challenges.  The continent accounts for less than 3% of world trade, yet it represents 15% of world population.  The cost of export in Africa is 78% higher than it is in OECD countries.

 

The Secretary of State stressed that, as a single market of one billion people, Africa ‘could rival China or India’.  But Sub Saharan Africa is a jigsaw of heterogeneous countries – 54 countries with national frameworks and their own trade systems.  Many of these countries are landlocked, leading to high transportation costs: transportation costs in sub-Saharan Africa are three to four times those of developed countries.  These countries often erect high non-tariff barriers against each other – partly because customs duties are the simplest way to raise income.

 

The World Bank found in a 1997 survey that countries in Sub-Saharan Africa imposed an average tariff of 34% on agricultural products from other African nations, and 21% on other products.  That is one reason why there is disproportionately little trade between neighbouring developing countries.  Less than one tenth of African exports go to other African countries whereas nearly three quarters of European countries’ exports are within Europe.  This in turn has undermined the growth of regional trade hubs which in other areas are a key to developing regional trade and the growth of industries needing markets larger than any one country.

 

It is ultimately up to developing countries themselves to decide whether to move away from reliance on levying high tariffs particularly at their borders with their neighbours.  However, donor countries can and should encourage them to do so in several ways:

 

  • by offering technical assistance in building up alternative domestic sources of tax revenue,
  • by offering Aid to make good lost revenues while this transition is being made, and
  • by not insisting that the reduction or elimination of tariffs on imports from neighbouring countries is matched by any similar reductions in tariffs on imports from the first world.

summary

Last week, Andrew Mitchell, at a speech to the London School of Business, tackled myths and assumptions about Africa, and joined a growing list individuals who see Africa as a continent of growth.

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