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The rise of African regional trade

Realising opportunities in neighbouring markets

January 24, 2017

In a short span of time, the idea of expanding regional trade between the countries of sub-Saharan Africa has gone from a lofty ambition to a veritable necessity. Buffeted by stormy global markets and bruised by unreliable demand, African countries are re-evaluating what kinds and scales of trade can best support the diversified livelihoods of 10–12 million young people entering the workforce every year – while also meeting their needs for affordable food.

inline bb47An employee of Bidco Africa Ltd. ferries cooking oil out of the manufacturing plant warehouse for loading and shipping to the thousands of supermarkets across Kenya. Photo Credit - Bidco Africa Ltd.

The Tripartite Free Trade Area Agreement, signed by the member states of Eastern and Southern Africa's three trading blocs, is set to establish the largest free trade zone in Africa, containing 58% of its economic production. And if all goes according to plan, 2017 will see the dawn of a Continental Free Trade Area, bringing more than 1 billion people into a single market. Intra-regional trade has expanded, from 10% of Africa's total trade in 2000 to 16% in 2014. However, comparing this share with the 61% intra-regional trade found in Asia and 69% in Europe, it's clear that the growth so far has only been a taste of what is to come.

There are significant opportunities for expanding regional trade in Africa says Michael Hailu, Director of CTA. “Firstly, the rapidly growing urban middle class presents a huge market for fresh and value-added agricultural products. Secondly, improvements in connectivity and services, notably through mobile technology, and increased investments in infrastructure, reduce the costs of trading across borders. Lastly, there has been a growing interest by the private sector in agriculture in Africa, at both local and regional levels, which is spurring innovation, investment and a renewed emphasis on value addition."

"Increased trade competitiveness is a must for several reasons. Capturing higher shares of rapidly expanding domestic and regional markets would generate significant additional income for African farmers. Furthermore, it is hard to imagine how future global demand could be met without a more competitive African agriculture. The stakes are even higher for African economies. A non competitive African agriculture would not only mean a loss of potential foreign exchange earnings, it would also most likely mean higher global food prices and thus larger food import bills for African countries."
Ousmane Badiane, Director for Africa, International Food Policy Research Institute (IFPRI).

Paving the way

Accelerating trade will mean not just opening borders, but opening routes. Happily, road density across Africa has risen by 51% since 2000. But this growth has been uneven, and landlocked countries, which are the most reliant on roads, are falling furthest behind. Increasingly, all eyes are on high-profile corridor developments like the €15 billion Lamu Port, South Sudan, Ethiopia Transport Corridor and a return to railway networks.

At the same time, countries need to pave the way with more than just asphalt. Estimates are that between 60% and 90% of trade costs are due to non-tariff barriers caused by burdensome, poorly coordinated, and sometimes outright corrupt border procedures. Together these high costs of trade and transport form the major stumbling blocks slowing the growth of intra-regional trade.

Agribusiness with a regional flavour

Agribusiness will play a prominent role in shaping regional markets and given the currently small scale of regional trade and the number of even smaller unfilled niches, this is an area where targeted investment can go a long way.

For example, in March 2015, the Africa Trade Fund approved €1.4 million for trade development projects that will start with honey in Zambia and cashew in several other countries. The fund picked these products for their potential in global value chains – but also for their potential for trade within Africa. In fact, the category of sugar, molasses and honey holds the single largest share of intra-African food trade. The funds will help Zambian producers and traders upgrade from bulk to table-ready honey, promising more value from the coming TFTA.

Converting the wealth of agricultural potential into the welfare of smallholder farmers

Developing regional trade in Africa is not necessarily cheaper, quicker or safer than engaging with global markets. Success is achieved where coordination is strong – between all of the region's nations; between agriculture, trade and tourism; and between deal-makers and the public sector. Agribusinesses looking to 'go regional' need to be included in the coordination, but credit facilities and financial support for producing and transporting goods is key.

The growth of regional trade within sub-Saharan Africa is a sign of rising demand from urban markets, but it's also evidence that trade is getting easier and cheaper. It is the tangible result of connections being made – between countries, between markets, and between value chain actors. African governments, regional bodies, financial institutions, and international partners all need to work on strengthening connections. The best strategies will be the ones that African actors find together.

The shape of trade to come

The next Brussels Development Briefing will take place on 3 February on the subject of Regional Trade in Africa: Drivers, Trends and Opportunities. This Briefing, number 47 in our long-running series, will take place at the ACP Secretariat in Brussels. Attendance is free, and registration is now open.

The aim of the Briefing is to promote an exchange of views and experiences around the latest developments in regional trade in Africa, particularly in the agricultural sector. Expert speakers from research, policy and the private sector will shed light on the key trends driving regional integration in Africa and how agricultural trade can be facilitated.

CTA is organising the Briefing in collaboration with the European Commission Directorate General for International Cooperation and Development (DG DEVCO), the Confederation for Cooperation of Relief and Development NGOs (CONCORD), the International Food Policy Research Institute (IFPRI) and the ACP Secretariat. The Briefing will provide a comprehensive update on the latest figures and driving trends in Africa's regional trade, specifically in the agricultural sector, as well as a discussion of the role of partnerships, including public–private partnerships, in developing this trade.

The theme will also be the focus of a new African Agricultural Trade Status Report, which CTA and IFPRI are launching at the Briefing.

 Join the Brussels Briefing n.47
On 3 February 2017 at the ACP Secretariat, in Brussels.

Find out more

Explore the Brussels Development Briefings and sign up to receive emails on future events
Learn more about regional trade in ACP countries on the Spore magazine
Read more on the potential of value chain financing in Africa
Learn how structured grain trading systems work

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