Africa Losing Billions in Potential Trade Earnings

Sources:
Economic Times: Africa Losing Out Billions in Trade: World Bank
Herald Sun: Africa Losing Out Billions in Trade
World Bank: Africa Loses Billions in Potential Trade Earnings, Falls Short of Vast Promise in Cross-Border Business―New World Bank Report

A new World Bank report explains how African countries are losing out on billions of dollars in potential trade earnings due to high trading barriers between African countries. Currently, it is easier for African countries to trade with the rest of the world than within the continent. To remedy this situation, many African leaders are calling for an African free trade agreement by 2017.

The African free trade agreement is particularly important because of the global economic slowdown, especially the European sovereign debt crisis. The European debt crisis alone is projected to reduce Africa’s growth rate by 1.3% in 2012 due to the decreased demand for African goods within Europe. Despite Europe’s pessimistic outlook, the World Bank report finds room for significant economic growth in the trade of food, basic manufactured items (leather, wood, paper, etc.), and services between African countries. Only 10% of African economic revenues come from regional trade, as compared to North America where 40% of trade occurs with regional partners, and 63% for Western Europe. The report finds that an African free trade agreement would create larger markets for African goods, increase economic diversification (a larger market to sell goods will allow producers to diversify into many different types of goods, including goods that were not economically possible in a smaller region due to a lack of available consumers), reduced production costs (increased opportunities to take advantage of a specific region’s ability to produce a good at a lower cost than other regions, and then export that good throughout Africa), improve productivity (when specific goods can be produced in very large amounts and exported throughout Africa, producers are able to specialize in that item and increase the efficiency of its production), and reduce poverty (reduced unemployment and increased growth are associated with increased trade).

Current trade restrictions are especially difficult on poor traders, many of whom are women. Many women whom engage in cross-border trade deal with violence, threats, corruption, and sexual harassment. For example, one female egg trader who lives in the Congo but buys her eggs in Rawanda has to bribe custom officials with eggs, often forcing her to give away thirty eggs on each trip. Because an African free trade agreement would focus on reducing governmental corruption, it could reduce or eliminate the need for such cross-border bribes along with reducing other costs.

To unlock the advantages of free trade, the World Bank has recognized the need for African countries to pursue changes in three areas. First, countries need to improve cross-border trade by limiting the number of border agents, reducing corruption among the remaining border agents, and increasing cross-border technologies (such as cross-border mobile banking). Second, countries should remove non-tariff barriers to trade, which would include lifting restrictions on goods based on where they come from, removing import and export bans, and ending costly import and licensing procedures. For example, one African grocery chain spends approximately $20,000 per week on permits required to distribute meat, milk, fruits, and vegetables purchased in other countries. Finally, countries need to reform immigration policies that significantly limit the ability to travel and work throughout Africa, harming the flow of information and reducing investment in the service industry due to the lack of skilled workers to fill a specific service oriented position in certain regions.

To support regional integration the World Bank has increased its investment specifically pertaining to economic integration within Africa from a total of $2.1 billion in 2008 to $4.2 billion in July 2011, and expects total investment to increase to $5.7 billion by July 2012. Such investments have focused on increasing trade by improving infrastructure, implementing new immigration procedures, and eliminating the trade barriers listed in above. The World Bank believes increased continent-wide economic integration will ultimately reduce unemployment and poverty, and increase most African’s standard of living.