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30.11.2011 Africa

Catalyzing Intra-African Trade – A strategy for managing the global downturn

30.11.2011 LISTEN
By Vera Songwe, Zenia Lewis and Brandon Routman

By Vera Songwe, Zenia Lewis and Brandon Routman, Africa Growth Initiative at Brookings

The African Union is scheduled to meet in Addis Ababa, Ethiopia in January. This coming week, Accra will host the African Union Conference of Ministers of Trade to agree on deliverables in preparation for January's summit. The focus of these discussions will be on intra-African trade, an issue that has significant consequences for the continent's economic growth. Many observers believe that increasing intra-African trade can help Africa's industries become more globally competitive by increasing their productive capacity, furthering economic specialization, strengthening value chains and incentivizing improvements in infrastructure.

At present, Africa's internal trade is low – making up only about 10% of its total trade. For comparison, the equivalent measure for the European Union is more than 60%. As one might expect, intra-African trade is largely dominated by a few countries; in 2010, for instance, South Africa and Nigeria's combined export share totaled 44% of the value of all intra-African exports. One reason for this disproportionate performance is that, with the exception of a few economic powerhouses, Africa is characterized by a large number of very small markets, many of which are landlocked and have little or no industrial base.

The plight of these countries has been addressed, to some extent, by efforts at improving regional integration. In 2010, every country in Africa was a member of at least one regional economic community (REC) and the majority of countries were in two or more such groups. Yet, the track record of these organizations is somewhat mixed, and it is fair to say that they haven't had resounding success at boosting intra-African trade.

So, what can the policy makers meeting now in Ghana and Ethiopia in January 2012 do to help push this agenda? In particular, how can they get countries with historically low levels of intra-African trade to trade more with each other and increase the opportunities for value-addition within the production chain? Some obvious answers are that they should diversify their economies, combat corruption and improve infrastructure in the continent. In particular, they should focus on raising the quality of the continent's maritime ports—and learn lessons from reforms which Senegal and Nigeria have instituted that are bearing fruit, but they shouldn't be content to simply fight these long-term battles.

There are a number of policy changes which can bring about immediate results, and the ministers and their leaders should focus on these as well. First and foremost, they should simplify, standardize and streamline the customs process, at least within the RECs. Very few countries have effective 'one stop shops' for imports and exports, places where a trader can dispense information in a standardized, efficient and preferably electronic way. Establishing electronic information hubs could be a relatively quick process, although it will demand strong leadership from the heads of states and considerable support to and from the RECs.

Second, the free movement of people and goods across RECs should become a reality. The regional passports initiative, launched by the RECs over 3 years ago, has still not translated into freedom of movement across RECs for all nations. The unpredictability of its implementation remains a deterrent to trade.

Third, on the agriculture front, countries must commit to lifting all bans on humanitarian food exports. This is an important aspect of intra-Africa trade which remains unexploited because of poor regulation. In addition, countries should review their tariff policies on food exports and imports to ensure that farmers have competitive access to markets.

Fourth, African countries should leverage existing economic partnership agreements (EPAs) with other regions and countries, including the Africa Growth and Opportunity Act (AGOA), to foster increased intra-regional trade through the promotion of cross-border value chains.

Fifth, the delegates in Ghana should consider signing the Free Trade Area agreement. This would be an ambitious undertaking and would take time; however delegates can prepare a roadmap now that has key milestones helping to ensure the agreement's future success.

In light of the difficult global economic context, Africa must look within to generate sources for growth. Increased intra-regional trade is one such alternative, but policy makers must put in place strategies and procedures to facilitate this option . African leaders have a unique opportunity to do just that in Addis this January while building on the recommendations of the delegates meeting in Ghana this week.

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