Africa: reducing trade barriers and growing the economy
Attracting Foreign Direct Investment (FDI) into diversified and higher value-added sectors remains an ongoing challenge for African economies. The primary sector consistently remains the main focus of foreign investment, resulting in significant commodity dependence.
In addition, Africa predominantly exports primary products and imports manufactured products, and as such, African economies haven’t been able to harness the benefits of the commodities sector to increase the productive capacity throughout other sectors of their economy. This hampers the possibility of growth in the consumer expenditure related parts of the economy, such as retail and wholesale, smaller manufacturing industries and the housing market.
Reducing infrastructure inefficiencies
Reducing inefficiencies related to poor transport infrastructure, including maintenance of existing infrastructure and the provision of new infrastructure, adds to Africa’s challenges. For instance, only 29.7% of the African road network is paved.
The continent’s railway network is also very poor and on average, it takes much longer to transport a container across borders in Africa than anywhere else in the world. These factors contribute to higher transport costs on the continent if compared to the rest of world.
Global Competitiveness Index
Most African countries rank in the bottom half of the Global Competitiveness Index with regards to the quality and availability of transport infrastructure. In terms of trading across borders, Africa also does not fare particularly well, with Sub-Saharan Africa being the most expensive region in the world with regards to the US dollar cost of importing and exporting a container of goods.
A further challenge is the lack of a coherent regional approach to managing and harnessing partnership agreements and reducing inter-Africa trade barriers, which could improve the competitiveness of the countries within Africa and drive FDI. On the back of the need for combined and coherent strategies, it is crucial that there is a greater degree of cooperation between the private sector and government.
Lack of bargaining power
Linked to this challenge, is the lack of bargaining power in multilateral negotiations. Currently, the only significant agreement that holds weight on the international scene is the Brazil – South Africa – India axis.
It’s critical that Africa comes together as one bargaining power so as to promote an agenda that will harness the capabilities and resources of the African continent to the benefit of all Africans. However, this is easier said than done as each country have unique political, humanitarian and economic requirements.
So, the question is now what steps should be taken to reduce these challenges and to position the continent to take advantage of the growth opportunities that exist? The best place to start would be to consider the concerns highlighted by investors and address those in a practical manner.
Some of these considerations, mostly related to increasingly connecting African countries, are mentioned below…
Addressing investors’ concerns
- Increased mobility of highly skilled labour across borders in Africa
- Where inter-Africa projects are undertaking, ensuring that skills transfer takes place
- Streamlining of border management to reduce transport inefficiencies along trade corridors, through, for example, the use of technology to reduce time-consuming procedures and red-tape
- Creating uniformity and increasing coordination with regards to import and export procedures
- Ensuring that African countries focus on the areas of production where they have the relative advantage to their neighbours, and allowing each country to gain a competitive edge in that area
- A continued focus by governments on infrastructure investment and infrastructure maintenance, in order to reduce transport costs, and
- Political will from governments to work together and focus on reducing corruption.
For African countries it’s time to realise the benefits to be had from increased connectivity and reduced barriers with its African neighbours.Do you believe that Africa’s time has come? Is it the right time for investors to get a foot in the door?
About David Okwara
African countries, African economies, bargaining power, Brazil, commodities sector, consumer expenditure, Foreign Direct Investment, Global Competitiveness Index, India, private sector, railway network, retail, road networks, skills transfer, South Africa, sub-Saharan Africa, trade barriers, transport costs, transport infrastructure, World Economic Forum