Abstract
Agriculture in Africa has a massive social and economic footprint. More than 60% of the sub-Saharan African population depended on agriculture as their source of income and about 23% of the continent’s GDP is reportedly from agriculture. Yet, Africa’s full agricultural potential remains untapped; at least one in five Africans goes to bed hungry and an estimated 140 million people in Africa face acute food insecurity, according to the 2022 global report on the food crisis. However, the future looks bright as the Africa Union agenda 2063 clearly outlines where African leaders want the continent to be in the future, especially in the area of food security and trade. The goal of this article is to examine the major hindrance in the drive to achieve high percent in intra-African trading and how trade among member states can help unlock the agricultural potential of the continent.
Introduction
Ask any well-meaning African what they do to promote intra-trade activity within the continent and they will probably agree on three points: partnership, political will, and well-informed people. “Boosting Intra-African Trade” was the theme of the January 2012 African Summit of Heads of State and Government, which is both appropriate and unique given the difficulties of the trade and the need to come up with ideas to improve the situation. It has been years since the summit ended and still, the problem persists. It’s 2023 and the old topic is still been discussed at the forum and high-powered conferences on the continent, even though the answers to this problem have been discussed extensively, without real implementation, nothing can be achieved.
Africa is a net food-importing region of commodities such as meat, cereal, dairy products, fat, oils, and sugar, according to FAO, importing about USD 80 billion worth of agricultural and food products annually. A small share of Africa’s total agricultural trade is with other African countries. Intra-African agricultural trade is estimated to be less than 20 percent, according to a report by the Rome-based food agency. This shows that African countries need a paradigm shift away from the “all talk but no action” policy. It is important to work together towards increasing intra-trading actively among African countries. Hence policymakers and the private sector need to develop strategies and policies to promote intra-African agricultural trade and the development of agricultural value chains, so that critical stakeholders like farmers, small and medium agribusiness, women, and youth, can reap the benefits of the AfCFTA single market.
Why Trade
Trade is essential as it encourages innovation, which in turn can lead to a competitive economy and lower the price of goods and services on the continent. The ability to trade also allows each African nation to focus on its area of strength and exchange its surplus for resources that another country can provide, thereby creating specialized markets and economies of scale. In fact, economic analysts have attributed the relative weakness of the African union economy due to a lack of intra-trading activity among its member states. Compared to Europe where intra-trading activity among member states is as high as 60%, this has led companies within the EU bloc to specialize in a particular sector to serve a particular market. The opportunity to specialize has in turn led to greater efficiency in production, higher levels of innovation, and increased quality of development.
The establishment of the Africa Continental Free Trade Agreement (AfCFTA) made Africa the largest single trade market in the world with about 1.2 billion people. This simply means that trade is crucial to African country’s prosperity as the AfCFTA presents opportunities to boost intra-African trade, strengthen the complementary of production and exports, create employment, limit the impact of commodity price volatility, and raise the living standards and help Africans provide for their families with affordable goods and services.
One major reason why intra-trading activity among African countries is important is that the global trade terms are already skewed to favor the industrialized western nations. Hence intra African trade is one way for Africa to unshackle itself from forever being labeled a developing continent, to achieve that goal, it must be business as usual and African countries must learn to rely on their sister nations. Sub-Saharan Africa‘s success rests on deepening continental integration through trade and scaling up supply capacity and regional value chains.
Challenges of intra-Africa trade
Congratulation! AfCFTA is alive and kicking. However, there are still some age-long problems that need to be tackled before the lofty goals of the single trading market objectives can be achieved. A new book by World Bank “Africa in the new trade environment: market access in troubled times” analyze the trade track of Africa and recommend that greater regional integration is paramount for AfCFTA to succeed. Greater regional integration is important because, despite the pronouncement of support by political leaders for regional economic ties, the reality on the ground remains difficult due to the slow implementation of regional integration agreements aimed at eliminating tariff and non-tariff barriers in the region.
Lack of finance and insurance has been identified as a factor in the low intra-trading activity in Africa, especially in the agricultural sector. African smallholder farmers and agribusinesses lack access to the affordable credit and insurance which they need to grow their businesses and operate profitably. Africa’s agricultural sector attracts less than 5 percent of lending from financial institutions on the continent. This is a major impediment to the development of intra- African food trade.
The lack of political will to fully implement regional integration agreements is also a major challenge. While African leaders in their goodwill established a number of institutions to promote regional and continental economic integration, they have been reluctant to empower these institutions for fear of losing national control. The established institutions are great on paper, but they are not performing up to their full potential. Also, there is the problem of multiple and overlapping memberships in several regional economic institutions (REC). These issues complicate policy harmonization processes in areas such as the rule of origin and customs procedures while contributing to inefficient and malfunctioning regional food markets. For example, COMESA imposes a common external tariff on goods of non-members, however, several members of COMESA are also in the SADC free trade area, which requires lower tariffs on goods from non-COMESA countries. These examples illustrate how overlapping membership can easily confusion.
Supply-side constraints are also another factor impeding the emergence of stronger intra-African food trade. Low agricultural productivity, inadequate policy frameworks, and insufficient investment in production capacities are at the heart of the supply-side problem. High transportation costs due to poor infrastructure, warehouses, and cold-storage facilities limit the cross-border movement of surplus staples to areas of strong demand. Trade policy barriers contribute to stunted growth in the intra-African food trade. For example, while an African exporter to international markets can expect to face average protection of 2.5%, this rate will rise to 8.7% if the same goods were to be exported to another African country. Inefficient and cumbersome customs procedures further discourage farmers, traders, and companies to engage in cross-border trade. Delays at African custom posts are also high.
Way Forward
African-driven response to the global food crisis is what Africa needs and experts have predicted that the full implementation of the AfCFTA protocol will boost intra-African trade by nearly 40%, with the agriculture sector leading the growth. In order to foster intra-African trade, investment, and cooperation, the removal of impediments to free movement, labor, and capital is important. African countries can kick start the process by removing restrictions on travel and the right of establishment, yes it’s not an easy decision to make, but it is for the greater good.
Intra-African trade owes its current low growth to a lack of diversification and competitiveness. The relatively small weight of intra-regional trade in Africa is largely due to the structure of production and the composition of exports, many African countries still specialize in exporting few primary commodities without any attempts to add value to it. While most of their imports consist of manufactured goods, thus, the potential for intra-regional trade is limited because of this lack of variety in their products. Below, more light will be shed on the recommendations and ideas that African trade experts have proposed over the years in order to boost intra-Africa trade.
- Over the past two decades, African countries have taken some steps to leverage their potential through regional integration of agricultural markets. The 2014 Malabo declaration committed African leaders to triple intra-trading activity in agriculture goods. One of the output of such a declaration is ATEX. The African trade exchange also known as ATEX is a platform that when fully utilize will boost intra African food trade. ATEX is a digital platform for B2B and B2G exchange space developed by the Economic Commission for Africa and the African Export-Import Bank to enable procurement in the bulk of basic food items directly from local farmers. The ATEX platform can help strengthen Africa’s economic resilience as pooled demand will ensure Africa’s ability to negotiate competitive prices and alleviate the impact of the disruption in the food supply chain. Experts have predicted that ATEX will provide much-needed access to essential commodities at affordable prices to African countries that look set to be hit the hardest by the global food crisis’s severe implications on economic and political stability. African countries can use the innovative African exchange trade platform (ATEX) and boos digital trade in critical commodities under the free trade area. In the words of Ms. Hanan Mersy, chief economist at the UNECA, the ATEX platform is an opportunity for African countries to collaborate on boosting commodity trade in response to the multiple challenges of climate change, fertilizer disruption, and food crisis.
- Effective participation of smallholder farmers and businesses in regional food markets and value chains will significantly boost intra-African demand for agricultural products. Thus, trade arrangements that encourage food exports and imports, based on lower tariffs and harmonized trading practices should be prioritized. Majority of African farmers are still living at the subsistence level, it is important to enhance their participation in food markets and supply value chains so that they can sell the surpluses at good market prices. The establishment and expansion of the smallholder farmers bureau, especially at the REC level is critical to enable small producers to participate in regional and continental food markets. Such bureau will also improve smallholder farmers to extension services, tools and essential inputs to enable production aggregation, thus improving their ability to scale up production and grow their businesses. Regional farmer’s bureaus can also be empowered to facilitate access to food safety and quality certificates and help establish critical linkages with supermarkets and large-scale takers.
- Â Pan-African finance institutions like the African Export-Import Bank and the African development bank will also have a big role to play in facilitating and expanding intra-African trading. Grants and other financial tools should be move closer to the grassroots in order to reach the smallholders where they are. More open and banking policies and how access opportunities will help to expand intra-African food trade. There is a growing recognition that food markets in many African countries are too small to exploit the economies of scale, thus continental and regional finance institutions can step in with the much-needed capital to help restructure the business landscape to be competitive with comparable standards to other parts of the world
- The famous words “Africa has come of age” was attributed to General Murital Muhammad, the late Nigeria head of state. The words were meant to challenge African countries to be proactive and decisive in taking bold decisions about the continent’s future. Africa does not lack good ideas or institutions, what she suffers from is a lack of effective implementation of these ideas. Thus, political and greater commitment is needed for the promotion of intra-African trade. Ideas like common currency and common passports will be great. Only the West Africa region has been able to institute a common passport (ECOWAS passport) and visa-free movement of goods and people within their bloc. Thus, a medium objective should be aimed at adopting common sub-regional citizenship including a sub-regional passport (as in the case of ECOWAS), this will be a stepping stone to a common African citizenship and African passport; and a great step forward in enhancing intra trading activity within the continent, especially in the agri-food sector. If there is a single conclusion, it would be to emphasize that it is time to move from rhetoric to action.
- Good transport infrastructure and solid ICT access are needed to unlock Africa’s agricultural potential. A policy that focuses on improving African inter and intra-transport systems including railway, road, sea, and air should be formulated and implemented. The Lagos-Abidjan economic corridor is a great example of what Africans can do. Promoting the use of ICT including online information hubs will make trade procedures and processes faster and better, like enhancing the clearance process at custom posts. While national research is always important, there is also a need for more collaborative research and technological development on agriculture at the regional level. Based on a comparative advantage analysis, each of the REC could for example spearhead research on some major crops. This would be cost-effective and could lead to the development of a regional product champion. These selected industry champions would in turn develop and promote advanced technologies and good agricultural practices. Regional food processing zones would have to be created to transform farmers produces and raw materials into finished value-added products. The food processing zones would also integrate agricultural value chains with supportive logistics such as cold chains and warehouses and provided much-needed access infrastructure such as roads, rails, ports, energy and ICT.
Conclusion
For Africa to unlock its agricultural potential and achieve food security through intra-trading among member states, the region must improve physical integration-such as ease cross-border movement, good energy supply, and transport infrastructure, connectivity, strengthen political cooperation such as harmonizing customs rules and procedures and facilitate business integration such as regional electronic settlement system.
Reference
https://agra.org/regional-food-trade-and-resilience/
https://unctad.org/news/blog-new-opportunities-accelerating-pan-african-trade
https://www.fao.org/policy-support/tools-and-publications/resources-details/en/c/1274491/
https://blogs.lse.ac.uk/businessreview/2020/08/25/why-trade-matters-for-african-development/