Intra-African trade calls for ‘political will’

11 May 2012

It is time to move past diagnosis of why African countries do not trade with each other nearly as much as they should, World Trade Organization director-general Pascal Lamy told participants at the World Economic Forum on Africa in Addis Ababa, Ethiopia on Thursday.

The issue was not about diagnosis of what needed to be done, but on how to do it, Lamy said a conference session on intra-African trade.

“We know that the necessary initiatives have to happen at the regional level. Regional organizations have to address these problems one by one. The key to removing these bottlenecks lies in the political energy of regional leaders to do it.”

Obstacles to intra-African trade, delegates were told, include inadequate or non-existent infrastructure, complex bureaucratic procedures, inefficient border administrations, regulatory discrepancies that hamper trade and economies of scale – and, more recently, the tightening up of trade finance.

“Trade finance is the oil of trade, and there is a potential problem given new financial regulations that have been developed worldwide since the [2008-09 global] financial crisis,” Lamy said.

Regulatory environment ‘must be harmonized’

Africa’s trade landscape is characterized by a patchwork of trade rules and regulations that make cross-border trade cumbersome and, at times, impossible, delegates heard. The regulatory environment across the continent would have to be harmonized before Africa could realize its potential as a global trade powerhouse.

If national governments could get their priorities clear on this, Lamy said, they would find there was plenty of funding available to help them achieve it.

“African countries and regions need to set up a list of priorities of what needs to be done, and do it. It is not a problem of resources – we have the resources. The Aid for Trade lesson is that once countries have their priorities clear, money is not a problem.”

African companies would not become global players until they captured regional markets, warned Jaidev Shroff, chief executive of United Phosphorus of India.

“There is a lot of talk about Africa becoming a global supplier of food, energy, minerals, etc,” Shroff said. “But until governments make the business environment more competitive, it is going to be very difficult to achieve.”

Increasing, diversifying productive capacity

For Ethiopian Industry Minister Mekonnen Manyazewal, infrastructure and the capacity to manage and facilitate trade was “a basic”, but the need to reduce costs and diversify countries’ economic base was also paramount.

“The issue of increasing our productive capacity and diversifying our products are key for trading,” Manyazewal said. African countries also needed to diversify their economic bases, he said.

“It is time to look for quick wins by analysing the value chains from production to the markets and find the constraints that can be overcome through better coordination, better administration and efficiency.”

Manyazewal called on the private sector to invest in Africa’s productive capacity, echoing calls by both Lamy and Jean-Louis Ekra, president of the African Export-Import Bank, for the private sector to mobilize and create “bottom-up pressure” on politicians to address the issues of trade openness and competitiveness.

Call for private sector to engage

“A few African entrepreneurs understand trade issues,” said Ekra. “It is important that they build capacity on these issues so they can put pressure on the government to negotiate in their favour.”

In the wake of the global financial crisis, many national banks are cautious, which is why one of the roles of the African Export-Import Bank was to allow banks to feel more secure about instrument issued by other banks, Ekra said. The private sector needed to engage in this issue.

“Once the African private sector talks to itself and speaks with one voice, there are grounds to improve and increase the level of transactions among them.”

Mahmoud Eisa, Egypt’s minister of industry and foreign trade, pointed out that Africa should have a target to increase its percentage of global trade from 4%, and should set a target for intra-African trade.

But trade without infrastructure “will always be an intention rather than an accomplishment”, Eisa added. Transport and communications were critical, but so was infrastructure such as laboratories, regulation and trade policies.

Eisa pointed to the European Union, where trade regulations are harmonized, as a model. He also called for stronger standardization in the light of a “weak” African Regional Organization for Standardization.

Source: World Economic Forum