One way to speed up Africa’s economic transformation is through deeper trade integration. Official statistics put intra-African trade at a mere 13% of the continent’s total trade. That is abysmally low. Higher volumes of intra-African trade are essential so that African countries can do business with each other more frequently and with wider margins.

The merits are clear. Firms and businesses are exposed to bigger markets, new opportunities, and a larger pool of capital (including human capital) – and, ultimately, grow their turnover and returns. Consumers buy from a wider variety of products and services at a relatively cheaper cost, and attain a higher consumer welfare status.

Labour benefits from skills upgrades and attractive remuneration offered by trading firms. This sets in motion a chain of other economic activities that support and spin off from regional trade. Governments also reap rewards such as a positive balance of payments, a fiscal boost from a wider tax net, and more revenue to invest in public infrastructure.

This is a standard international trade position applicable throughout the world; it is therefore not surprising that regional trade deals are a core strategy in countries’ economic policies. So why are intra-African trade volumes so low and, more importantly, how can we increase it? Is it a matter of wrong or ineffective policies? Or a lack of business activity in Africa to take advantage of regional markets and build intra-African trade? I believe it is more the former than the latter, and I will explain why in two ways.

First, there are teething pains and bottlenecks that complicate intra-regional trade. These include tariff disparities or excesses; red tape and unwieldy administrative customs costs; transport costs; confusing taxes, regulations and standards; and credit constraints. Even more worrisome are the apparent contradiction in trade and investment regulations and the lack of policy harmonisation between Africa’s many regional economic groupings.

These constraints are not new, but trade and industry policies fail to address the core practical issues.

It is difficult to pinpoint African governments that have formulated specific policies to enhance intra-regional trade for their businesses. Addressing these bottlenecks means drawing up implementation strategies, enforcing them and monitoring their progress and impact for review.

Unfortunately, that is not happening. Trade and industry policies remain mostly at high levels of intent without any pragmatism. So the few big African firms that are championing intra-regional trade (in recent times, largely financial and telecommunication services) have had to find their own way of handling the cost of investing in other African countries, with little policy support. It is therefore unsurprising that we see so little formal intra-African trade.

Second, there is untapped potential in Africa’s high levels of small and micro-sized business activity, which can contribute significantly to intra-African trade with appropriate policy support. Much is said about developing this sector, yet little is done in the way of policy. Critics even argue that these firms are too tiny and insignificant to drive their own economic activity in a sustained way, let alone venture into regional trade.

However, these small and micro-sized businesses have over centuries been part of a large and vibrant intra-African trade network. Known formally as informal cross-border trade (ICBT), it is widespread and relatively well developed, with notable corridors such as Ekok, Mamfe, Bamenda and Aflao Seme in the West and Central African regions; Wadi Halfa, Kisumu, Kitale, Gulu, Juba, Isebania, Sirare, Bibia, Nimule and Elegu in parts of North and East Africa; and Mwami, Mchinji, Chirunda and Kariba in Southern Africa.

ICBT is profitable and surpasses formal trade. The Common Market for Eastern and Southern Africa has estimated that trade worth $2.9-million per month is recorded along the Mwami and Mchinji (Zambia and Malawi) ICBT corridors of Southern Africa – 1.8 times the value of formal trade in the region.

Again, most African governments’ policy initiatives do not deal with the practicalities of enhancing and formalising ICBT to benefit businesses and local economies. Policies have failed to grapple with this traditional level of regional industrial economics. Instead, efforts appear to be going in the wrong direction by imposing bottlenecks and hindrances that drive these century-old activities further underground, minimising any subsequent benefits. It is puzzling that real, profitable, large-scale ICBT is ignored or impeded in this way.

It is time for African governments to look past turning lofty ideas into policy initiatives for trade and industry development. Policies must instead be reworked to fit local economics and drive intra-regional trade to its zenith across the continent. These national policies must work in tandem with regional policies, in particular the Continental Free Trade Area championed by the African Union. It is by no means an easy task, and governments must know that. However, it is their duty to step up, provide leadership and work together to achieve these goals.

Source: Business Daily

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of TradeMark Africa.