This according to Renaissance Capital is expected to improve intra-regional trade which stands at 20 per cent in Africa vs 62 per cent between advanced economies.

Meanwhile, of Africa’s regional blocs, the Southern African Development Community (SADC) has the highest intra-regional trade at 23 per cent. The Common Market for Eastern and Southern Africa (COMESA) has the lowest at 8 per cent, albeit up from 4 per cent in 2000. RenCap found that the blocs with higher intra-regional trade – SADC and the East Africa Community (EAC), albeit a far second at 10 per cent – have diversified exports and the advantage of having member states that are geographically close.

It said that COMESA’s export diversity is undermined by the fact that member states are geographically distant (Swaziland to Egypt).

The bloc with the lowest export diversity is the Economic Community of West African States (ECOWAS). RenCap attributed this to the dominance of commodities (crude oil, cocoa, gold) that are exported to offshore processing facilities.

However, Dangote Cement’s plan to export 3mnt pa of clinker (c. 17 per cent of its Nigerian production) from 4Q18 could see intra-ECOWAS trade improve from 9 per cent.
Intra-regional trade is a growing African story

According to RenCap, compared with other regions of the world, trade between African countries is low because several countries export the same goods, unprocessed commodities, which precludes the need to trade with each other.

“But things are changing and intra-regional trade is expanding. Most of the expansion in intra-SSA trade happened in the 1980s and 1990s. It flatlined in the 2000s – at c. 15 per cent in SSA; this we attribute to the surge in Chinese demand for commodities which dwarfed intra-regional trade. The expansion of intra-SSA trade resumed after the global financial crisis, as global trade slowed. SADC drove most of the expansion in intra-SSA.”

It stated that the argument that lower trade barriers boost intra-regional trade is affirmed by SADC, where trade between member countries increased from 14 per cent in 2008, the year in which its free trade area (FTA) was set up, to 23 per cent in 2016. However, in the EAC, the creation of a customs union in 2005 had the converse effect.

Intra-EAC trade initially declined and thereafter moved sideways, because the new common external tariff was a significant reduction for Kenyans, which spurred an increase in Kenyan demand for non-EAC imports.

Diversified exports explain higher intra-regional trade in SADC

We attribute SADC’s relatively high intra-regional trade vs that of Africa are other key regional blocs (COMESA, the EAC and ECOWAS) to its greater export diversity and geographic proximity of member states. SADC’s largest economy – South Africa – is the biggest source of imports for several SADC countries including its fellow Southern Africa Customs Union members (Lesotho, Namibia and Botswana) and Mozambique, Zimbabwe and Zambia. This is because it offers a differentiated export – manufactured goods. More recently, the stronger rand has made it more expensive to import South African goods. Similarly, RenCap believes a strong Kenyan shilling may be undermining intra-EAC trade. SADC countries that do not trade much with the rest of SADC are Angola and Tanzania because Angola exports its crude oil to China and mainly imports goods from the Lusophone world, while Tanzania’s location on the Indian Ocean coast gives it access to competitively priced imports from Asia.

Source: New Telegraph