The African continent is mostly connected by land, as there are approximately 110 inter-state boundaries in Africa with so many inter-state borders running through the length and breadth of the continent. This stems from the colonial rationale of African political geography, which has resulted in the present-day Africa with problems. The delineation of borders has had a significant impact on trade facilitation in Africa.
The colonial political geography as espoused from the Berlin Conference of 1884-85 not not only imposed on Africa the present border demarcation, but also sought to assimilate Africa into the European concept of nation-states with clearly-defined and demarcated borders.
With establishment of the African Continental Free Trade Area (AfCFTA), trade facilitation on the continent is expected to increase. The AfCFTA is expected to boost intra-African trade by 52.3% by 2025, increase Africa’s income by up to US$450billion by 2035 according to the IMF, and lift 30 million Africans out of extreme poverty. The main aim of the AfCFTA is to reduce tariffs among members and cover policy areas such as trade facilitation and services, as well as regulatory measures such as sanitary standards and technical barriers to trade.
Trade integration across the African continent has long been limited by outdated border and transport infrastructure, and conflicting regulations across dozens of markets. Governments have often mounted trade barriers to defend their own markets from regional competition, making it more expensive for countries to trade with neighbours as opposed to countries in other continents. The AfCFTA promises broader and deeper economic integration and will attract investment, boost trade, create jobs, reduce poverty and increase shared prosperity in Africa.
The African continent is currently fraught with an increasing likelihood of civil strife because of food and energy-fuelled inflation amid an environment of heightened political instability. In the past two decades, the world has become much less poor everywhere except in unstable countries. In addition to a thorough and huge toll on human life, civil conflicts cause protracted, severe disruption of economic activities and infrastructure, and are key constraints to development in many countries across the continent.
The rise in coups across the continent is a cause for concern to policymakers and strategic partners. Since 2020, there have been military coups in Burkina Faso, Guinea, Niger, Mali, Sudan and Chad, failed ones in the CAR, Djibouti, Guinea-Bissau and Madagascar, and attempts in Gambia and Sao Tome and Principe.
Why promoting trade on the continent matters
Trade and trade policy can greatly affect the risk of conflict. Trade encourages the reallocation of resources to more efficient activities, and thus opens opportunities and creates jobs. However, changes in relative prices as a result of trade can also destroy opportunities and jobs in declining sectors; and the people affected by these losses may, under certain conditions, turn to violence as a source of income. Changes in real incomes generated by trade are particularly important in unstable countries, as is the case the case in Africa where trade flows tend to be larger and more volatile than other external flows – such as aid, remittances and foreign investment.
Increases in the prices of exported oil and mineral commodities substantially raise the risk conflict. An increase in the value of these exports of 10% raises the risk of conflict by 2.2% on average across countries. The higher the value of resources that can be easily appropriated through fighting, such as minerals and oil, the greater is the incentive for conflict to break out. The situation in countries like Nigeria indicate the increase in price of oil raises the number of conflicts and civil unrest. These relationships are also consistent with other intra-country evidence from the Democratic Republic of Congo and from sub-Saharan Africa.
Major economies in Africa such as South Africa and Nigeria were already stuck with low growth, and many African governments have seen their debt burdens increase – some such as Ethiopia and Ghana now have dollar debt trading at distressed levels; and more countries are expected to fall in the same line during 2023 and possibly beyond. On average, the public sector debt-to-GDP ratio of African countries stood at above 60% in 2022.
There is a growing number of security crises across the continent, with hotspots in 2023 being in the western Sahel and Lake Chad Basin, eastern DRC and northern Mozambique, with high probability of crossing state borders. In the Horn of Africa, Ethiopia is battling with a complex cessation of hostilities between the federal government and Tigray People’s Liberation Front (TPLF).
Islamist militant groups in Africa further expanded their territorial reach in 2022, particularly in the western Sahel where al-Qaeda and Islamic State affiliates are competing for influence and continued to make inroads. Also, Mali’s decision in May to withdraw from the G5 Sahel has also battered the regional security architecture. Jihadist activity may spread further into coastal states, which has resulted in international partners such as France, the US and UK redesigning their security assistance strategies for the region.
Critical areas of trade facilitation is border management and control. Therefore, cross-border coordination of government activities within a country and among member-states of the AfCFTA is extremely important for the free, smooth and unhindered flow of international trade. Malfunctioning government, in particular Customs administrations, have a formidable negative effect on the economic development of a country; because they cause, for example, high transaction costs and over-delayed clearance activities.
One enormous opportunity is the area of financial intermediation for trade in Africa. The African Development Bank estimates Africa’s annual trade finance gap to be around US$81billion. Small and medium-sized enterprises (SMEs), which are among the most significant contributors to African economies, were particularly affected by limitations in the supply of trade finance (Afreximbank 2020). Compared to multinationals and large local corporates, SMEs and other domestic firms have greater difficulty accessing trade finance.
The persistent structural market gap is largely the result of limited knowledge about dynamics of the trade finance market in Africa. Bridging this gap will require adequate financial infrastructure, including credit information systems which are necessary to de-risk transactions and enhance the ability of banks to supply trade finance. Reforms and policies that reduce information asymmetry and facilitate credit information sharing should be encouraged. The relatively lower risk associated with trade finance could be the result of short-term, self-liquidating structure, secured, and speedily liquidating nature of transactions. Despite the deep thought that SMEs are the most significant contributor to African economies, they account for just over a quarter of banks’ trade finance assets in Africa.
Furthermore, regulatory reforms aimed at promoting trade facilitation, as well as better designed and implemented regional trade agreements and other policy measures – such as Customs unions, are also needed to ensure free trade areas are well-functioning and facilitate access to trade finance for the benefit of intra-African trade.
Why security matters in achieving AfCFTA’s success benchmarks
Opportunities expected with the implementation of AfCFTA include boosting intra-African trade by 52.3% by 2025 and increasing Africa’s income by up to US$450billion by 2035, as well as lifting 30 million Africans out of extreme poverty, according to the IMF. Resolving Africa’s perennial challenges and obstacles to continental developments will include the following.
Globalisation and trade liberalisation
Trade liberalisation is beneficial for economic security, but capital account liberalisation in developing countries can be detrimental to economic security – and this can be attributed to the fact that if there is no development of institutional capacities to withstand shocks, then capital account liberalisation causes greater economic instability.
Is economic security achievable?
Some critical variables are income, access to work opportunities, safety in work, access to training and, above all, representation. Unless people have basic income security and access to businesses or oragnisations to protect their interests, they will be vulnerable. Then we consider government policy commitments, the existence of institutions to deliver those policies, and their outcomes.
Social security systems in Africa are largely barely developed, less than elsewhere in the world. In a complex measure of legislative coverage for standard social security risks, the countries that are more advanced in this area are in North Africa, with Mauritius and South Africa included.
Income security serves as economic security, and Africa needs that corrected
According to the International Labour Organisation (ILO) People Security Surveys in four African countries, most Africans suffer from acute income insecurity even if they are not actually in poverty at any particular moment. As poverty rates are underestimated for Africa compared with other parts of the world, due to measurement procedures, the problems are compounded by the fact that income insecurity is severe.
In South Africa, about one-third feel their household income is insufficient for their food needs; and even more said that about their clothing, housing and health care needs are not being met. In Ethiopia, 78% of men and 83% of women say their household income is inadequate for basic needs. In Tanzania and Ghana, most people said their household income fluctuated from month to month – particularly for those who relied largely or exclusively on non-wage income for the less-educated and women.
Basic security and redistribution of income should be supported
In both Ghana and South Africa, rural dwellers are more inclined to support the moderate option of similar incomes for all. Conversely, the support for ‘no limits but policies to help the poor’ is stronger among the more educated – precisely those who can expect to reach higher income levels than those with fewer qualifications.
Regardless of their own income, people want the poor to be given more help in their societies; and this applies even if they anticipate being made slightly worse-off on seeing that come about.
Employment as a tool for poverty eradication and economic insecurity
Very few Africans have strong employment security. In South Africa, a large proportion of wage and salary workers have been in their employment for a short time. The age structure of the labour force is key. Sadly, in the case of most African countries, a factor in low average tenure is the impact of diseases etc. Many workers do not live active lives long enough to have long-term jobs. There is a high degree of informality in the economy and work of Africa. Commonly, about a third of the urban workforce in most African countries are involved in informal work – with women far more likely to be in that situation. Most workers in Africa work informally even if they are working for the supposedly formal organisations.
Strong and vibrant trade unions required
Many working people in Africa, are not aware of unions, are not drawn to belong to unions, and are not aware of advantages that they could provide. The least-educated are likely to have a negative attitude toward unions. The irony is that the least educated and disadvantaged groups, which include women, are the most in need of a powerful collective voice to combat the many forms of insecurity they face.
What is worrying in Africa even more than other regions is lack of a voice in the world of work in an era of globalization – and a weak collective voice leaves workers insecure.
In conclusion, AfCFTA will without doubt drive the much-needed generational development objectives of the African continent, but this must be implemented along with key factors such as:
- Development of a border control and management policy that guides member-states in how to create mutual border administrative assistance, and exchange of relevant information for the purpose of border control
- Member-states should foster cross-border community-centred conflict resolution mechanisms to cultivate secure, integrated trade relations.
- Member-states must ensure appropriate allocation of financial resources and technical support toward border security and conflict management and resolution.
- Members-states must ensure the peaceful resolution of border disputes at their early stages.
- Member-states should improve border infrastructure and reform immigration laws and policies to align and facilitate trade regardless of insecurity.
- Member-states should deploy security forces at borders to assist in the facilitation of trade.
The writer is Head-Transaction Banking, Consolidated Bank Ghana Limited.
Mobile No. 0206399433