By Samuel Tetteh TEI
Despite showing resilience amid global and regional headwinds, the African continent continues to grapple with high levels of poverty and stark inequalities that cast shadow over the continent’s progress.
Suffice it to say, per capita GDP has barely changed over the past two decades on the continent mainly because population growth rate has kept pace with real aggregate GDP growth. According to the African Economic Outlook, the continent’s real GDP per capita has been consistently growing at one of the slowest rates in the world since the 1980s.
To fan flames, the current global challenges and the persistently high food and energy prices across the continent has exacerbated inequalities across all major fault lines and undone hard-won gains in poverty reduction on the continent. Considering Agenda 2063, where regional integration plays a pivotal role, the question arises: how can we harness this integration to foster inclusive growth across the continent?
At its core, inclusive growth seeks to boost national wealth and well-being while reducing poverty, ensuring equity in human, social, economic and environmental development. It embodies the principle that wealth creation, economic freedom, and equal opportunity can coexist. One powerful tool in advancing this goal is regional integration.
Regional integration can drive inclusive growth by enhancing trade and market access, fostering cross-border infrastructure development, promoting investment and innovation, enhancing social and human development, and deepening financial integration.
According to a report by the World Bank, the effective implementation of African Continental Free Trade Area (AfCFTA) will lift 30 million people out of extreme poverty and to raise the incomes of 68 million others. The agreement is projected to increase real incomes by 7% or nearly $450 billion. By enhancing trade and market access through the elimination of tariff and non-tariff barriers, SMEs- the engines of inclusive growth and job creation, will grow and participate in regional and global supply chains.
It is rather unfortunate that Africa’s economic structure has not changed much since the 1990s. The continent dependence on trade with the outside world, with heavy concentration on export of primary commodities, has made the continent particularly vulnerable to external macroeconomic shocks and protectionist trade policies.
The continents that have achieved significant economic prosperity through trade have largely done so via intra-regional trade. Nearly 70% of all trade by European countries stays within Europe, as does 60% of all Asian trade and 40% of North American trade.
By contrast, only 13% of all of Africa’s trade is intra-African. By trading more within the continent, African nations can diversify their economies and create jobs, reducing unemployment and improving living standards. Additionally, strengthened regional value chains enable African countries to capitalize on their comparative advantages, ensuring more equitable distribution of economic benefits.
Also, bureaucratic delays, corruption, and inefficiencies at borders persist as significant obstacles to intra and inter-regional trade within Africa. These issues increase the costs and time of doing business across the continent. AfCFTA is harmonizing customs regulations and documentation requirements across member states, thereby ensuring the free movement of goods on the continent. The cost of doing business will eventually fall on the continent, particularly for SMEs.
Trade finance will be vital in enhancing the growth, trade and investment activities of SMEs on the continent. According to a report by the IFC on trade finance in West Africa, the total size of the trade finance market in the ECOWAS4 in 2021 was around $42 billion, but that supports only 25 percent of merchandise trade by West African Countries. According to the World Economic Forum (WEF), trade finance is one of the top three export obstacles for half of the world’s countries, and notably the poorest.
In conclusion, while Africa faces significant challenges in achieving inclusive growth, regional integration through initiatives like AfCFTA offers a promising pathway. By enhancing trade facilitation, improving infrastructure, and addressing trade finance barriers, Africa can unlock its vast economic potential, reduce poverty, and foster inclusive prosperity across the continent. Development, certainly is not just about GDP growth rate; it is about human development, environmental stewardship and the enduring pursuit of a more equitable and sustainable world.
The writer is a Development Economist| Trade Policy Analyst | Market Entry Strategist
