Africa’s huge trade deficit: A case of lagging processing power

By Brian MULONI

A trade deficit? What is that?

Let’s break it down. When the value of a country’s imports of goods and services supersedes the value of its export of same, this indeed, is a trade deficit.

Trade Deficit? Is that a problem? Sure not, until that deficit keeps a constant recuring pattern, stays significant and assumes an upward trend.

Africa currently has a trade deficit problem with China, and the outlook does not seem particularly hopeful. The trade imbalance between the Continent and China stood at 61.3 billion USD for 2024. Bloomberg states that the import of Chinese goods into Africa is expected to top 200 billion USD in 2025.

This lopsided trade imbalance with China has been caused by a range of factors, such as China’s relative economic heft compared to that of the continent, plus its dominance in African infrastructure, which drives demand for its equipment.

Perhaps the most crucial factor giving rise to this unequal trade relationship is that African exports to China are mainly raw materials and goods, whilst imports from China are mainly finished or manufactured goods.

Per unit, finished and manufactured goods are more valuable because they have had value added to them during the process of refinement or manufacturing. An unrefined lump of cobalt from Eastern Congo is worth considerably less than a cobalt-based car battery from China.

Africa’s lack of industrialised processing power, one which could turn its rich natural bounty into finished products, is holding the continent back. With her vast resources, Africa should, itself, be setting the terms to help obtain fair prices for its goods. Instead, its reliance on the export of unrefined and unmanufactured goods creates a race to sell these products quickly and a race to the bottom in pricing.

It is frustrating that a lack of processing and effective distribution capacity can lead to situations where African countries sometimes rely on countries like China to provide them with goods they already have in abundance, for example, beef and oil.

Stella Agara, a governance and youth development specialist, speaking on the Panel 54 Podcast, recently summarised this issue, commenting, “Africa has everything we need, but we keep looking outside instead of building within.”

Africa’s lagging processing power is not a new phenomenon, and for decades measures to curtail it, have been tabled. Change is coming, and all parties are waking up to the shifting landscape.

Malawi has just taken a huge stride towards achieving this, banning all exports of raw minerals to help promote industrialisation and reduce rising dependency on raw exports to foreign countries. Clearly, challenges lie ahead, especially in enforcing the ban and focusing investment on the efficient development of refining capacity. But Malawi has set out their store and provided leadership that will encourage others to follow.

Taken alone, Malawi’s actions are commendable and brave.

Take home? African countries must work together to increase processing and distribution power to service their imports needs. Foreign markets could then be compelled to import value-added products and not cheap raw materials. This approach positions the continent as a unified front, giving it better and more cards to engage its trade partners.

If African countries could achieve this and improve the export environment for themselves, then resource-hungry powers such as China will need to do more to access to what they need.

For instance, if they want a competitive edge over rivals for Africa’s resources, then perhaps contributing to developing domestic processing power might be a route to achieving it, something for which it has not been known for so far.

All international partners on the prowl in Africa for minerals and resources, should play a greater role in improving processing power. As major consumers of these goods, there should be a more formal responsibility to invest in the development of Africa’s refining and processing power. Current export models extract raw materials and raw value and leave little in the way of long-term benefits.

Only when domestic industrialisation happens at scale can African nations start to reap the full potential of their raw materials and benefit from their trade relationships, especially with China, whose current trade tactic stays skewed against the Continent’s trade aspirations.

The writer is an MBA Senior Finance Business Partner at Panel 54 podcast in Accra, Ghana