A number of African countries have experienced significant growth over the past few years. Indeed, between 2000 and 2009, 11 African economies grew at a rate of over 11%.⁽²⁾ Meanwhile the whole continent has experienced an average growth rate of 5%.⁽³⁾ However, despite this growth, African economies remain relatively small when compared with countries in other regions in the world. In this context intra-African trade has often been cited as being an important means for African economies to grow in scale. This was recently identified during the 2012 World Economic Forum on Africa where leaders pointed to greater market integration as a way of building globally competitive economies. This discourse is not new. Attempts at integration have long been underway, at least in policy. Regional integration in the form of free trade areas and customs unions is widespread and recently the Continental Free Trade Area (CFTA) has been suggested as a pan-African measure that seeks to encourage intra-continental trade.

In light of its prevalence in public and policy discourse, this CAI paper explores the actual extent of inter-regional trade. It argues that despite dominant perceptions of its scarcity, intra-continental trade does exist. However, it finds that the trend is slow and varies significantly across countries and regions. It investigates the reason for this by exploring the challenges trade flows face on the sub-continent and how they can be overcome. In doing this it highlights the contribution of weak infrastructure and the prevalence of non-tariff barriers (NTBs) like ad hoc checkpoints as significant obstacles to the mobility of goods that do little to facilitate internal trade. Finally it looks briefly at the CFTA and asks whether it offers the possibility to meaningfully deepen internal trade on the continent.

The extent of intra-African trade

Small markets make it difficult for investors and businesses to make large scale investments and are thus a “constraint to [the] economic development of states.”⁽⁴⁾ As the majority of African economies remain fairly modest in size, intra-African trade has frequently been identified as an important means of growth that can encourage increased competitiveness through the development of economies of scale. A number of market integration initiatives are already in place, most notably regional free trade areas and customs unions.

However, the dominant understanding is that practice has trailed poorly behind policy in this regard and that intra-African trade is practically non-existent. A recent report by the Brookings Institute stated that internal trade on the sub-continent made up 10% of total trade in 2010, a figure that had not changed since 2002.⁽⁵⁾ The report claimed that this figure was low, especially when compared to regions like the European Union (EU) (60%). This is, however, an unfair comparison when considering the depth of EU regional integration. Instead, it should be pointed out that other developing regions, like parts of Asia (17%) for example, exhibit levels of regional trade comparable with Africa. In this context the idea that intra-African trade is trailing behind a global trend is misleading. Furthermore, it must be noted that International Monetary Fund (IMF) figures cited in the Brookings report do not capture informal trade which is likely to be a considerable amount in the African context.

Despite the need to challenge dominant narratives that point to the paucity of internal trade on the continent, its extent must not be exaggerated. For most African countries the EU remains the biggest trading partner for both exports and import and intra-African trade has not grown beyond 10% since 2002.(6) What’s more, a closer look at the 10% reveals that this figure is dominated by a small number of countries.

Major regional powers like South Africa, Nigeria and to a lesser extent Kenya, have taken advantage of inter-regional trade. Unsurprisingly South Africa, the largest economy on the continent, is also the biggest intra-Africa trader. In 2010 it exported over US$ 12 billion to other African countries and imported US$ 7 billion.⁽⁷⁾ Nigeria followed as the second largest intra-Africa trader, exporting US$ 7.5 billion but importing only US$ 2 billion. Other countries trail significantly behind (Figure 1).

Figure 1: Value of exports and imports of top intra-African traders in 2010 (billions of US$) ⁽⁸⁾

On a regional level a similar picture emerges. Regional groupings that include a relatively strong economy are easily dominated by it. One such example is the East African Community (EAC), arguably one of the most successful examples of regional integration in sub-Saharan Africa. The EAC is made up of Kenya, Uganda, Tanzania, Rwanda and Burundi. Being the largest economy in the region, Kenya enjoys a virtual monopoly over exports to its regional partners. An EAC report illustrated that in 2008 Kenya exported 8% of its goods to Tanzania and 13% to Uganda. However, less than 2% of Kenya’s imports come from other EAC members.⁽⁹⁾ Member dominance is not the case in all region groupings, however. In the Economic Community of West African States (ECOWAS) a slightly different picture emerges. While Nigeria is the group’s largest economy, its share of regional trade has dropped significantly from 7% in 2001 and 2006 to 2.3% in 2010, choosing instead to direct its trade flow towards Western markets.⁽¹⁰⁾

It thus becomes clear that while inter-regional trade does exist, and exists to a significant degree across the continent, it is an underexploited frontier for many African businesses and investors. In light of this as well as the attention it has received in public discourse, it remains to be asked why trade flows have remained overwhelmingly directed towards Western markets and why practice has trailed so far behind policy.

Explaining the gap: Bad roads and bribes

Understanding the reasons for the underexploited potential for internal trade flows requires closer attention to the barriers that states encounter when looking to engage in business or investment. Economic diversification has previously been pointed to as one of the main reasons for the lack of internal trade.⁽¹¹⁾ The argument states that if economies are similar enough in the goods they produce there is less incentive to trade. Thus, because no economy enjoys a comparative advantage over specific goods in the region, there is little incentive to engage in intra-regional trade.

However, on closer inspection this line of argument appears reductionist as it grossly ignores the diversity that exists even among primary commodity exporters. One such example is that of ECOWAS and agriculture. Despite the majority of ECOWAS members being primarily agricultural producers there exists a high degree of specialisation that differentiates their respective exports. While the cocoa market is heavily dominated by Ghana and Cote d’Ivoire, Senegal enjoys a practical monopoly over fish. Similarly, livestock is the mainstay of Niger and tea and coffee of Cote d’Ivoire.⁽¹²⁾ Furthermore, as revealed in a United Nations Conference on Trade and Development (UNCTAD) report, 40% of intra-regional trade in ECOWAS is manufactured goods.⁽¹³⁾ Thus there is certainly potential for significant trade amongst members of the community but despite this countries trade more with third countries than with members. This suggests that economic diversification cannot explain the modest nature of intra-regional trade. Instead it would be more productive to look towards restrictions to the free movement of goods as a key factor in explaining low intra-African trade.

To this end, a compelling argument is made for NTBs as a deterrent to internal trade. NTBs take various forms but the most cited are police checkpoints and customs duties that may involve onerous bribes, delay delivery times and raise already high transport costs. In Cameroon a delivery truck passing through one of the major trading routes between Douala and Bertoua encounters a total of 47 checkpoints, many of them ad hoc.⁽¹⁴⁾ In Kenya a similar situation exists with 27 checkpoints between Mombasa and Nairobi.⁽¹⁵⁾ Considering the difficultly with which goods are transported within the same country it is difficult to see how businesses can be allowed to develop the competitiveness and the capacity to trade with countries across the continent.

Regionally such barriers persist. A recent ECOWAS study revealed that, on average, seven checkpoints are passed every 100km when travelling in the region.⁽¹⁶⁾ Checkpoints provide significant opportunity for corruption and severely restrict freedom of movement. They also add significant costs to doing business. While conducting the ECOWAS study, on the route from Dakar to Bissau, a journey of 666km, a total of CFA 5,833 (US$ 129) was used for bribes paid to policemen.⁽¹⁷⁾ These costs might not deter trade outright, but they do hinder its development by making it harder for businesses to operate over large scales. It also adds to uncertainty as businesses are unable to predict how much roadblocks will actually cost them in terms of both time and money. Furthermore, by transferring costs over to consumers, such barriers reduce the competitiveness of African sourced products on the market.

Weak infrastructure also shoulders a significant portion of the blame. With a road density of 16.8km per 1,000 square kilometres, approximately half that in other low-income regions,⁽¹⁸⁾ overland travel remains extremely difficult and costly, disconnecting countries and even major cities from each other. High transportation costs are a major disincentive for businesses hoping to engage in intra-African trade. Mapping out the African road network clearly shows how the shortest routes across the sub-continent that connect West and East Africa require passing through the worst quality roads on the continent in Chad, Democratic Republic of Congo, Central African Republic and Tanzania.⁽¹⁹⁾ This is illustrated in Figure 2.

Figure 2: Map of major roads and their quality, 2010 ⁽²⁰⁾

Other means of transport prove to be just as tricky. Railway density remains low, waterways underexploited and air travel prohibitively expensive.

The cumulative effects of high cost and difficult transportation, as well as institutional barriers such as checkpoints, create high cost barriers to conducting business across the sub-continent. In the World Bank Doing Business Report 2011 sub-Saharan Africa was singled out as the most expensive region in which to conduct business.⁽²¹⁾ Illustrating this point, a United Nations Economic Commission for Africa (UNECA) report stated that the cost of shipping a car from Japan to Abidjan is US$ 1,500 while the cost of shipping the same car from Addis Ababa to Abidjan is US$ 5,000.⁽²²⁾ In this context it is unsurprising that internal trade has not flourished to the extent that its underexploited potential suggests it could.

The CFTA: An ambitious opportunity

In January 2012 an African Union (AU) conference saw African leaders support the creation of a pan-African trade agreement. The CFTA was suggested as a means of boosting intra-African trade by 25% in the coming decade.⁽²³⁾ This comes a few months after the proposed Grand Free Trade Area which aims to see the integration of the Southern African Development Community (SADC), Common Market for Eastern and Southern Africa (COMESA) and EAC.⁽²⁴⁾

Considering the extent of current regional integration, and the barriers to mobility discussed above, it is questionable how the CFTA can bring dramatic changes to flow of trade. However, the agreement is a welcome step. Indeed, deeper regional integration and pan-African trade facilitation policies are by no means mutually exclusive and can in fact work well together. While a strong focus should remain on deepening current state and regional structure, the CFTA can help to encourage intra-Africa trade. It can also allow for a two speed Africa: a dual trading system that allows countries locked into regions that are hesitant to engage in deeper market integration to work with more willing members of the CFTA. However, if the CFTA is to be successful basic concerns do need to be addressed. To this end lessons can be learnt from regional integration efforts by highlighting the need for reforms to go beyond the removal of tariffs to a greater focus on NTBs, the strengthening of infrastructure, institutional developments, the harmonisation of customs and the facilitation, not the obstruction, of the movement of goods. This requires not only a commitment to intra-continental trade but also to a general rethinking of sovereignty and of the state’s revenue extractive methods.

Concluding remarks

As a consequence of the significant limitations placed on free movement of goods the potential for intra-African trade remains significantly untapped and pan-African business underdeveloped. This presents a massive opportunity. While challenges persist, the picture is not entirely bleak. Recent years have seen sub-Saharan Africa undertaking widespread reforms to regulatory policy.(25) Over the last few years 78% of the continent undertook meaningful reform with the aim to improve the business climate and encourage investment. This is a positive step. Furthermore, obstacles also present considerable opportunities. To this end investment in trans-continental or regional infrastructure which can facilitate mobility has significant potential for high returns on the sub-continent. When one considers the continent’s demography, which sees a young population turning Africa into an important source of consumer demand, the pay offs of navigating these structural challenge can prove significant.

Written by Leah Gatt ⁽¹⁾

NOTES:

(1) Contact Leah Gatt through Consultancy Africa Intelligence's Business and Industry Unit (industry.business@consultancyafrica.com).
(2) Akinola, L., ‘Regional ambitions’, This is Africa, 25 August 2011, http://www.thisisafricaonline.com.
(3) ‘Sub-Saharan Africa’s economies set for broad-based growth’, IMF Survey online, 25 October 2010, http://www.imf.org.
(4) ‘The challenge of market integration’, World Economic Forum on Africa, http://www.weforum.org.
(5) Kimenyi,M.S., Lewis, Z.A. and Routman B., ‘Introduction: Intra-African Trade in Context’, Accelerating growth through improved intra-African trade, Brookings Institute Report, January 2012, http://www.brookings.edu
(6) Ibid.
(7) IMF Direction of Trade Statistics, 2010, http://elibrary-data.imf.org.
(8) Ibid.
(9) ‘Trade report 2008’, East African Community Secretariat, 2010, http://www.eac.int.
(10) Chete, L. and Adewuyi, O., ‘Dynamics of trade between Nigeria and other ECOWAS countries’, Accelerating growth through improved intra-African trade, Brookings Institute, January 2012, http://www.brookings.edu.
(11) Kimenyi, M.S., Lewis, Z.A. and Routman B., ‘Introduction: Intra-African Trade in Context’, Accelerating growth through improved intra-African trade, Brookings Institute, January 2012, http://www.brookings.edu.
(12) Cissokho, L., et al., 2012. Why is agricultural trade within ECOWAS so high? Journal of African Economies, 2012, pp. 1-30.
(13) ‘Economic development in Africa: fostering industrial development in Africa in the new global environment’, Special Report, UNCTAD, 2011.
(14) ‘Trucking in Cameroon: the road to hell is unpaved’, The Economist, 19 December 2002, http://www.economist.com.
(15) Taiwo, O and and Moyo, N., ‘Eliminating Barriers to Internal Commerce to Facilitate Intraregional Trade’, Accelerating growth through improved intra-African trade, Brookings Institute, January 2012, http://www.brookings.edu.
(16) ‘Review of the implementation status of the trans African highways and the missing links’, African Development Bank and UN Economic Commission for Africa, 2003.
(17) Cissokho, L., et al., 2012. Why is agricultural trade within ECOWAS so high? Journal of African Economies, July, pp. 1-30.
(18) Taiwo, O. and Moyo, N.,, ‘Eliminating barriers to internal commerce to facilitate intra-regional trade’, Accelerating growth through improved intra-African trade, Brookings Institute, January 2012, http://www.brookings.edu.
(19) Buysa, P., Deichmanna, U. and Wheeler, D., 2010. Road network upgrading and overland trade expansion in sub-Saharan Africa. Journal of African Economies, 19(3), pp. 399-432.
(20) Ibid.
(21) ‘Doing business 2011: making a difference for entrepreneurs’ Doing Business, 4 November 2010, http://www.doingbusiness.org.
(22) ‘Trade facilitation and intra-African trade’, UNECA, http://www.uneca.org.
(23) ‘African Union aims for Continental Free Trade Area by 2017’, ICTSD, 1 February 2012, http://ictsd.org.
(24) Akinola, L., ‘Regional Ambitions’, This is Africa, 25 August 2011, http://www.thisisafricaonline.com.
(25) ‘Doing business 2012: Doing business in a more transparent world’, Doing Business,, 20 October 2011, http://ictsd.org.