Harmonising Africa’s logistics to enhance intra-Africa tradeTuesday September 06 2022
The contemporary era of regional trade across the globe is one of a complex interaction between people, companies, and organisations. Supply chains traverse countries and regions.
Trade has become an everyday business, and its performance largely depends on connectivity along roads, rail, and sea, telecommunications, financial markets, and information processing.
Nevertheless, despite such conspicuous knowledge of what facilitates trade, Africa’s regional trade potential remains hugely under-exploited. World Bank notes that trade between countries on the continent represents 12 per cent of the total economic activity compared to 40 per cent in Asia and 60 per cent in Europe.
To help bridge this gap, African nations instituted the African Continental Free Trade Area (AfCFTA) agreement on 1 January 2021. This marked the dawn of a new era in intra-regional trade facilitation.
The agreement aims to eliminate import tariffs on 97per cent of goods traded globally and address non-tariff barriers. It opens up a market of more than 1.3 billion people and is expected to boost intra-African trade while encouraging direct investment in the continent from the rest of the world.
While the deal focuses on facilitating trade and services and easing the regulatory measures and technical trade barriers, a lot needs to be done. For Africa to boost intra-regional trade from the 12 per cent reported by the World Bank to the target of 20 per cent, it needs to make significant changes in technology, infrastructure, and policy reforms.
For one, boosting intra-African trade requires Africa to encourage more investment opportunities for product diversification. Currently, there exist narrow patterns of trade depending on primary products involved in low levels of inter-country trade.
Since most African countries mainly export raw materials to import finished products, there is little that the African nations are interested in importing from one another.
There is a need for export diversification and product sophistication, which will allow for the inclusion of more small and medium-sized enterprises (SMEs), encouraging innovation as markets expand.
By improving the quality of exports for African countries, the continent will build resilience regarding movements in demand resulting from economic downturns in importing countries and price dips.
This will go a long way in shifting African economies to produce higher-value-added products and services and reduce the existing over-dependence in global trade.
According to UNCTAD, Africa’s untapped export potential stands at $21.9 billion, equivalent to 43 per cent of intra-African exports. UNCTAD adds that an additional $9.2 billion export potential can be achieved if Africa implements partial tariff liberalization under the AfCFTA over the next five years.
Barriers that should be addressed through joint efforts under AfCFTA include the costly non-tariff measures, infrastructure gaps, and market information gaps.
Consequently, long-term investment and competition policies cooperation will help overcome market dominance by a few players while reducing regulatory and structural barriers to market entry. Currently, trade between African countries comprises 61 per cent of processed and semi-processed goods.
This suggests significant potential benefits from greater regional trade ideal for transformative and inclusive economic growth.
But perhaps infrastructure is the most effective solution that will make AfCFTA fly and open a world of opportunities in Africa. Harmonizing logistics in the continent is key to enhancing the efficiency of cross-border trade through seamless cargo movement.
UNCTAD’s 2021 Review of Maritime Transport indicates that the AfCFTA pact could significantly enhance African maritime trade. It is expected to increase the demand for the different modes of transport, which will, in turn, elevate the investment need for infrastructure and equipment.
This speaks volumes regarding how logistics plays a critical role in boosting intra-African trade. It is the one component that enhances the ease of doing business by allowing a seamless movement of goods and services as needed.
On average, African countries rank between 1.77 and 3.43 out of 5 on the Logistics Performance Index. The index measures the ease, speed and simplicity of moving goods and services across countries. It also analyzes cross-border clearance processes, among other challenges hampering trade.
Time, infrastructure, and entry barriers are the biggest challenges which Africa logistics harmonization can help mitigate. Today, for East Africa to trade with West Africa is a cumbersome process that can best be handled by either air, which comes at a high cost, or sea, which comes with long waits for delivery.
Taking a leaf from economies such as Europe, member countries are connected through roads, railway lines, sea ports, airports, which enhance connectivity and enable trade.
Similarly, for a start, a super highway that stretches from East Africa and connects to West Africa will greatly contribute to overcoming some of these challenges and enable free flow of people and goods which ultimately will enable trade.
The high costs of transport are exacerbated by poor infrastructure. In 1970, the idea of building a road network connecting Africa’s biggest cities and ports was born – the Trans-Africa Highway. However, only 1 of the 9 highways was ever made. The consequence is the high logistics cost in Africa – it is 50% higher than in the US or Europe.
AfCFTA seeks to solve the issue of entry barriers by eliminating tariffs and streamlining customs. But the only possible way to enhance regional trade in Africa is if the countries converge on a common cause and pursue the goal of standardized physical infrastructure and related goods and services delivery across the continent.
With Africa’s landlocked countries depending on their neighbours for trade, improved logistics will ease cargo flows while minimizing the cost and the time it takes for goods to arrive. It will transform countries such as Uganda, the DRC, and Rwanda, among others in Central Africa, into lands linked by efficient road and railway transport systems.
Overall, successful improvement in Africa’s trade logistics performance, including logistics infrastructure, customs border and port clearance, border checks, and logistics service quality, will boost Africa’s supply chain.
It will constitute on-time delivery of goods and services, enhance the shipment of competitively priced exports, and facilitate the ease of high-level tracking and tracing consignments. This will continue to improve regional and international trade flows, which will have a paramount contribution to the successful implementation of AfCFTA.