Africa launches largest trading block with 620 million consumers

By Baher Kamal and Fareed Mahdy | Last updated: Mar 7, 2016 - 9:20:42 AM

MADRID/CAIRO (IPS)—In Egypt more than 1,500 public and private business delegates and state leaders agreed in February to mobilize massive investments for the implementation of Africa’s largest trading bloc which was created last year by 26 African countries with a total of 620 million consumers and a combined Gross Domestic Product (GDP) nearing $1.2 trillion.

The agreement crowned the “Africa 2016” investment forum held in the Egyptian Red Sea resort Sharm El Sheikh. Business leaders convened with government officials and heads of international organizations to discuss trade and investment as engines of progress.

African heads of state and government from Ethiopia, Equatorial Guinea, Gabon, Nigeria, Sudan and Togo took part in the forum.

No official figures relating to the amount of these investments were released. An Egyptian diplomat talked to IPS on condition of anonymity. Corruption comes first on the list of impediments to investment along with instability, the source said.

“The volume of trade between African countries does not exceed 10 percent of the continent’s foreign trade, and will not increase unless tariff barriers are reformed and needed infrastructure is built, such as roads and ports to transport goods, among other,” added the diplomat.

Along with the installation of giant power generation plants, a 7,000-kilometres-long Cairo-Cape Town railways line is among large projects that attract private investors.

‘Development is no longer a dream’

“Times have changed in Africa,” said the Business for Africa Forum’s concept document submitted to the meeting.

With interest in the continent growing exponentially, some of today’s newest business players are originating from non-traditional regions such as South America, Eastern Europe, the Gulf, and Africa itself, it adds.

According to Business for Africa Forum, those who have been paying attention to Africa have seen these figures: a GDP in excess of $2 trillion; a growing middle class of over 313 million consumers, and consumer spending breaking through the $1 trillion mark and projected to reach $1.4 trillion by 2020.

Also a labor force estimated at 382 million people and expected to grow to over 500 million by 2020, and the youngest population in the world, which tomorrow will yield the lowest dependents to workers ratio in the world.

Regional integration and favorable trade agreements between African countries continue to be critical to this process.

Africa has been registering one of the highest annual economic growth rates, between 2 percent and 11 percent, making an average of 7 percent.

Egypt, which co-organized the forum with the African Union, Common Market for Eastern and Southern Africa, Southern African Development Community and the East African Community, has a privileged position between Europe, the Gulf, Asia, and Africa, with 8 percent of global sea-borne trade between the East and the West passing through the Suez Canal. That percentage which is expected to grow with the new Suez Canal Regional Development Project.

“Africa 2016” brought together high-level investment representatives interested in African business opportunities in the sectors of energy, Information and Communication Technology (ICT), financial services, trade, agribusiness, health care, and pharmaceuticals.

‘Continental Free Africa Trade’

The Africa 2016 Forum marked a step further towards the implementation of the goals adopted during the January 2012 African Union Summit which focused on the theme of “Boosting Intra-Africa Trade” as part of the heads of state and government decisions to establish a Continental Free Trade Area.

The African Union’s Program on Boosting Intra-African Trade is mainly based on these key pillars:

1. Trade is widely accepted as an important engine of economic growth and development. There are many regions and countries of the world that have been able to lift their people from poverty to prosperity through trade.

In Africa, however, trade has not served as a potent instrument for the achievement of rapid and sustainable economic growth and development due mainly to three interrelated basic features: size, structure, and direction. At around 3 percent the share of Africa in global trade is insignificant.

2. Africa’s trade is its high external orientation and relatively low level of intra-regional trade. Intra-African trade stands at around 13 percent compared to approximately 60 percent, 40 percent, 30 percent, intra-regional trade that has been achieved by Europe, North America, and the Association of South East Asian Nations respectively.

Even if allowance is made for Africa’s unrecorded informal cross-border trade, the total level of intra-African trade is not likely to be more than 20 percent, which is still lower than that of other major regions of the world.

3. That African countries do not trade much with each other has meant that they have been unable to fully harness the synergies and complementarities of their economies and take full advantage of the economies of scale and other benefits (such as income and employment generation) that greater market integration would have provided.

There are cases where products and services could have been sourced competitively from other African countries but were procured from outside the continent.

4. Due to the fact that Africa does the bulk of its trade with the outside world and the exports are heavily concentrated on primary commodities, the continent has been particularly vulnerable to external macroeconomic shocks and protectionist trade policies. This is evident from the recent global economic and financial crisis which, although not of the making of African countries, has had adverse impact on the continent’s economic performance.

5. Boosting intra-African trade and deepening regional market integration constitute a necessary response to the challenges facing Africa in the multilateral trading system and the global economy. The boosting of intra-African trade and the deepening of Africa’s market integration, by fostering competition among African countries, will assist in enhancing their capacity and prepare them to compete more effectively on the global market.

6. The Action Plan for Boosting Intra-Africa Trade specifically aims at deepening African market integration and significantly increasing the volume of trade that African countries undertake among themselves.

To effectively achieve this, the plan is divided into seven clusters namely, Trade Facilitation, Trade Policy, Productive capacities, Trade-related Infrastructure, Trade Finance, Trade Information and Factor Market integration.

The African leaders, in their 2012 summit in Addis Ababa, decided to establish a Continental Free Trade Area by an indicative date of 2017. The area will bring together 54 African countries with a combined population of more than 1.2 billion people and a combined gross domestic product of more than $3.4 trillion.

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