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Economic Development in Africa Report 2013 Intra-african Trade: Unlocking Private Sector Dynamism

Report by UNCTAD, 2013

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The main message of this year's report is that intra-African trade presents opportunities for sustained growth and development in Africa, but that seizing these opportunitiesrequires private sector dynamism to be unlocked and a development-based approach to integration to be adopted. Chapter 1 provides empirical facts on intra-African trade and investment. Chapter 2 examines the drivers of intra-Africantrade. Chapter 3 focuses on the structure of enterprises in Africa and identifies the distinctive features of the enterprise structures that inhibit trade. Chapter 4 discusses how to boost intra-African trade in the context of developmental regionalism. Chapter 5 provides a summary of the main findings and recommendations of the report.

ECONOMIC
DEVELOPMENT IN


AFRICA


U n i t e d n at i o n s C o n f e r e n C e o n t r a d e a n d d e v e l o p m e n t


REPORT 2013 INTRA-AFRICAN TRADE: UNLOCKING
PRIVATE SECTOR DYNAMISM


EMBARGO
The contents of this Report must not be


quoted or summarized in the print,
broadcast or electronic media before


11 July 2013, 17:00 hours GMT






ECONOMIC
DEVELOPMENT IN


AFRICA


U N I T E D N AT I O N S C O N F E R E N C E O N T R A D E A N D D E V E L O P M E N T


REPORT 2013 INTRA-AFRICAN TRADE: UNLOCKING
PRIVATE SECTOR DYNAMISM




ii Economic Development in Africa Report 2013


Copyright © United Nations, 2013
All rights reserved.


UNCTAD/ALDC/AFRICA/2013


UNITED NATIONS PUBLICATION
Sales No. E.13.II.D.2


ISBN 978-92-1-112866-6
eISBN 978-92-1-056143-3


ISSN 1990–5114


NOTE


Symbols of United Nations documents are composed of capital letters combined
with figures. Mention of such a symbol indicates a reference to a United Nations
document.


The designations employed and the presentation of the material in this publication
do not imply the expression of any opinion whatsoever on the part of the Secretariat
of the United Nations concerning the legal status of any country, territory, city or area,
or of its authorities, or concerning the delimitation of its frontiers or boundaries.


Material in this publication may be freely quoted or reprinted, but acknowledgement
is requested, together with a reference to the document number. A copy of the
publication containing the quotation or reprint should be sent to the UNCTAD
secretariat.




“Life is like riding a bicycle, you don't
fall off unless you stop pedalling”


Proverb from Sierra Leone




iv Economic Development in Africa Report 2013


ACKNOWLEDGEMENTS


The Economic Development in Africa Report 2013 was prepared by a
research team consisting of Patrick Osakwe (team leader), Janvier Nkurunziza and
Bineswaree Bolaky.


The work was completed under the overall supervision of Taffere Tesfachew,
Director, Division for Africa, Least Developed Countries and Special Programmes,
UNCTAD. The report benefited from inputs provided by Trudi Hartzenberg and
Francis Teal (consultants) and the Division on Investment and Enterprise at UNCTAD.
The report also benefited from the comments of the following, who participated in
a peer review discussion of a draft of the report: Professor Mwangi S. Kimenyi,
Director, Africa Growth Initiative, The Brookings Institution; Mr. Stephen Karingi,
Director, Regional Integration, Infrastructure and Trade Division, United Nations
Economic Commission for Africa; Ms. Margareta Drzeniek Hanouz, Director,
Global Competitiveness and Benchmarking Network, World Economic Forum;
Mr. Vinaye Dey Ancharaz, Senior Development Economist, International Centre for
Trade and Sustainable Development; Mr. Constantine Bartel, Senior Development
Adviser, International Trade Centre; Ms. Caroline Ko, Economist, World Economic
Forum and Mr. Bonapas Onguglo, Ms. Amelia Santos-Paulino, Mr. Rolf Traeger,
Mr. Mussie Delelegn, Mr. Stefano Inama and Mr. Antipas Touatam of UNCTAD.
Further comments were provided by Mr. Shigehisa Kasahara and Ms. Lisa Borgatti
of UNCTAD.


Statistical assistance was provided by Agnès Collardeau-Angleys and Heather
Wicks provided secretarial support. The cover was prepared by Sophie Combette.
Charlotte Gray edited the text.


The overall layout, graphics and desktop publishing were done by Madasamyraja
Rajalingam.




vCONTENTS


CONTENTS


Explanatory notes ................................................................................................ vii


Abbreviations................................................................................................. ..... viii


INTRODUCTION .................................................................................................................1


CHAPTER 1: THE STATE OF INTRA-AFRICAN TRADE AND
INVESTMENT ............................................................................................7


A. Introduction .................................................................................................. 8
B. Empirical facts on African trade, intra-African trade and investment .............. 8


CHAPTER 2: INTRA-AFRICAN TRADE: DRIVERS, CHALLENGES
AND POLICY OPTIONS .......................................................................45


A. Introduction ................................................................................................ 46
B. Regional blocs, trade and growth............................................................... 46
C. Understanding African regional trade performance ..................................... 50
D. Enhancing implementation of regional trade agreements ............................ 57


CHAPTER 3: THE PRIVATE SECTOR, ENTERPRISES AND
PRODUCTIVITY ......................................................................................63


A. Introduction ................................................................................................ 64
B. Features of the enterprise structure in Africa ............................................... 65
C. Manufacturing firms, exports and productivity ............................................ 73
D. Strengthening the private sector to boost regional trade ............................. 84


CHAPTER 4: BOOSTING INTRA-AFRICAN TRADE IN THE CONTEXT
OF DEVELOPMENTAL REGIONALISM ..........................................95


A. Conceptualizing developmental regionalism ............................................... 96
B. Current regional integration initiatives in Africa: are they conducive


to developmental regionalism? ................................................................... 98
C. Developmental regionalism in practice: lessons from South-East Asia ...... 103
D. Fostering developmental regionalism in Africa: key policy tools


and drivers ............................................................................................... 107
E. Conclusion ............................................................................................... 120




vi Economic Development in Africa Report 2013


CHAPTER 5: INTRA-AFRICAN TRADE: UNLOCKING PRIVATE
SECTOR DYNAMISM - MAIN FINDINGS AND
RECOMMENDATIONS ..................................................................... 123


A. Introduction .............................................................................................. 124
B. Main findings ............................................................................................ 125
C. Messages and recommendations ............................................................ 129
D. Conclusion ............................................................................................... 134


NOTES ................................................................................................................136
REFERENCES ...................................................................................................137


BOXES


1. Negotiating trade facilitation measures .......................................................... 53
2. Building capacity for innovation through linkages between universities


and industry .................................................................................................. 72
3. Credit bureaux, registries and access to finance in Africa ............................... 87
4. Effect of the political shock in Côte d’Ivoire on West African economies ........ 94
5. African regional economic communities and developmental regionalism ..... 101
6. The tripartite free trade area: a developmental integration paradigm? .......... 110
7. Lessons from experience of special economic zones................................... 114


FIGURES


1. Intra-African trade, 1995–2011...................................................................... 11
2. Top 37 Intra-African agricultural imports, 2007–2011 ..................................... 30
3. Distribution of intra-African trade by main product category, 1996–2000


and 2007–2011 ..................................................................................................... 37
4. Share of manufactured goods in intra-African trade and extraregional trade,


1996–2011 ............................................................................................................ 38
5. Main motive for joining regional economic communities ....................................... 47
6. Percentage of firms exporting to Africa and outside Africa .................................... 74
7. Percentage of output exported to Africa and outside Africa .................................. 76
8. Labour productivity and capital per employee, by firm size ................................... 78
9. Productivity across countries and by firm size ....................................................... 79
10. Tertiary education gross enrolment ratios by region ............................................... 90




viiCONTENTS


TABLES


1. Membership of regional communities ............................................................ 9
2. Shares of regional trading groups in world exports and imports,


1970–2010 ................................................................................................. 12
3 (a). Intraregional exports and imports, 1996–2011 ............................................ 13
3 (b). Shares of exports and imports (by main destination), 1996–2011 ............... 15
4. Intra-trade and GDP by different regional groups ........................................ 17
5. Intra-African trade 1996–2011: distribution of shares ................................. 20
6. Intra-African exports, five main destinations by country, 2011 ..................... 22
7. Intra-African imports, five main destinations by country, 2011 ..................... 25
8. Intraregional trade as a percentage of GDP ................................................. 27
9. Main African exports to Africa and to the rest of the world by


three-digit SITC product category, 2007–2011 ........................................... 31
10. Net trade balance of African countries in agriculture, 2007–2011 ................ 35
11. Intraregional foreign direct investment in Africa ............................................ 40
12. Net cross-border mergers and acquisitions (1990–2011) and


greenfield investment projects (2003–2011) in Africa ................................... 42
13. Top 20 investors in Africa as reported by investing economies ................... 43
14. Implementation of ECOWAS trade liberalization scheme by


member States.......................................................................................................58
15. The informal economy as a percentage of GDP .......................................... 66
16. Labour productivity and costs in Africa and other regions ........................... 80
17. Private sector commitments to sub-Saharan Africa infrastructure, 2011 ..... 86
18. Investment in research and development, 2009 ......................................... 91


EXPLANATORY NOTES


The $ sign refers to the United States dollar.


Sub-Saharan Africa: Except where otherwise stated, this includes South Africa.


North Africa: In this publication, Sudan is classified as part of sub-Saharan Africa,
not North Africa.


A hyphen (-) indicates that the data are either not available or not applicable.




viii Economic Development in Africa Report 2013


ABBREVIATIONS


ACP African, Caribbean and Pacific (group of countries)


ADB Asian Development Bank


AfDB African Development Bank


AEC African Economic Community


AMU Arab Maghreb Union


ASEAN Association of Southeast Asian Nations


AU African Union


AUC African Union Commission


CEMAC Communauté économique et monétaire de l’Afrique centrale


CEN-SAD Community of Sahel-Saharan States


CMA Common Monetary Area


COMESA Common Market for Eastern and Southern Africa


EAC East African Community


ECA Economic Commission for Africa


ECCAS Economic Community of Central African States


ECOWAS Economic Community of West African States


FDI Foreign direct investment


GDP Gross domestic product


ICGLR International Conference on the Great Lakes Region


IGAD Intergovernmental Authority on Development


IOC Indian Ocean Commission


MRU Mano River Union


NEPAD New Partnership for Africa’s Development


SACU Southern African Customs Union


SADC Southern African Development Community


SITC Standard International Trade Classification


SMEs Small and medium-sized enterprises


WAEMU West African Economic and Monetary Union




INTRODUCTION




2 Economic Development in Africa Report 2013


Intra-African trade has enormous potential to create employment, catalyse
investment and foster growth in Africa. Since gaining political independence in the
1960s, African Governments have made several efforts to exploit this potential of
trade for development, the most recent being the renewed political commitment
by African leaders at the African Union summit in January 2012 to boosting intra-
African trade and to fast tracking the establishment of a continental free-trade
area. By most accounts, African countries have not made significant progress in
boosting regional trade. Over the period from 2007 to 2011, the average share
of intra-African exports in total merchandise exports in Africa was 11 per cent
compared with 50 per cent in developing Asia, 21 per cent in Latin America and
the Caribbean and 70 per cent in Europe. Furthermore, available evidence indicates
that the continent’s actual level of trade is also below potential, given its level of
development and factor endowments.


There are several reasons for the weak regional trade performance in Africa,
one of which is that the approach to regional integration on the continent has so far
focused more on the elimination of trade barriers and less on the development of
the productive capacities necessary for trade. While the elimination of trade barriers
is certainly important, it will not have the desired effect if it is not complemented
with policy measures to boost supply capacities. The limited role of the private
sector in regional integration initiatives and efforts has also contributed to the
weak trade performance of the continent. Although trade agreements are signed
by Governments, it is the private sector that understands the constraints facing
enterprises and is in a position to take advantage of the opportunities created by
regional trade initiatives. Admittedly, African regional economic communities are
increasingly making efforts to incorporate the private sector into their structures
and action plans, for example through the establishment of business councils.
Nevertheless, Governments are the only active driver of regional integration
in Africa and the private sector remains a passive participant in the process. If
African Governments want to achieve their objective of boosting intra-African trade,
they have to create more space for the private sector to play an active role in the
integration process.


Against this background, the Economic Development in Africa Report 2013,
subtitled Intra-African Trade: Unlocking Private Sector Dynamism, focuses on
how to strengthen the private sector to boost intra-African trade. It argues that for
African countries to reap developmental gains from intra-African trade and regional
integration, they will need to place the building of productive capacities and domestic




3INTRODUCTION


entrepreneurship at the heart of the policy agenda for boosting intraregional trade.
Getting policies and the business environment right will not suffice. In this regard,
the report highlights distinctive features of the enterprise structure in Africa that have
to be addressed to boost intra-African trade. It also argues that putting in place
measures to strengthen the capacities, competitiveness and innovative capabilities
of domestic enterprises should be an integral part of development policy. Some of
the key questions addressed in the report are as follows:


t 8IBU BSF UIF PQQPSUVOJUJFT GPS DSPTTCPSEFS USBEF JO "GSJDB BOEXIZ BSF
these opportunities not being fully exploited?


t )PX DBO "GSJDBO DPVOUSJFT FOIBODF JNQMFNFOUBUJPO PG FYJTUJOH SFHJPOBM
agreements to boost intra-African trade?


t 8IBUGBDUPSTMJNJUUIFDBQBDJUZPG"GSJDBOFOUFSQSJTFTUPQSPEVDFHPPETBOE
services that are competitive in export markets?


t )PXDBO"GSJDBODPVOUSJFTFOTVSFUIBUJOUSB"GSJDBOUSBEFJTESJWFOQSJNBSJMZ
by national and regional entrepreneurs to maximize benefits for Africans?


t )PXDBO UIF CFOFýUT PG SFHJPOBM USBEFCFXJEFMZ TQSFBE BOEEJTUSJCVUFE
across countries?


t "SF UIFSF FYUFSOBM GBDUPST JOIJCJUJOH JOUSB"GSJDBO USBEF BOE IPX DBO
development partners contribute to unlocking the trade potential of Africa?


The main message of the report is that intra-African trade presents opportunities
for sustained growth and development in Africa, but that seizing these opportunities
requires private sector dynamism to be unlocked and a development-based
approach to integration to be adopted. The report builds on previous work carried
out by the United Nations Conference on Trade and Development (UNCTAD),
particularly in the Economic Development in Africa Report 2009 on strengthening
regional economic integration for the development of Africa and the 2011 report
on fostering industrial development in Africa in the new global environment. The
present report differs from existing literature on boosting intra-African trade in
four significant respects. First, unlike previous studies, it lays emphasis on how
to integrate the private sector into ongoing efforts to boost intra-African trade. In
particular, it focuses on how to strengthen the private sector to promote intra-
African trade. Second, it argues that the lack of productive capacity is a major
obstacle to expanding intra-African trade and should be given as much attention
by African policymakers as the elimination of trade barriers. Third, it provides novel




4 Economic Development in Africa Report 2013


and specific ideas on how to enhance implementation of existing regional trade
agreements with a view to boosting intra-African trade. Finally, it stresses the need
for an alternative approach to regional integration in Africa, called developmental
regionalism, and outlines broad features of this new approach and how it could be
applied in Africa. The new approach calls for a move away from a linear model of
integration, which lays undue emphasis on processes, into a more pragmatic and
results-oriented approach to integration.


THE RATIONALE FOR BOOSTING
INTRA-AFRICAN TRADE


The renewed political commitment by African leaders to boosting intra-African
trade can be ascribed to several factors. African countries have grown at a
reasonable rate over the last decade but this growth has not created jobs and has
been driven by volatile commodity prices. There is a recognition that economic
diversification is needed to create jobs and sustain growth. The composition of
regional trade in Africa tends to be skewed towards manufacturing and so regional
trade is seen as having the potential to promote diversification, thereby increasing
the prospects for growth and development on the continent. Related to this point
is the fact that there has been an increase in income and in the size of the middle
class in Africa over the past decade. These two trends indicate that there is a
potential and ready market for regional trade in goods and services. Boosting intra-
African trade will enable this opportunity to be exploited.


Expanding regional trade is also regarded as providing an opportunity for African
countries to address a major constraint to export competitiveness imposed by the
small size of their national economies. In particular, it will enable African enterprises
to enhance competiveness through exploiting economies of scale associated with
having a large market. In this context, it is a first step towards building capacity and
competitiveness for exporting globally. Geography provides another rationale for
boosting intra-African trade. Many African countries, for example those in Southern
Africa, are quite far from big and growing consumer markets in Europe, North
America and Asia. Enhanced regional trade will enable these countries to overcome
the burden associated with exporting to distant markets.


The severe negative impact of the great recession of 2008–2009 on African
economies exposed the vulnerability of Africa to global shocks. It led to a significant
decline in export demand in its traditional markets, pointing to the need for




5INTRODUCTION


diversification of its export markets. Regional trade is seen by African Governments
as an important channel through which African countries can insulate themselves
from external shocks. The current deadlock in the Doha Round of trade negotiations
has also created an incentive for countries to pay more attention to bilateral and
regional trade issues. Other regions are already acting along these lines. African
leaders do not want Africa to be the exception.


ORGANIZATION OF THE REPORT


The report is organized as follows. Chapter 1 provides empirical facts on intra-
African trade and investment. It also compares the regional trade performance of
Africa to those of other continents. Chapter 2 examines the drivers of intra-African
trade with a view to providing an understanding of the regional trade performance
of the continent. It also offers insights into how to enhance implementation of
existing regional agreements to promote intra-African trade. Chapter 3 focuses
on the structure of enterprises in Africa and identifies the distinctive features of the
enterprise structures that inhibit trade. It also provides evidence of the link between
manufacturing firms, exports and productivity in Africa and discusses policy actions
that should be put in place to strengthen the private sector and boost intra-African
trade. Chapter 4 discusses how to boost intra-African trade in the context of
developmental regionalism. In this context, it stresses the need for a new approach
to regional integration in Africa that focuses on development outcomes as opposed
to processes of integration. It also outlines the broad features of a developmental
approach to regional integration and discusses how it could be applied to Africa.
Finally, chapter 5 provides a summary of the main findings and recommendations
of the report.






1CHAPTER
THE STATE OF


INTRA-AFRICAN TRADE
AND INVESTMENT




8 Economic Development in Africa Report 2013


A. INTRODUCTION


An understanding of the scale, trends and composition of intra-African trade is
crucial for the effective design and implementation of policies to boost that trade.
This chapter provides an overview of the scale, trends and composition of intra-
African trade for the period from 1996 to 2011. Due to data limitations on services
and capital, the analysis focuses mainly on trade in goods. In addition, emphasis is
laid on developments within the eight regional economic communities considered
by the African Union as the building blocks of the future African Economic
Community (AEC) as laid out in the Abuja Treaty. Table 1 shows the affiliation of
each African country to the eight recognized regional economic communities1


and affiliation to various other regional communities.2 As is evident in the table,
overlapping memberships of regional economic communities is a characteristic
feature of the African regional integration process. Interestingly, Algeria, Cape
Verde and Mozambique are the only African countries that are members of only
one regional community.


B. EMPIRICAL FACTS ON AFRICAN TRADE,
INTRA-AFRICAN TRADE AND INVESTMENT3


The empirical analysis reported below is organized around 10 stylized facts on
the evolution of African trade, intra-African trade and investment over the period
from 1996 to 2011. The key findings and messages emanating from the analysis
are as follows.


African merchandise trade has been rising faster than those of the developed
and developing economies. However the continent still accounts for a very low
share of world trade.


The level of African merchandise trade (exports and imports) with the world
rose from $251 billion in 1996 to $1,151 billion in 2011. In 2011, exports and
imports for Africa totalled $582 billion and $569 billion respectively while exports
and imports among developing economies totalled $18,211 billion and $7,321
billion respectively.


In terms of nominal growth rates, Africa has kept pace with the surge in world
trade that has occurred over the last decade. Exports to the world grew at an annual
average rate of 17.5 per cent during the period from 2001 to 2006, outstripping




9CHAPTER 1. The State of intra-African Trade and Investment


Table 1. Membership of regional communities (by country)


Country Membership of RECsrecognized by the African Union
Membership of other
regional communities


Algeria AMU


Angola ECCAS, SADC ICGLR


Benin CENSAD, ECOWAS WAEMU


Botswana SADC SACU


Burkina Faso CENSAD, ECOWAS WAEMU


Burundi COMESA, EAC, ECCAS ICGLR


Cameroon ECCAS CEMAC


Cape Verde ECOWAS


Central African Republic CENSAD, ECCAS CEMAC, ICGLR


Chad CENSAD, ECCAS CEMAC


Comoros CENSAD, COMESA IOC


Congo ECCAS CEMAC, ICGLR


Côte d’Ivoire CENSAD, ECOWAS MRU,WAEMU


Dem. Rep. of the Congo COMESA, ECCAS,SADC ICGLR


Djibouti CENSAD, COMESA, IGAD


Egypt CENSAD, COMESA


Equatorial Guinea ECCAS CEMAC


Eritrea CENSAD, COMESA, IGAD


Ethiopia COMESA,IGAD


Gabon ECCAS CEMAC


Gambia CENSAD, ECOWAS


Ghana CENSAD, ECOWAS


Guinea CENSAD , ECOWAS MRU


Guinea-Bissau CENSAD , ECOWAS WAEMU


Kenya CENSAD, COMESA, EAC, IGAD ICGLR


Lesotho SADC CMA, SACU


Liberia CENSAD, ECOWAS MRU


Libya AMU, CENSAD, COMESA


Madagascar COMESA IOC


Malawi COMESA, SADC


Mali CENSAD, ECOWAS WAEMU


Mauritania AMU, CENSAD*


Mauritius COMESA, SADC IOC


Morocco AMU,CENSAD


Mozambique SADC


Namibia SADC SACU




10 Economic Development in Africa Report 2013


growth both among developing economies (11.5 per cent) and developed
economies (9.3 per cent). Similarly in the period from 2007 to 2011, African exports
grew annually on average faster than those in the developing and developed worlds
(12.2 per cent as against 9.9 per cent and 7.4 per cent respectively). African imports
from the world are characterized by the same scenario, growing nominally faster
than those in the developing and developed worlds.


When only volume growth rates are considered, African export performance
remained strong over the period from 2007 to 2011.4 African exports rose in real
terms at an annual rate of 5.2 per cent compared to 4.8 per cent for the world, 2.4
per cent for developed economies and 2.9 per cent for the developing Americas,
albeit lower than that of developing Asia (8.8 per cent) and developing economies
in general (7.8 per cent). However on the import side, Africa still scored the highest
real growth rate of all the above-mentioned categories of countries.


Table 1 (contd.)


Country Membership of RECsrecognized by the African Union
Membership of other
regional communities


Niger CENSAD, ECOWAS WAEMU


Nigeria CENSAD, ECOWAS


Rwanda* COMESA, EAC, ECCAS ICGLR


Sao Tome and Principe ECCAS, CENSAD


Senegal CENSAD, ECOWAS WAEMU


Seychelles COMESA, SADC IOC


Sierra Leone ECOWAS, CENSAD MRU


Somalia CENSAD, IGAD


South Africa SADC CMA, SACU


Sudan CENSAD, COMESA,IGAD ICGLR


Swaziland COMESA, SADC CMA,SACU


Togo CENSAD, ECOWAS WAEMU


Tunisia AMU,CENSAD


Uganda COMESA, EAC,IGAD ICGLR


United Rep. of Tanzania EAC, SADC ICGLR


Zambia COMESA, SADC ICGLR


Zimbabwe COMESA, SADC
Source: UNCTAD secretariat (2013).
Note: * Rwanda pulled out of ECCAS in 2007. Statistics drawn from UNCTADstat database


do not reflect this. This table does not reflect any suspension of memberships made by
the African Union. All figures for all periods in this chapter are calculated on the basis of
membership as described in this table.




11CHAPTER 1. The State of intra-African Trade and Investment


Despite its fast growth in merchandise trade, Africa remains a marginal player
in world trade, accounting for only 2.8 per cent of world exports (in current United
States dollars) and 2.5 per cent of world imports in the decade from 2000 to 2010
(see table 2). The shares of both Africa and sub-Saharan Africa in world exports and
imports have fallen significantly over the period from 1970 to 2011. This downward
trend can be observed in almost all regions in Africa and almost all African regional
economic communities.


Total intra-African trade reached $130.1 billion in 2011, representing 11.3 per
cent of African trade with the world.


The level of intra-African trade has grown in nominal terms, rising from $45.9
billion in 1995 to $130.1 billion in 2011 (see figure 1). It experienced positive growth
in all years except for 1998-2001 and 2009. Such negative growth spells coincided
with world recessions, indicating a potential sensitivity of intra-African trade to
world economic conditions.


In volume terms,5 intra-African exports grew at an annual average rate of 2.6
per cent in the period from 2001 to 2006 and 3.2 per cent in the period from 2007
to 2011, while for intra-African imports, the real growth rates were 9.4 and 4.2 per


Figure 1. Intra-African trade, 1995–2011


0


20


40


60


80


100


120


140


1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


$
bi


llio
ns


Intra-African trade Intra-African exports Intra-African imports


Source: UNCTADstat database.




12 Economic Development in Africa Report 2013


Table 2. Shares of regional trading groups in world exports and imports , 1970–2010
(current dollars at current exchange rates)


Exports
(percentage of global exports)


Imports
(percentage of global imports)


1970–
1979


1980–
1989


1990–
1999


2000–
2010


1970–
1979


1980–
1989


1990–
1999


2000–
2010


Developing economies 23.7 25.7 27.3 35.7 20.4 23.8 27.2 32.2


Developed economies 72.1 69.6 70.5 60.9 75.2 71.8 70.6 65.2


Developing economies:


Africa 4.9 4.1 2.4 2.8 4.3 4.0 2.4 2.5


Eastern Africa 0.6 0.3 0.2 0.2 0.7 0.4 0.3 0.3


Middle Africa 0.4 0.4 0.3 0.4 0.3 0.3 0.1 0.2


Northern Africa 1.7 1.5 0.8 1.0 1.5 1.6 0.9 0.9


Southern Africa 1.0 1.0 0.7 0.6 0.8 0.9 0.7 0.6


Western Africa 1.3 0.9 0.5 0.6 1.1 0.8 0.4 0.4


Sub-Saharan Africa 3.3 2.6 1.6 1.3 2.9 2.4 1.5 1.6


By regional group:


APEC 30.8 36.2 44.4 45.4 31.6 37.3 45.1 47.4


ASEAN 2.6 3.7 5.7 6.4 2.7 3.6 5.8 5.6


MERCOSUR 1.5 1.6 1.4 1.5 1.7 1.2 1.4 1.2


EU 44.9 41.8 42.2 38.4 47.0 42.1 41.4 38.1


By African REC:


AMU 1.5 1.3 0.7 0.9 1.1 1.0 0.6 0.6


CEN-SAD 2.7 1.9 1.0 1.3 2.3 2.1 1.2 1.2


COMESA 0.2 0.1 0.1 0.1 1.2 1.3 0.7 0.6


EAC 0.4 0.4 0.3 0.4 0.2 0.2 0.1 0.1


ECCAS 1.9 1.2 1.2 1.8 0.3 0.3 0.2 0.2


ECOWAS 1.2 0.9 0.5 0.6 1.0 0.8 0.4 0.4


IGAD 0.2 0.1 0.1 0.1 0.3 0.2 0.1 0.2


SADC 1.6 1.4 0.9 1.0 1.3 1.2 0.9 0.9


Source: UNCTADstat database.
Note: Figures are reported in UNCTADstat database for three categories of economies:


developed, developing and transition. The shares in the first two rows will therefore
not add up to 100 per cent.


cent respectively. In nominal terms, the level of intra-African trade was $32 billion
in 2000 and $130 billion in 2011. Most of the increase in the value of intra-African
trade in the last decade was driven by price increases. While the value of intra-




13CHAPTER 1. The State of intra-African Trade and Investment


African trade rose by a factor of 4.1 from 2000 to 2011, in volume terms, it rose by
only a factor of 1.7.


As a share of the value of African world trade, intra-African trade rose steadily
from 19.3 per cent in 1995, to a peak of 22.4 per cent in 1997 but thereafter fell to
11.3 per cent in 2011.6 These declining numbers can be attributed to a faster rate
of growth in African trade with the rest of the world rather than to a slowdown in
intra-African trade per se. From 1996 to 2011, intra-African trade rose at a robust
rate of 8.2 per cent on average per year but African trade with the rest of the world
grew faster at 12 per cent on average per year.


However intra-African trade remains a very low percentage of African trade with
the world. Table 3 (a) confirms the validity of this statement by comparing the share
of intraregional trade in Africa to the share of intraregional trade in other parts of
the world. In developing Africa, the share of intraregional exports amounted to 10.9
per cent of world African exports in the period from 2007 to 2011, while the share
of intraregional imports to world African imports was 12.7 per cent. These shares
are lower than those in other developing regions, namely developing America and
developing Asia.


Table 3 (a). Intraregional exports and imports, 1996–2011
(percentage of total exports or imports)


Exports Imports


1996–
2000


2001–
2006


2007–
2011


1996–
2000


2001–
2006


2007–
2011


Developing Africa* 9.7 9.8 10.9 13.3 13.5 12.7


Eastern Africa 12.4 14.1 13.9 8.8 9.3 7.1


Middle Africa 1.2 1.0 1.3 2.6 2.5 3.1


Northern Africa 3.2 2.9 3.9 2.8 3.7 3.8


Southern Africa* 4.4 2.1 2.1 11.9 10.7 7.9


Western Africa 10.2 10.0 9.0 11.3 12.5 10.2


Developing America 19.1 17.6 20.6 17.6 19.0 21.1


Developing Asia 41.5 45.1 50.1 40.6 49.3 53.0


Developing Oceania 1.3 3.0 3.3 0.9 2.3 2.7


Europe 67.3 71.4 70.0 68.3 67.0 64.4


Source: UNCTADstat database.
* Figure for the period 1996–2000 refers to the year 2000 only.




14 Economic Development in Africa Report 2013


The share of intra-African trade in total trade is significantly higher for non-fuel
exporters than for fuel exporters.


Intra-African trade as a share of world trade has usually been higher among
non-fuel exporters (16.3 per cent in 2007–2011) than among fuel exporters (5.7 per
cent in the same period). Major fuel exporters in Africa tend to be highly dependent
on extraregional markets and consequently their intra-African share is very low. For
instance, 13 African countries exported at most 5 per cent of their merchandise
exports to Africa over the period from 2007 to 2011 (see table 3 (b)) and all the
major fuel exporters, except Nigeria, were on that list. Chad and Guinea Bissau
were the two countries with the lowest share of merchandise exports to Africa for
the period from 2007 to 2011.


What Africa produces and exports matters for intra-African trade. The
narrowness of African production and export structures and relative dependence
on primary commodities are inhibiting factors to the boosting of intraregional
trade in Africa. The higher intra-trade share among non-fuel exporters in Africa
supports the argument that a production base, more diversified away from fuels
towards non-fuel production, such as manufacturing, could provide an impetus
to a deepening of regional trade in Africa. As discussed in several publications
produced by UNCTAD, structural transformation, accompanied by a fostering of
manufacturing development and greater economic diversification can reinforce
developmental gains for Africa, including the gains from boosting intra-African trade
(UNCTAD 2009, 2012a; UNCTAD and UNIDO, 2011).


Substantial and thriving informal trade in Africa is an indication that intra-African
trade is not as low as official statistics suggest.


In the discourse on regional integration in Africa, the consensus view is that
intra-African trade is very low. This conclusion is based on a comparison of the
share of regional trade in total African trade to those of other continents, based
on official available data. This method however is problematic because it does
not account for informal trade, which by most accounts is relatively large in
Africa. Adding informal cross-border trade to official figures for intra-African trade
would increase the share of intra-African trade in total trade. Although there are
no systematic statistics on this form of intra-African trade, surveys undertaken in
some regions reveal that it represents a large share of officially recorded trade. In
the Southern African Development Community (SADC) area, for example, informal
cross-border trade could amount to $17.6 billion per year, representing 30 to 40




15CHAPTER 1. The State of intra-African Trade and Investment


Table 3 (b). Shares of exports and imports (by main destination), 1996–2011


Country


Percentage of total exports


Africa Developed Europe Developed America Developing Asia


1996–
2000


2007–
2011


1996–
2000


2007–
2011


1996–
2000


2007–
2011


1996–
2000


2007–
2011


Algeria 1.6 3.2 61.8 50.2 18.1 30.6 6.7 10.7
Angola 0.6 4.0 17.2 13.8 57.4 29.2 21.8 49.1
Benin 18.4 40.0 23.5 9.3 3.6 1.1 31.5 49.0
Botswana 52.8 23.1 45.4 64.7 1.3 4.9 0.1 5.0
Burkina Faso 22.4 18.6 43.1 38.4 1.1 1.7 21.8 38.1
Burundi 6.7 20.8 78.7 48.7 8.0 2.7 5.6 25.4
Cameroon 8.6 13.6 72.1 58.7 3.5 7.2 14.1 18.0
Cape Verde 9.1 9.5 47.7 83.4 2.2 1.8 2.1 2.2
Central African Republic 6.7 15.4 86.2 46.3 0.9 3.2 5.1 29.2
Chad 9.1 0.8 68.7 6.7 5.5 83.5 9.7 7.2
Comoros 3.4 1.0 64.2 35.9 17.9 2.6 8.7 59.5
Congo 2.1 3.0 31.6 13.5 27.0 33.8 35.7 44.3
Côte d’Ivoire 27.7 31.1 52.2 46.0 8.6 11.6 4.8 6.6
Dem. Rep. of the Congo 3.8 15.4 69.3 23.9 18.8 10.4 4.6 47.6
Djibouti 27.8 40.4 20.5 9.2 0.4 2.5 50.0 46.0
Egypt 4.8 12.2 42.0 32.2 11.8 5.9 21.6 36.6
Equatorial Guinea 6.5 2.8 41.7 31.6 17.4 25.1 24.5 27.8
Eritrea 22.3 13.8 53.9 29.5 2.6 20.9 10.7 25.9
Ethiopia 16.0 19.4 43.7 38.5 8.5 6.1 15.5 29.4
Gabon 2.3 5.0 19.3 20.6 61.1 37.5 12.7 27.2
Gambia 9.4 15.8 74.2 26.9 1.2 2.1 4.8 53.7
Ghana 7.6 16.0 64.2 46.6 11.3 6.5 8.4 16.8
Guinea 7.3 4.0 55.8 36.4 19.3 10.1 5.1 22.0
Guinea Bissau 4.3 0.8 19.3 1.7 0.3 6.2 46.3 91.0
Kenya 38.3 42.6 39.2 30.8 4.8 7.0 13.6 15.0
Lesotho 43.0 15.7 2.8 20.1 53.2 63.5 1.0 0.5
Liberia 1.2 7.2 73.3 46.0 3.2 17.1 18.6 24.9
Libya 5.1 2.6 85.8 78.0 0.0 5.7 6.7 11.9
Madagascar 6.8 6.0 67.4 55.4 10.6 18.8 7.1 17.9
Malawi 22.5 29.8 46.3 34.2 14.1 10.6 5.6 13.2
Mali 37.1 54.2 23.0 13.1 4.2 1.7 29.3 29.3
Mauritania 14.8 13.9 58.5 36.3 0.4 1.2 3.1 40.7
Mauritius 6.2 12.7 73.7 61.4 17.2 8.0 1.6 5.5
Morocco 4.1 6.0 71.6 63.5 4.9 4.4 10.7 15.4
Mozambique 31.8 27.8 36.9 57.4 8.0 1.1 15.6 11.1
Namibia 55.4 32.1 36.1 38.6 5.0 14.9 0.9 12.0
Niger 36.6 30.5 24.2 44.0 4.0 15.6 31.2 4.1
Nigeria 8.8 9.9 29.1 24.3 39.3 39.1 16.1 14.9
Rwanda 12.1 43.3 65.2 19.8 7.2 5.9 13.8 28.7
Sao Tome and Principe 4.2 14.4 79.9 57.4 9.5 4.0 8.9 3.0
Senegal 25.4 48.0 44.5 22.9 1.0 0.6 16.3 16.0
Seychelles 3.1 10.1 68.9 65.7 6.5 2.0 17.9 10.3
Sierra Leone 2.4 4.3 79.3 61.3 13.7 14.6 2.7 13.8
Somalia 2.7 4.5 21.4 1.8 0.6 0.1 75.1 93.3
South Africa 43.4 15.5 24.3 32.1 8.9 10.6 11.8 28.2
Sudan 6.8 1.8 26.9 1.8 0.7 3.0 54.8 78.7
Swaziland 69.6 39.5 10.0 20.2 7.5 11.2 9.9 20.8
Togo 29.8 53.1 23.9 18.9 9.9 1.0 27.2 25.1
Tunisia 6.8 11.7 81.2 76.0 0.9 1.9 6.4 6.2
Uganda 14.2 44.5 70.9 35.1 5.0 2.7 6.0 15.2
United Rep. of Tanzania 15.0 26.0 41.4 28.9 3.4 2.3 29.0 34.3
Zambia 21.7 26.3 31.6 32.9 4.7 0.6 31.9 38.9
Zimbabwe 27.6 51.3 41.8 21.0 15.4 19.3 12.9 18.6




16 Economic Development in Africa Report 2013


Country


Percentage of total imports


Africa Developed Europe Developed America Developing Asia


1996–
2000


2007–
2011


1996–
2000


2007–
2011


1996–
2000


2007–
2011


1996–
2000


2007–
2011


Algeria 2.2 3.1 61.2 53.2 14.9 7.0 12.2 23.7
Angola 14.7 8.0 50.8 43.5 13.6 10.1 12.1 26.9
Benin 16.9 9.0 46.1 23.6 4.3 8.1 25.6 56.1
Botswana 85.7 82.7 9.7 6.8 2.0 1.5 1.6 6.9
Burkina Faso 32.4 40.1 45.6 34.0 3.6 5.0 6.6 15.2
Burundi 22.9 35.4 49.7 26.9 2.9 3.5 19.7 30.5
Cameroon 22.1 30.6 51.8 34.5 8.4 4.9 7.8 20.5
Cape Verde 3.3 2.5 77.8 80.9 8.0 1.5 4.4 6.0
Central African Rep. 21.2 20.7 60.3 41.4 3.1 9.8 8.3 19.5
Chad 21.3 20.7 62.3 50.6 3.6 13.6 10.8 10.9
Comoros 21.9 20.8 59.1 29.5 0.4 0.4 15.6 47.0
Congo 11.6 13.7 56.5 41.0 8.9 6.4 12.8 30.2
Côte d’Ivoire 22.1 32.7 51.2 29.7 5.4 3.0 11.5 20.7
Dem. Rep. of the Congo 39.9 51.4 40.4 28.3 4.6 3.7 13.0 12.6
Djibouti 13.1 6.3 40.7 12.3 3.6 6.3 36.7 68.2
Egypt 2.0 3.2 41.6 30.0 15.7 11.0 19.2 34.2
Equatorial Guinea 10.7 25.0 48.9 37.9 33.7 13.3 3.5 17.8
Eritrea 4.1 18.6 44.6 21.8 6.5 2.6 33.8 48.4
Ethiopia 4.1 4.7 35.2 17.9 5.7 5.5 40.6 61.4
Gabon 9.8 12.6 70.9 57.3 8.3 10.9 6.2 13.6
Gambia 13.4 20.1 41.1 21.4 3.9 3.9 33.8 44.1
Ghana 20.8 21.3 45.4 27.7 10.8 9.1 14.2 33.2
Guinea 16.3 11.7 50.0 44.9 9.9 5.4 17.4 29.7
Guinea Bissau 16.2 27.5 50.7 44.5 2.5 2.0 25.2 17.5
Kenya 11.3 12.9 34.9 18.4 7.3 5.4 35.4 53.8
Lesotho 77.5 61.2 1.7 3.5 0.4 1.5 19.7 32.7
Liberia 1.0 2.0 32.0 9.3 1.3 1.2 39.0 72.5
Libya 8.6 10.9 65.3 47.4 2.4 4.5 15.4 27.8
Madagascar 13.0 12.9 42.7 23.7 3.7 5.5 30.5 53.6
Malawi 66.7 55.9 15.2 14.9 3.2 4.1 10.0 22.3
Mali 38.0 45.0 43.5 32.1 4.5 3.9 10.3 13.9
Mauritania 12.2 10.7 63.0 48.0 4.3 5.9 14.6 24.6
Mauritius 15.7 12.1 33.4 25.6 3.3 2.5 36.1 49.8
Morocco 5.3 5.6 56.8 51.4 7.7 7.6 14.2 23.6
Mozambique 56.0 38.1 19.9 18.3 5.5 4.9 12.3 28.4
Namibia 78.0 32.7 9.8 27.1 6.7 8.2 2.2 20.8
Niger 26.4 27.3 40.9 35.6 6.8 5.5 21.2 27.2
Nigeria 4.5 6.3 48.2 35.8 12.7 11.0 23.3 33.5
Rwanda 35.3 46.5 31.6 23.2 13.3 4.7 12.6 22.5
Sao Tome & Principe 10.6 20.0 53.3 68.0 0.7 1.3 3.1 5.1
Senegal 16.4 17.0 56.6 46.6 5.1 3.7 13.9 22.6
Seychelles 15.6 10.8 41.6 32.3 7.6 1.6 30.1 51.3
Sierra Leone 9.2 41.3 53.2 19.7 10.5 11.5 12.3 18.2
Somalia 26.7 32.7 13.4 3.8 2.4 2.7 40.1 56.8
South Africa 21.6 6.8 36.8 29.1 11.4 7.6 16.3 32.6
Sudan 11.5 9.2 34.4 17.9 3.3 3.5 43.0 59.0
Swaziland 89.8 70.4 2.5 4.4 1.6 3.2 5.0 19.7
Togo 21.9 13.6 43.7 29.3 4.2 4.7 24.4 47.0
Tunisia 5.8 7.4 75.4 63.0 4.7 3.9 6.9 14.0
Uganda 41.9 25.8 28.5 20.9 4.4 3.6 17.8 40.4
United Rep. of Tanzania 22.6 16.8 27.0 18.9 5.5 3.4 33.6 52.5
Zambia 59.2 63.5 19.2 10.7 4.1 2.3 13.6 21.1
Zimbabwe 54.6 73.8 23.2 6.9 4.9 3.3 9.5 14.6
Source: UNCTADstat database.


Table 3 (b) (contd.)




17CHAPTER 1. The State of intra-African Trade and Investment


per cent of total intra-SADC trade. Ugandan informal exports to the Democratic
Republic of the Congo, Kenya, Rwanda, the Sudan and the United Republic of
Tanzania represented $224 million or 83 per cent of its total recorded trade to these
countries in 2006. In 2009 and 2010 Ugandan informal exports to its neighbours
were worth $790 million and $520 million respectively. Furthermore, estimates of
informal cross-border trade in West Africa show that it could represent 20 per cent
of GDP in Nigeria and 75 per cent of GDP in Benin (Afrika and Ajumbo, 2012).


Table 4. Intra-trade and GDP by different regional groups


Shares of intraregional trade
(%)


GDP
($ million)


1996–
2000


2001–
2006


2007–
2011


1996–
2000


2001–
2006


2007–
2011


Africa 18.2 11.6 11.7 557 503 799 986 1 569 472


African fuel exporters 5.2 4.9 5.7 140 761 263 012 590 214


African non-fuel
exporters


23.8 15.7 16.3 416 742 536 975 979 259


Regional trading agreements


AMU 2.8 2.6 3.0 139 452 197 131 340 809


ASEAN 21.6 24.0 25.0 609 403 787 900 1 633 163


CARICOM 11.4 11.3 11.9 30 616 43 804 65 412


CEN-SAD 6.9 6.9 6.6 279 527 392 625 778 126


COMESA 5.1 5.8 6.4 185 143 220 045 430 904


EAC 13.8 13.1 12.0 30 502 39 438 74 155


ECCAS 1.7 1.5 1.9 32 383 64 546 170 929


ECOWAS 10.4 10.9 9.4 77 693 141 604 311 739


IGAD 9.3 7.7 5.8 39 450 57 341 130 669


MERCOSUR 21.4 15.7 16.2 1 074 907 905 638 2 245 081


SADC 32.3 13.8 12.9 189 416 269 324 510 538


Source: UNCTADstat database.
Note: Trade refers to exports + imports. Figures for the 11 regional trade agreements reflect


trade between countries which are members of the agreements.
ASEAN figures are for the period from 2002 to 2006 due to a shift in figures for Indonesia
as from 2002. ECCAS figures exclude Angola for 2011, Equatorial Guinea for 1998-
1999 and 2011 and Sao Tome and Principe due to missing trade data. Fuel exporters
are countries where fuels accounted for more than 50 per cent of merchandise exports
in 2011 and include Algeria, Angola, Chad, Congo, Equatorial Guinea, Gabon, Libya,
Nigeria and the Sudan. Whenever GDP figures were not available for a country for a
given year, that county was omitted from calculations for that year only.




18 Economic Development in Africa Report 2013


These estimates of informal cross-border trade suggest that the true figure for the
proportion of intra-African trade relative to total trade is higher than the official figure
of around 11 per cent.


A more rigorous method of assessing the current level of intra-African trade is
to compare actual to potential regional trade, as has been done using a gravity
model (Foroutan and Pritchett, 1993). The gravity model identifies a long list of
variables that determine the level of intra-African trade. They include the GDP or
population of a country as a proxy for economic size; income per capita as a proxy
for economic development; transport costs sometimes using distance to markets,
tariffs and non-tariff barriers as a proxy; cultural factors such as sharing the same
language; geographical variables (such as being landlocked, being an island, or
sharing a border); historical variables such as sharing the same colonial history; and
policy variables such as belonging to a preferential trade arrangement. Some of the
variables are fixed and not amenable to policy. Therefore, whether or not there is
potential growth for intra-African trade will be determined by the extent to which
some of these determinants may be changed.


Several empirical studies have simulated the effect of a variation in one or more
of the changing variables on intra-African trade. The following are some examples
of the results from these studies:


t 5SBEF XJUIJO UIF 8FTU "GSJDBO &DPOPNJD BOE .POFUBSZ 6OJPO 8"&.6
could increase threefold if all intrastate roads linking the countries of the
Union were paved (Coulibaly and Fontagné, 2005).


t 3FEVDJOH UIF EJTUBODF XJUI USBEF QBSUOFST XIJDI NFBOT FYQMPJUJOH UIF
trade potential with neighbouring countries, could increase African countries
intraregional trade by 173 per cent (Montinari and Prodi, 2011).


t *ODSFBTJOHUIF(/1PGBDPVOUSZCZPOFQFSDFOUJODSFBTFTJUTCJMBUFSBMUSBEF
by 2 per cent (Longo and Sekkat, 2004).


t 4JNVMBUJPOT BMTP TIPX UIBU JG BMM "GSJDBO DPVOUSJFT SFNPWFE JOUSB"GSJDBO
tariff barriers, while adopting the lowest applied transport cost in the region,
welfare would increase by 1.013 per cent per year on average. Some
regions would experience higher welfare effects than others. In the Southern
African Customs Union (SACU), average welfare would increase by 1.615
per cent per year translating into an increase of 17 per cent over 10 years.
The continental elimination of tariffs and a reduction in transport costs




19CHAPTER 1. The State of intra-African Trade and Investment


would produce the strongest effect on welfare in comparison with scenarios
whereby Africa would liberalize its trade with external partners, namely the
European Union, United States of America, Brazil, China and India (UNDP,
2011a).


In summary, intra-African trade is not as low as official statistics suggest.
Correctly measured, the share of intra-African trade in total trade could be close to
the values observed in other developing regions, particularly in Latin America and
the Caribbean where intraregional trade represents about 20 per cent of total trade.
Nevertheless, intra-African trade remains low relative to its potential. If some of the
factors constraining its expansion could be addressed, intra-African trade could
increase substantially, as empirical results suggest.


With the exception of the Economic Community of Central African States,
African regional economic communities tend to undertake a significant part of
their trade with Africa within their own regional trade bloc.


With the exception of the Economic Community of Central African States
(ECCAS), for each African regional economic community, a significant part of their
trade with Africa takes place within their own regional trade bloc. This confirms
that the formation of regional blocs in Africa has facilitated the creation of trade
among its member countries (Cernat, 2001). For instance, in the period from 2007
to 2011, 64.7 per cent of the trade of the Community of Sahel-Saharan States
(CEN-SAD) with Africa was with CEN-SAD member countries; 78.4 per cent of
the trade of the Southern African Development Community (SADC) with Africa was
with other SADC member countries and for the Economic Community of West
African States (ECOWAS) the figure was 65.5 per cent (see table 5). However, with
the exception of the Common Market for Eastern and Southern Africa (COMESA),
these shares have been falling compared to the period from 1996 to 2000.
Overlapping membership of regional economic communities could partly account
for this trend. From table 5, it can also be observed that of all eight African regional
economic communities, the share of Africa in total trade was highest in the East
African Community (EAC). The share of Africa in EAC total trade amounted to 23.1
per cent in the period from 2007 to 2011, compared to 16.4 per cent for SADC,
14.3 per cent for the Intergovernmental Authority on Development (IGAD), 14.2 per
cent for ECOWAS, 13.3 per cent for COMESA, 10.2 per cent for CEN-SAD, 9.3
per cent for ECCAS and 5 per cent for the Arab Maghreb Union (AMU). However
these shares represented a decrease compared to the period from 2001 to 2006
for COMESA, EAC, ECOWAS and IGAD. Conversely, between the period from




20 Economic Development in Africa Report 2013


2001 to 2006 and that from 2007 to 2011, the share of total trade going to Africa
increased only for CEN-SAD, ECCAS, SADC and AMU.


In contrast, in absolute levels, trade from each African regional economic
community with Africa has been growing at high nominal rates for the period under
analysis. Focusing on comparisons between the periods from 2001 to 2006 and
from 2007 to 2011, it can be noted that for CEN-SAD, ECCAS, SADC and AMU,
their trade with Africa rose nominally faster than their trade with the world, resulting
in a rise in the share of Africa in their total trade. For the other African regional
economic communities, the share of Africa in total trade has been falling, not
because their level of trade with Africa has been falling but simply because their
level of trade with the rest of the world has been rising faster than their trade with
Africa.


In fact, the level of trade of each African regional economic community with
Africa more than doubled from 2001–2006 to 2007–2011. SADC had the largest
level of trade with Africa, averaging $53.8 billion in the period from 2007 to 2011,
followed by CEN-SAD ($ 46.1 billion), despite the fact that CEN-SAD is the biggest
trade bloc in terms of number of countries and size of GDP. The level of trade of the
other regional economic communities with Africa was as follows: COMESA, $29.7


Table 5. Intra-African trade 1996–2011: distribution of shares


RECs
Share of Africa in total trade Share of REC in African trade


1996–
2000


2001–
2006


2007–
2011


1996–
2000


2001–
2006


2007–
2011


CEN-SAD 9.3 10.0 10.2 74.5 67.7 64.7


COMESA 16.6 13.5 13.3 30.8 42.6 48.6


EAC 24.0 26.0 23.1 57.6 49.4 52.1


ECCAS 8.3 7.7 9.3 21.0 18.7 19.8


ECOWAS 13.7 14.7 14.2 76.2 72.7 65.5


IGAD 17.3 15.1 14.3 53.4 48.4 40.5


SADC 34.2 16.1 16.4 94.6 83.6 78.4


AMU 4.2 4.0 5.0 67.1 63.5 59.5


Source: UNCTADstat database.
Note: The first three columns show the percentage of the total trade of the regional


economic community that goes to Africa. The last three columns show the
percentage of the trade with Africa of each regional economic community that
happens within its own bloc.




21CHAPTER 1. The State of intra-African Trade and Investment


billion; ECOWAS, $26.5 billion; ECCAS, $12.8 billion; AMU, $12.4 billion; EAC,
$8.4 billion and IGAD, $8.0 billion.


The importance of intra-African trade varies significantly between national
economies.


There is significant heterogeneity among countries in the importance of intra-
African trade. For instance, in the period from 2007 to 2011, 9 countries (Benin,
Djibouti, Kenya, Mali, Rwanda, Senegal, Togo, Uganda and Zimbabwe) exported at
least 40 per cent of their goods to Africa, compared to only 5 countries in the period
from 1996 to 2000. On the import side, 11 countries (Botswana, Burkina Faso, the
Democratic Republic of the Congo, Lesotho, Malawi, Mali, Rwanda, Sierra Leone,
Swaziland, Zambia and Zimbabwe) imported at least 40 per cent of their goods
from Africa in the period from 2007 to 2011, compared to 9 countries in the period
from 1996 to 2000.


In the period from 2007 to 2011, the five best performers in terms of most
exports to Africa as a share of world exports were: Mali (53.5 per cent), Togo (52
per cent), Zimbabwe (50.8 per cent), Senegal (47.9 per cent) and Uganda (44.7 per
cent). On the other hand, the top five importers from Africa measured as a share
of their world imports were: Botswana (82.1 per cent), Zimbabwe (73.5 per cent),
Swaziland (69.5 per cent), Zambia (63.5 per cent) and Lesotho (63.5 per cent) (see
table 3(b)).


Table 6 lists the top five destinations for the regional exports for 2011 for each
African country. For the region as a whole, in 2011 South Africa, Côte d’Ivoire,
Ghana, Zimbabwe and the Democratic Republic of the Congo bought 39.4 per
cent of African exports. Table 6 reveals some important bilateral export relationships
between African countries that in turn signal the relevance of physical proximity
for trade or so called neighbourly or gravitational effects. For instance, in the
north, Morocco was the main export destination for Algeria; most southern African
countries, in particular Angola and Lesotho, counted South Africa as their biggest
intraregional export market; in the Indian Ocean islands, Madagascar was the most
important export outlet for Comoros; in the west, Nigeria took in more than three
quarters of the exports of the Niger to Africa; Chad exported most of its products
in Africa to its next-door neighbour, the Central African Republic, and to the east,
about 46 per cent of Kenyan African exports were to its close neighbors, Uganda
and the United Republic of Tanzania.




22 Economic Development in Africa Report 2013


Table 6. Intra-African exports, five main destinations by country, 2011


Country Five main export destinations in order of importance
Share
in total
exports


Algeria Morocco, Egypt, Tunisia, Liberia, Ghana 96.7


Angola South Africa, Ghana, Mozambique, Côte d'Ivoire, Niger 100.0


Benin Nigeria, Mali, Niger, South Africa, Chad 77.3


Botswana South Africa, Zimbabwe, Zambia, Namibia, Dem.Rep. of the Congo 95.9


Burkina Faso South Africa, Ghana, Niger, Benin, Nigeria 71.6


Burundi Rwanda, Dem.Rep.Congo, Kenya, Uganda, Swaziland 86.0


Cameroon Chad, Gabon, Ghana, Central African Rep, Congo 75.2


Cape Verde Ghana, Senegal, Mozambique, Libya, Guinea-Bissau 86.4


Central African Rep. Dem.Rep.Congo, Morocco, Chad,Nigeria, Congo 96.8


Chad Central African Republic,Côte d'Ivoire, Morocco, Nigeria, Cameroon 95.4


Comoros Madagascar, South Africa, Mauritius, Tunisia 100.0


Congo Angola, Gabon, Nigeria,Côte d'Ivoire, Zimbabwe 80.6


Côte d’Ivoire Nigeria, South Africa, Burkina Faso, Ghana, Mali 65.0


Dem. Rep. of the
Congo


Côte d'Ivoire, Rwanda, Senegal, South Africa, Botswana 97.0


Djibouti Sudan, Egypt, Ethiopia, Uganda, Kenya 98.9


Egypt South Africa, Libya, Sudan, Morocco, Algeria 69.5


Equatorial Guinea Côte d'Ivoire, Senegal, Ghana, Cape Verde, Niger 99.8


Eritrea Egypt, Sudan, Kenya, Uganda, Tunisia 97.1


Ethiopia Somalia, Sudan, Djibouti, Egypt, Kenya 96.1


Gabon Congo, South Africa, Dem.Rep.Congo, Nigeria, Morocco 71.9


Gambia Senegal, Guinea, Mali, Guinea-Bissau, Ghana 94.4


Ghana Togo, South Africa, Burkina Faso, Benin,Nigeria 77.3


Guinea South Africa, Côte d'Ivoire, Morocco, Algeria, Mali 82.2


Guinea Bissau Mali, Gambia, Senegal, Côte d'Ivoire, Tunisia 98.4


Kenya Uganda, United Rep. of Tanzania, Egypt, Dem.Rep.Congo, Rwanda 76.8


Lesotho South Africa, Madagascar, Mauritius 100.0


Liberia Côte d'Ivoire, Egypt, Ghana, United Rep. of Tanzania, South Africa 98.8


Libya Tunisia, Egypt, Morocco, Ethiopia, Algeria 99.5


Madagascar South Africa, Mauritius, Morocco, Comoros, Seychelles 85.3


Malawi Zimbabwe, South Africa, Egypt, Kenya, Zambia 78.1


Mali South Africa, Senegal, Burkina Faso, Côte d'Ivoire, Morocco 95.5


Mauritania Côte d'Ivoire, Cameroon, Nigeria, Liberia, Ghana 88.7




23CHAPTER 1. The State of intra-African Trade and Investment


Twenty-six countries counted South Africa and 13 countries counted Nigeria
among their five main export destinations. In addition, 12 countries counted Egypt
and 6 countries counted Algeria among their five main export destinations. On
account of their sheer economic and population sizes, in 2011 Algeria, Egypt,
Nigeria and South Africa accounted for 67 per cent of total African GDP and it is
not surprising therefore to note that they also constituted important export outlets
in their respective regions. In addition, the analysis from table 7 shows that in the
period from 2007 to 2011, 63.8 per cent of intra-African imports were absorbed
by these four economies along with Côte d’Ivoire. South Africa counted among


Country Five main export destinations in order of importance
Share
in total
exports


Mauritius South Africa, Madagascar,Seychelles, Kenya, Rwanda 91.8


Morocco Algeria, Tunisia, Senegal, Mauritania, Egypt 44.6


Mozambique South Africa, Zimbabwe,Malawi, Mauritius, Botswana 95.7


Namibia South Africa, Angola, Dem.Rep. of the Congo, Botswana, Congo 91.9


Niger Nigeria, Ghana, Côte d'Ivoire, Mali, Cameroon 95.7


Nigeria South Africa, Côte d'Ivoire, Ghana, Cameroon, Senegal 94.5


Rwanda Kenya, Dem.Rep.Congo, Swaziland, Uganda, Burundi 97.8


Sao Tome and Principe Nigeria, Kenya, Cameroon, South Africa, Zimbabwe 95.1


Senegal Mali, Guinea, Gambia,Côte d'Ivoire, Guinea-Bissau 70.4


Seychelles Madagascar, Uganda, Mauritius, Zimbabwe, Zambia 95.4


Sierra Leone South Africa, Nigeria, Côte d'Ivoire, Algeria, Kenya 75.6


Somalia Egypt, South Africa, Ethiopia, Algeria, Mauritius 100.0


South Africa Zimbabwe, Zambia, Mozambique, Dem.Rep.Congo, Angola 62.0


Sudan Ethiopia, Egypt, Tunisia, Djibouti, Libya 97.1


Swaziland United Rep. of Tanzania, Mozambique, Malawi, Mauritania, Mauritius 86.7


Togo Burkina Faso, Benin, Ghana, Niger, Nigeria 78.8


Tunisia Libya, Algeria, Morocco, Ethiopia, Egypt 86.3


Uganda Kenya, Rwanda, Dem.Rep. of the Congo, Sudan, Burundi 87.1


Utd. Rep. of Tanzania South Africa, Kenya, Dem.Rep.of the Congo, Rwanda, Malawi 67.7


Zambia South Africa, Dem.Rep. of the Congo, Egypt, Zimbabwe, Malawi 87.6


Zimbabwe South Africa, Dem.Rep. of the Congo, Botswana, Zambia, Malawi 91.8


Africa South Africa, Côte d'Ivoire, Ghana, Zimbabwe, Dem.Rep. of the
Congo


39.4


Source: UNCTADstat database.


Table 6 (contd.)




24 Economic Development in Africa Report 2013


the top five import destinations for 47 out of 52 countries. Only Burundi, Guinea-
Bissau, the Niger, the Sudan and Tunisia did not count South Africa as a major
import partner. This indicates the critical role that Algeria, Egypt, Nigeria and South
Africa could play in strengthening intraregional trade in Africa, due to their economic
might.


At a country level, intra-African exports and imports tend to be highly
concentrated on a few destinations. For instance, the top five export destinations
listed in table 6 for each country accounted for more than 60 per cent of the total
exports to Africa of that country, with the exception of Morocco. On the import side,
the top five destinations listed in table 7 for each country accounted for more than
75 per cent of the total imports of that country from Africa, with the exception of
the Congo.


Regarding the proportion of intra-African trade to gross domestic product (GDP),
only three countries, Lesotho, Swaziland and Zimbabwe, had a ratio of African trade
to GDP of more than 50 per cent, reflecting the overall extraregional orientation of
the continent in trade and the bias of production and export structures towards
satisfying extraregional demand. Ten countries, namely, Algeria, Angola, Cape
Verde, Central African Republic, Egypt, Ethiopia, Liberia, Libya, Morocco and the
Sudan had an African trade to GDP ratio of less than 5 per cent and 37 countries
had a ratio of less than 15 per cent (see table 8). Countries that have experienced
a notable increase in their share of intraregional trade to GDP (a rise of at least
5 per cent between 1996–2000 and 2007–2011) include: Burundi, Côte d’Ivoire,
Democratic Republic of the Congo, Mali, Mozambique, Rwanda, Sao Tome and
Principe, Sierra Leone, United Republic of Tanzania, Zambia and Zimbabwe. On
the other hand, countries that have experienced a decrease of a similar magnitude
include Angola, Botswana, Lesotho, Namibia, South Africa and Swaziland.


There are unexploited opportunities for intra-African trade in many product
categories.


Over the period from 2007 to 2011, Africa traded only 14.9 per cent of its
world trade in primary commodities and 17.7 per cent of its world trade in fuels
within Africa. Many African countries which need to import primary commodities
and fuels are doing so by sourcing outside the region rather than within it. It has
been reported for example that, due to a lack of refineries and capacity constraints
at home, some African countries such as Nigeria export crude oil and then import
refined oil. Infrastructure bottlenecks and lack of investment in domestic refinery




25CHAPTER 1. The State of intra-African Trade and Investment


Table 7. Intra-African imports, five main destinations by country, 2011


Country Five main import destinations in order of importance
Share
in total
imports


Algeria Egypt, Tunisia, South Africa, Morocco, Côte d'Ivoire 94.5


Angola South Africa, Ghana, Côte d'Ivoire, Egypt, United Rep. of Tanzania 97.9


Benin Togo, Côte d'Ivoire, Ghana,Nigeria, South Africa 79.0


Botswana South Africa, Zimbabwe, Namibia, Zambia, Mozambique 99.5


Burkina Faso Côte d'Ivoire, Ghana, Togo, Senegal, South Africa 83.5


Burundi Uganda, Kenya, Zambia,United Rep. of Tanzania, Egypt 91.9


Cameroon Nigeria, Equatorial Guinea, South Africa, Mauritania, Côte d'Ivoire 87.9


Cape Verde Senegal, Morocco, Benin, Egypt, South Africa 84.0


Central African Rep. Cameroon, Chad, Dem. Rep. of the Congo,South Africa, Gabon 81.2


Chad Cameroon, Nigeria, Gabon, Senegal, South Africa 88.4


Comoros South Africa, Kenya,Mauritius, Madgascar, United Rep. of Tanzania 94.0


Congo Angola, Gabon, South Africa, Namibia, Côte d'Ivoire 58.0


Côte d’Ivoire Nigeria,Mauritania, South Africa, Senegal, Morocco 88.9


Dem. Rep. of the Congo. South Africa, United Rep. of Tanzania, Côte d'Ivoire, Rwanda, Botswana 97.8


Djibouti Ethiopia, Egypt, South Africa, Kenya, Morocco 97.0


Egypt Algeria, Zambia, Kenya, South Africa, Tunisia 82.3


Equatorial Guinea Côte d'Ivoire, Senegal, South Africa, Ghana, Togo 98.8


Eritrea Egypt, South Africa, Kenya, Tunisia, United Rep. of Tanzania 99.7


Ethiopia Sudan, South Africa, Egypt, Kenya, Morocco 90.9


Gabon Cameroon, South Africa, Congo, Morocco, Tunisia 80.0


Gambia Senegal,Côte d'Ivoire, Morocco, South Africa, Egypt 90.0


Ghana Nigeria, South Africa, Côte d'Ivoire, Morocco, Cameroon 87.4


Guinea Côte d'Ivoire, Senegal, South Africa, Morocco, Gabon 83.4


Guinea Bissau Senegal, Morocco, Egypt,Côte d'Ivoire, Gambia 95.7


Kenya South Africa, Egypt, Uganda, United Rep. of Tanzania, Rwanda 89.0


Lesotho South Africa, Zimbabwe, Swaziland, Mauritius, Zambia 99.9


Liberia Côte d'Ivoire, Algeria, Ghana, Mauritania, South Africa 95.6


Libya Tunisia, Egypt, Morocco, South Africa, Algeria 99.6


Madagascar South Africa, Mauritius, Swaziland, Kenya, Seychelles 93.2


Malawi South Africa, Zambia, United Rep. of Tanzania, Kenya, Mozambique 90.3


Mali Senegal, Côte d'Ivoire, South Africa, Benin, Togo 89.4


Mauritania Morocco, South Africa, Senegal, Tunisia, Swaziland 92.0


Mauritius South Africa, Kenya, Egypt, Zambia,Mozambique 84.9




26 Economic Development in Africa Report 2013


Country Five main import destinations in order of importance
Share
in total
imports


Morocco Algeria, Egypt, Tunisia, Nigeria, South Africa 90.7


Mozambique South Africa, United Rep. of Tanzania, Swaziland, Namibia, Tunisia 97.4


Namibia South Africa, Botswana, Utd. Rep. of Tanzania, Egypt, Mozambique 99.1


Niger Nigeria, Togo, Côte d'Ivoire, Benin, Burkina Faso 77.7


Nigeria South Africa, Côte d'Ivoire, Algeria, Botswana, Egypt 70.7


Rwanda Kenya, Uganda, United Rep. of Tanzania, South Africa, Dem. Rep.
of the Congo


92.8


Sao Tome & Principe Gabon, Cameroon, South Africa, Côte d'Ivoire, Algeria 99.3


Senegal Nigeria, Côte d'Ivoire, South Africa, Morocco, Tunisia 88.4


Seychelles South Africa, Mauritius, Kenya, Swaziland, Madagascar 98.9


Sierra Leone Côte d'Ivoire, Senegal, Egypt, Nigeria, South Africa 97.2


Somalia Ethiopia, Egypt, South Africa, United Rep. of Tanzania, Togo 100.0


South Africa Nigeria, Angola, Mozambique, Zimbabwe, Zambia 85.4


Sudan Egypt, Kenya, Djibouti, Uganda, Swaziland 95.2


Swaziland U.R. Tanzania, Malawi, South Africa, Botswana, Mozambique 90.9


Togo Ghana,Côte d'Ivoire, South Africa, Senegal, Morocco 96.2


Tunisia Libya, Algeria, Egypt, Morocco, Côte d'Ivoire 97.3


Uganda Kenya, South Africa, United Rep. of Tanzania, Egypt, Swaziland 96.1


Utd. Rep. of Tanzania South Africa, Kenya, Swaziland, Zambia, Egypt 92.9


Zambia South Africa, Dem. Rep. of the Congo, Kenya, Zimbabwe, United
Rep. of Tanzania


97.3


Zimbabwe South Africa, Botswana, Zambia, Malawi, Mozambique 95.6


Africa South Africa, Nigeria, Côte d'Ivoire, Egypt, Algeria 63.8


Source: UNCTADstat database.


Table 7 (contd.)


facilities could be hampering intra-trade opportunities in Africa when it comes to
the fuels sector. In fact, on average only 24.4 per cent of total African imports of
primary commodities and fuels came from African countries in the period from
2007 to 2011.


In that same period, intra-African trade in manufactured goods as a percentage
of African world trade in manufactured goods ranged from 15.7 per cent in labour-
intensive and resource-based manufacturing to 21.4 per cent in manufacturing
with low skill and technology intensity. These numbers are much lower than those




27CHAPTER 1. The State of intra-African Trade and Investment


Table 8. Intraregional trade as a percentage of GDP


Country 1996–2000
2001–
2006


2007–
2011 Country


1996–
2000


2001–
2006


2007–
2011


Algeria 0.8 1.4 2.0 Libya 2.8 3.0 2.4


Angola 15.3 7.3 4.7 Madagascar 3.6 5.0 5.2


Benin 8.7 9.8 11.4 Malawi 26.0 27.4 30.6


Botswana 59.3 30.4 39.5 Mali 19.6 18.7 25.4


Burkina Faso 9.7 12.1 11.9 Mauritania 8.1 8.7 12.5


Burundi 4.1 8.3 10.0 Mauritius 10.3 10.0 8.6


Cameroon 4.7 6.1 9.4 Morocco 2.3 2.3 3.5


Cape Verde 1.8 2.2 1.4 Mozambique 15.4 22.5 23.0


Central African Republic 3.8 3.2 4.3 Namibia 54.2 39.0 26.7


Chad 7.6 6.0 5.5 Niger 11.1 10.2 15.2


Comoros 5.4 6.1 7.9 Nigeria 4.6 4.1 5.0


Congo 5.4 5.5 6.6 Rwanda 5.5 7.3 13.4


Côte d'Ivoire 14.7 19.8 24.0 Sao Tome and Principe 5.4 8.2 12.1


Dem. Rep. of the Congo 7.0 14.3 23.5 Senegal 10.0 13.5 14.8


Djibouti 6.4 8.1 6.0 Seychelles 10.6 10.9 13.8


Egypt 0.6 1.3 2.5 Sierra Leone 1.6 10.4 17.0


Equatorial Guinea 13.7 4.2 10.9 Somalia - - -


Eritrea 3.9 4.6 6.3 South Africa 14.1 4.6 6.0


Ethiopia 1.7 3.0 2.9 Sudan 2.2 1.9 1.9


Gabon 3.2 4.6 5.5 Swaziland 102.4 100.6 63.0


Gambia 3.9 6.8 8.0 Togo 16.9 27.9 21.4


Ghana 10.5 14.2 10.9 Tunisia 4.0 5.1 8.2


Guinea 4.2 5.6 5.0 Uganda 10.4 11.6 15.0


Guinea-Bissau 5.3 7.5 7.3 United Rep. of Tanzania 5.0 7.0 10.2


Kenya 8.0 9.9 11.6 Zambia 22.2 31.7 31.9


Lesotho 105.8 63.6 75.2 Zimbabwe 27.7 36.8 58.7


Liberia 3.0 1.6 3.0 Average across Africa 13.9 13.4 14.8


Source: UNCTADstat database.
Note: Excludes Sao Tome and Principe for period 1996 to 1999, Djibouti and Libya for 2010


and 2011. The average for Africa is the simple arithmetic average across all African
countries and does not reflect the ratio of total African trade to total African GDP.




28 Economic Development in Africa Report 2013


of developing Asia and slightly lower than those of developing America, perhaps
reflecting the lower scope for intra-industry trade in manufacturing in Africa in the
absence of regional value chains, a lack of economic diversification, a narrow
African manufacturing base and the absence of large companies with subsidiaries
trading in various parts of the region. The issue of low intra-industry trade in Africa
is further discussed below.


Of the 9 Standard International Trade Classification (SITC) categories,7 at least
25 per cent of African world trade was traded regionally in only 1 product category,
namely category 5 (chemicals and related products), with the top four traded
subproducts consisting of fertilizers; soaps, cleansing and polishing preparations;
perfumery, cosmetics or toiletry preparations; and medicaments. This stands in
sharp contrast again to areas such as developing Asia where at least 40 per cent
of its world trade in all nine SITC product categories was within the region and
the developing Americas where at least 25 per cent of world trade was within the
region in 6 product categories out of 9. These statistics demonstrate that significant
intra-trade opportunities in Africa remain unexploited in many product categories.
This may be ascribed to several factors: there is for instance a mismatch between
what Africa produces on the supply side and what Africa consumes on the demand
side, but there are also bottlenecks in intra-African trade caused by a lack of
infrastructure and transport facilities and a continued dependence on traditional
trade partners.


When intra-trade shares by product category at the level of African regional
economic communities are analysed, only EAC had more than 25 per cent of
its world trade within its own bloc, in five product categories out of nine in the
period from 2007 to 2011. This was followed by ECCAS and ECOWAS, which
both traded more than 25 per cent of their world trade within their blocs in three
product categories; then by COMESA and SADC in only two categories; CEN-SAD
and IGAD in one category and AMU in none. For comparison purposes, ASEAN
traded more than 25 per cent of its world trade internally in five product categories.
A more mature regional group such as the European Union had more than 60 per
cent of its world trade within its own bloc in seven out of nine product categories.
These figures show that there is room for African enterprises to position themselves
increasingly as suppliers of goods in various product categories in Africa, as long
as the right policies are put in place to foster competitiveness among African
firms, accompanied by productive capacity policies, such as national and regional
industrial policies that can promote both inter-industry and intra-industry trade in
the long run.




29CHAPTER 1. The State of intra-African Trade and Investment


This issue of unexploited opportunities in intra-African trade is particularly
evident in the area of agriculture. Africa is the continent which has the greatest
percentage of unused arable land; it is estimated that about 50 to 60 per cent of
the world’s unused arable land is in sub-Saharan Africa. However only 16.9 per
cent of African world trade in food and live animals (SITC 0) and only 14.8 per cent
of African agricultural imports took place within the continent in the period from
2007 to 2011, denoting that both agriculture and intra-African trade in agriculture
remain significantly underdeveloped. In the period from 2007 to 2011, intra-African
agricultural imports amounted on average to $10 billion and the top ten intra-
African agricultural imports, representing 46 per cent of the total, consisted of the
following subproducts: sugar, molasses and honey, fish (fresh, chilled or frozen),
tobacco, edible products and preparations, unmilled maize, vegetables, alcoholic
beverages, tea and mate, coffee and coffee substitutes and fixed vegetable fats
and oils (see figure 2).


When intra-African trade is analysed at a three-digit product level by country
(see table 9), only 25 African countries counted an agricultural or agriculture-related
product among their top two exports to Africa in the period from 2007 to 2011. If
the analysis is extended to cover the top five exports of each country to the rest of
Africa, it is noted that intra-agricultural exports take place within a narrow range of
only 34 products, of which some are covered by very few countries. For example,
based on that analysis, only Benin and Botswana export meat to the continent.
Burkina Faso, Djibouti, Ethiopia, Mali, the Niger, Rwanda and the Sudan are the only
countries to count live animals among their top five exports to the rest of the region.
By the same measure, rice is exported only by Benin and Cape Verde; maize only
by Malawi and vegetables only by Eritrea, Ethiopia, the Niger and Somalia.


Table 10 depicts the average net trade balance of each African country over the
period from 2007 to 2011 in agricultural raw materials and all food items. Thirty-
one African countries are net exporters of agricultural raw materials to the world
while 37 countries are net importers of food items from the world. All countries
that were net food importers from (or net food exporters to) the world were also
net food importers from (or net food exporters to) Africa except for Benin, Djibouti,
Egypt, Mauritania, Morocco, the Niger, Senegal and Tunisia, which had net exports
to Africa but imported from the world, and Ghana, Guinea-Bissau, Madagascar
and Swaziland which had net imports from Africa but exported to the world. In
aggregate, however, Africa imported only 15 per cent of its food items from the rest
of Africa in 2007–2011. Among net food importers, only Botswana, Lesotho and




30 Economic Development in Africa Report 2013


Figure 2. Top 37 Intra-African agricultural imports, 2007–2011


0 1 2 3 4 5 6 7
Spices


Cheese and curd
Cocoa


Wood in the rough or roughly squared
Vegetables, roots, tubers, prepared, preserved, n.e.s.


Margarine and shortening
Animal or veg. oils & fats, processed, n.e.s.; mixt.


Oil seeds and oleaginous fruits (excluding flour)
Other meat and edible meat offal


Wheat (including spelt) and meslin, unmilled
Other cereal meals and flour


Fruit and vegetable juices, unfermented, no spirit
Fish, aqua. invertebrates, prepared, preserved, n.e.s.


Crude vegetable materials, n.e.s.
Non-alcoholic beverages, n.e.s.


Sugar confectionery
Wood simply worked, and railway sleepers of wood


Meal and flour of wheat and flour of meslin
Cotton


Live animals other than animals of division 03
Rice


Milk, cream and milk products (excluding butter, cheese)
Feeding stuff for animals (no unmilled cereals)


Fruits and nuts (excluding oil nuts), fresh or dried
Fixed vegetable fats & oils, crude, refined, fract.
Cereal preparations, flour of fruits or vegetables


Tobacco, unmanufactured; tobacco refuse
Fixed vegetable fats & oils, crude, refined, fractio.


Coffee and coffee substitutes
Tea and mate


Alcoholic beverages
Vegetables


Maize (not including sweet corn), unmilled
Edible products and preparations, n.e.s.


Tobacco, manufactured
Fish, fresh (live or dead), chilled or frozen


Sugar, molasses and honey


Percentage of total intra-African agricultural imports


Source: UNCTADstat database.
Note: n.e.s = not elsewhere specified.




31CHAPTER 1. The State of intra-African Trade and Investment


Table 9. Main African exports to Africa and to the rest of the world by three-digit
SITC product category, 2007–2011 (period averages)


Country Top 2 exports to Africa Shares


Algeria Liquefied propane and butane; Natural gas, whether or not liquefied; 83.3
Angola Petroleum oils, oils from bitumin. materials, crude;Ships, boats & floating


structures
94.6


Benin Petroleum oils or bituminous minerals > 70 % oil; Other meat and edible
meat offal


41.2


Botswana Nickel ores & concentrates; nickel mattes, etc.; Pearls, precious & semi-
precious stones


27.3


Burkina Faso Gold, non-monetary (excluding gold ores and concentrates), Live animals
other than animals of division 03


22.3


Burundi Coffee and coffee substitutes; Tea and mate 26.1
Cameroon Petroleum oils or bituminous minerals > 70 % oil; Ships, boats & floating


structures
42.2


Cape Verde Petroleum oils or bituminous minerals > 70 % oil; Ships, boats & floating
structures


62.9


Central African Rep. Wood simply worked, and railway sleepers of wood; Sugar, molasses and
honey


50.8


Chad Special yarn, special textile fabrics & related; Cotton 43.3
Comoros Spices; Lime, cement, fabrica. constr. mat. (excludingglass, clay) 34.0
Congo Ships, boats & floating structures; Petroleum oils, oils from bitumin.


materials, crude
68.5


Côte d'Ivoire Petroleum oils or bituminous minerals > 70 % oil; Residual petroleum
products, n.e.s.,


45.6


Dem. Rep. of the Congo Copper ores and concentrates; copper mattes, cement; Copper 66.5
Djibouti Live animals other than animals of division 03; Milk, cream and milk


products (excluding butter, cheese)
48.9


Egypt Gold, non-monetary (excluding gold ores and concentrates); Petroleum
oils or bituminous minerals > 70 % oil


14.0


Equatorial Guinea Petroleum oils, oils from bitumin. materials, crude; Liquefied propane and
butane


78.8


Eritrea Prefabricated buildings; Oil seeds & oleaginous fruits (incl. flour, n.e.s.) 33.1
Ethiopia Vegetables; Live animals other than animals of division 03 67.1
Gabon Ships, boats & floating structures; Petroleum oils or bituminous minerals


> 70 % oil
50.8


Gambia Fabrics, woven, of man-made fabrics; Milk, cream and milk products
(excluding butter, cheese)


38.8


Ghana Gold, non-monetary (excluding gold ores and concentrates); Liquefied
propane and butane


35.4


Guinea Fish, fresh (live or dead), chilled or frozen; Coffee and coffee substitutes 52.1
Guinea-Bissau Fish, fresh (live or dead), chilled or frozen; Household equipment of base


metal, n.e.s.
22.9


Kenya Tea and mate; Petroleum oils or bituminous minerals > 70 % oil 17.2
Lesotho Television receivers, whether or not combined; Footwear 25.8
Liberia Petroleum oils or bituminous minerals > 70 % oil; Natural rubber & similar


gums, in primary forms
52.3




32 Economic Development in Africa Report 2013


Country Top 2 exports to Africa Shares


Libya Petroleum oils, oils from bitumin. materials, crude; Petroleum oils or
bituminous minerals > 70 % oil


58.3


Madagascar Petroleum oils or bituminous minerals > 70 % oil; Articles of apparel, of
textile fabrics, n.e.s.


18.0


Malawi Tobacco, unmanufactured; tobacco refuse; Maize (not including sweet
corn), unmilled


31.1


Mali Gold, non-monetary (excluding gold ores and concentrates); Live animals
other than animals of division 03


86.1


Mauritania Fish, fresh (live or dead), chilled or frozen; Gold, non-monetary (excluding
gold ores and concentrates)


81.3


Mauritius Articles of apparel, of textile fabrics, n.e.s.; Men's clothing of textile
fabrics, not knitted


19.7


Morocco Fish, aqua. invertebrates, prepared, preserved, n.e.s.; Fertilizers (other
than those of group 272)


19.2


Mozambique Electric current; Petroleum oils or bituminous minerals > 70 % oil 50.0
Namibia Printed matter; Fish, fresh (live or dead), chilled or frozen 28.3
Niger Live animals other than animals of division 03; Vegetables 81.1
Nigeria Petroleum oils, oils from bitumin. materials, crude; Ships, boats & floating


structures
88.5


Rwanda Tea and mate; Live animals other than animals of division 03 39.4
Sao Tome and Principe Petroleum oils or bituminous minerals > 70 % oil; Tubes, pipes & hollow


profiles, fittings, iron, steel
44.8


Senegal Petroleum oils or bituminous minerals > 70 % oil; Lime, cement, fabrica.
constr. mat. (excludingglass, clay)


41.9


Seychelles Fish, fresh (live or dead), chilled or frozen; 75.7
Sierra Leone Civil ingineering & contractors' plant & equipment; Petroleum oils or


bituminous minerals > 70 % oil
24.6


Somalia Electric power machinery, and parts thereof; Vegetables, roots, tubers,
prepared, preserved, n.e.s.


22.3


South Africa Motor vehic. for transport of goods, special purpo.; Petroleum oils or
bituminous minerals > 70 % oil


12.1


Sudan Petroleum oils or bituminous minerals > 70 % oil; Oil seeds and
oleaginous fruits (excluding flour)


60.2


Swaziland Essential oils, perfume & flavour materials; Miscellaneous chemical
products, n.e.s.


43.5


Togo Lime, cement, fabrica. constr. mat. (excludingglass, clay); Electric current 33.2
Tunisia Paper & paperboard, cut to shape or size, articles; Lime, cement, fabrica.


constr. mat. (excludingglass, clay)
12.1


Uganda Lime, cement, fabrica. constr. mat. (excludingglass, clay); Tobacco,
unmanufactured; tobacco refuse


15.3


United Rep. of Tanzania Gold, non-monetary (excluding gold ores and concentrates); Fertilizers
(other than those of group 272)


15.3


Zambia Copper; Copper ores and concentrates; copper mattes, cement 39.5
Zimbabwe Nickel ores & concentrates; nickel mattes, etc.; Coke & semi-cokes of


coal, lign., peat; retort carbon
32.1


Africa Petroleum oils, oils from bitumin. materials, crude; Petroleum oils or
bituminous minerals > 70 % oil


29.6


Table 9 (contd.)




33CHAPTER 1. The State of intra-African Trade and Investment


Country Top 2 exports to the rest of the world Shares


Algeria Petroleum oils, oils from bitumin. materials, crude; Natural gas, whether
or not liquefied


79.8


Angola Petroleum oils, oils from bitumin. materials, crude; Pearls, precious &
semi-precious stones


97.6


Benin Cotton; Fruits and nuts (excluding oil nuts), fresh or dried 57.3
Botswana Pearls, precious & semi-precious stones; Nickel ores & concentrates;


nickel mattes, etc.
91.4


Burkina Faso Cotton; Gold, non-monetary (excluding gold ores and concentrates) 85.4
Burundi Coffee and coffee substitutes; Gold, non-monetary (excluding gold ores


and concentrates)
76.4


Cameroon Petroleum oils, oils from bitumin. materials, crude; Cocoa 60.3
Cape Verde Fish, fresh (live or dead), chilled or frozen; Fish, aqua. invertebrates,


prepared, preserved, n.e.s.
55.9


Central African Republic Wood in the rough or roughly squared; Pearls, precious & semi-precious
stones


62.5


Chad Petroleum oils, oils from bitumin. materials, crude; Petroleum oils or
bituminous minerals > 70 % oil


95.7


Comoros Ships, boats & floating structures; Spices 74.1
Congo Petroleum oils, oils from bitumin. materials, crude; Ships, boats & floating


structures
85.7


Côte d'Ivoire Cocoa; Petroleum oils, oils from bitumin. materials, crude 63.6
Dem. Rep. of the Congo Copper; Ores and concentrates of base metals, n.e.s. 46.9
Djibouti Live animals other than animals of division 03; Gold, non-monetary


(excluding gold ores and concentrates)
46.7


Egypt Petroleum oils or bituminous minerals > 70 % oil; Natural gas, whether or
not liquefied


26.8


Equatorial Guinea Petroleum oils, oils from bitumin. materials, crude; Natural gas, whether
or not liquefied


93.3


Eritrea Gold, non-monetary (excluding gold ores and concentrates); Silver,
platinum, other metals of the platinum group


88.0


Ethiopia Coffee and coffee substitutes; Oil seeds and oleaginous fruits (excluding
flour)


54.5


Gabon Petroleum oils, oils from bitumin. materials, crude; Ores and concentrates
of base metals, n.e.s.;


85.5


Gambia Fruits and nuts (excluding oil nuts), fresh or dried; Ores and concentrates
of base metals, n.e.s.


45.2


Ghana Cocoa; Petroleum oils, oils from bitumin. materials, crude 69.1
Guinea Aluminium ores and concentrates (incl. alumina); Natural gas, whether or


not liquefied
66.1


Guinea-Bissau Fruits and nuts (excluding oil nuts), fresh or dried; Petroleum oils, oils from
bitumin. materials, crude


96.8


Kenya Tea and mate; Crude vegetable materials, n.e.s. 44.0
Lesotho Pearls, precious & semi-precious stones;Articles of apparel, of textile


fabrics, n.e.s.
50.8


Liberia Ships, boats & floating structures; Natural rubber & similar gums, in
primary forms


72.2


Table 9 (contd.)




34 Economic Development in Africa Report 2013


Country Top 2 exports to the rest of the world Shares


Libya Petroleum oils, oils from bitumin. materials, crude; Petroleum oils or
bituminous minerals > 70 % oil


90.7


Madagascar Articles of apparel, of textile fabrics, n.e.s.; Spices 26.7
Malawi Tobacco, unmanufactured; tobacco refuse; Sugar, molasses and honey 75.3
Mali Cotton; Gold, non-monetary (excluding gold ores and concentrates) 74.2
Mauritania Iron ore and concentrates; Copper ores and concentrates; copper


mattes, cement
65.2


Mauritius Articles of apparel, of textile fabrics, n.e.s.; Sugar, molasses and honey 33.2
Morocco Motor vehicles for the transport of persons; Fish, fresh (live or dead),


chilled or frozen
19.2


Mozambique Aluminium; Tobacco, unmanufactured; tobacco refuse 66.4
Namibia Pearls, precious & semi-precious stones; Fish, fresh (live or dead), chilled


or frozen
35.3


Niger Radio-actives and associated materials; Ores and concentrates of
uranium or thorium


68.0


Nigeria Petroleum oils, oils from bitumin. materials, crude; Natural gas, whether
or not liquefied


88.9


Rwanda Ores and concentrates of base metals, n.e.s.; Coffee and coffee
substitutes


80.2


Sao Tome and Principe Cocoa; Lime, cement, fabrica. constr. mat. (excludingglass, clay) 69.2
Senegal Petroleum oils or bituminous minerals > 70 % oil; Inorganic chemical


elements, oxides & halogen salts
39.5


Seychelles Fish, aqua. invertebrates, prepared, preserved, n.e.s.; Fish, fresh (live or
dead), chilled or frozen


69.0


Sierra Leone Pearls, precious & semi-precious stones; Aluminium ores and
concentrates (incl. alumina)


38.9


Somalia Live animals other than animals of division 03; Gold, non-monetary
(excluding gold ores and concentrates)


60.2


South Africa Silver, platinum, other metals of the platinum group; Coal, whether or not
pulverized, not agglomerated


22.3


Sudan Petroleum oils, oils from bitumin. materials, crude; Petroleum oils or
bituminous minerals > 70 % oil


87.4


Swaziland Sugar, molasses and honey; Pulp and waste paper 30.0
Togo Cocoa; Cotton 50.2
Tunisia Petroleum oils, oils from bitumin. materials, crude; Articles of apparel, of


textile fabrics, n.e.s.
26.1


Uganda Coffee and coffee substitutes; Fish, fresh (live or dead), chilled or frozen 48.1
United Rep. of Tanzania Ores & concentrates of precious metals; waste, scrap; Gold, non-


monetary (excluding gold ores and concentrates)
29.5


Zambia Copper; Copper ores and concentrates; copper mattes, cement 84.3
Zimbabwe Tobacco, unmanufactured; tobacco refuse; Pig iron & spiegeleisen,


sponge iron, powder & granu
41.3


Africa Petroleum oils, oils from bitumin. materials, crude; Natural gas, whether
or not liquefied


54.4


Source: UNCTADstat database.
Note: The third column shows shares of the top two products in exports to Africa and exports to the rest


of the world respectively.


Table 9 (contd.)




35CHAPTER 1. The State of intra-African Trade and Investment


Table 10. Net trade balance of African countries in agriculture, 2007–2011
(thousands of dollars)


Country


Net trade balance


Country


Net trade balance


Agricutural
raw


materials


All
food items


Agricutural
raw


materials


All
food items


Algeria -641 117 -7 355 609 Libya -44 665 -1 327 343


Angola -129 907 -3 235 044 Madagascar 28 647 8 800


Benin 324 401 -125 845 Malawi 26 472 593 510


Bostwana -48 824 -490 316 Mali 428 563 -268 879


Burkina Faso 480 519 -158 972 Mauritania -9 202 -39 226


Burundi -5 021 -17 585 Mauritius -94 761 -234 912


Cameroon 599 217 -135 232 Morocco -594 652 -913 481


Cape Verde -5 778 -177 847 Mozambique 69 829 -135 997


Central African Rep. 69 086 -54 649 Namibia -19 482 378 237


Chad 99 624 -307 870 Niger -32 210 -105 818


Comoros -1 760 -65 028 Nigeria 223 610 -4 162 785


Congo 185 811 -468 317 Rwanda -21 911 -104 188


Côte d'Ivoire 849 804 2 951 891 Sao Tome & Principe -763 -29 387


Dem.Rep.of the Congo 129 014 -845 587 Senegal -39 880 -585 056


Djibouti -6 208 -67 475 Seychelles -15 261 164 444


Egypt -990 789 -5 812 720 Sierra Leone -52 272 -138 650


Equatorial Guinea 81 766 -413 097 Somalia 29 063 -410 681


Eritrea -4 740 -199 583 South Africa 859 587 1 693 937


Ethiopia 152 410 404 907 Sudan 87 289 -799 737


Gabon 840 508 -410 644 Swaziland 90 964 187 999


Gambia 1 138 -81 748 Togo 74 966 12 248


Ghana 267 320 2 324 285 Tunisia -371 349 -578 464


Guinea 25 765 -187 632 Uganda 128 155 1 009 537


Guinea-Bissau 633 51 801 United Rep. of Tanzania 177 174 392 613


Kenya 509 930 746 656 Zambia 69 970 184 204


Lesotho -34 441 -371 739 Zimbabwe 293 264 32 267


Liberia 72 024 -7 829


Source: UNCTADstat database.




36 Economic Development in Africa Report 2013


Rwanda imported more than 60 per cent of their food items from Africa. On the
other hand, Africa exported on average only 21.1 per cent of its food items to the
region and among its net food exporters, only Zambia exported more than 50 per
cent of its food to Africa.


Given the availability of arable land in Africa and the import demand for food,
there should be scope for broadening the range of agricultural goods produced and
traded within Africa through appropriate agricultural and agro-industrial policies.
Countries such as Ghana and South Africa, which run large net trade surpluses on
food items with the world, do not currently have agricultural products as their main
five exports to Africa. This signals that there exists scope to better meet African
food demand from within the region through an upscaling of domestic agricultural
production in African countries.


The share of manufacturing in intra-African trade is higher than its share in
African extraregional trade. However the importance of manufacturing in intra-
African trade has been falling over the last decade.


In Africa, the share of manufactured goods in total intra-African trade averaged
42.6 per cent in the period from 2007 to 2011, compared to 53.6 per cent in the
period from 1996 to 2000 (see figure 3). In comparison, the share of manufacturing
in intra-trade in developing Asia fell from 71.9 per cent in the period from 1996
to 2000 to 65.2 per cent between 2007 and 2011, while in developing America,
the share rose from 55.2 per cent to 56.2 per cent over the same periods. These
lower numbers for Africa can be explained by its lower level of manufacturing
development as compared to the other two regions (UNCTAD and UNIDO, 2011).


The share of manufactured goods in intra-African trade has always been
higher than their share in African extraregional trade since 1996 (see figure 4).
As was highlighted in the Economic Development in Africa Report 2009, regional
integration can serve as a launch pad for manufacturing development in Africa, while
the latter can also serve to strengthen intra-African trade. However the share of
manufacturing in both intra-African and in extraregional trade has been falling since
1996, signalling a process of deindustrialization resulting from: (a) manufacturing
development in Africa being confronted with competitiveness challenges and (b)
the boom in commodity prices shifting policy focus and resources into commodity
exports.




37CHAPTER 1. The State of intra-African Trade and Investment


In the period from 2007 to 2011, the share of manufacturing in trade between
regional economic communities was highest in EAC (58.3 per cent), followed by
SADC (51.4 per cent), COMESA (44.8 per cent), IGAD (39.1 per cent), AMU (35.2
per cent), CEN-SAD (34.3 per cent) and ECOWAS (25.7 per cent). These variations
in numbers can again be associated with the differing levels of manufacturing
development of the member countries of the regional blocs. For instance, as at
2008 Western Africa was the least industrialized region in Africa in terms of the
ratio of manufacturing to GDP while Southern, Northern and Eastern Africa had
more significant manufacturing sectors accounting for a higher percentage of their
GDP (UNCTAD and UNIDO 2011). Over the periods 1996–2000 to 2007–2011, the
share of manufacturing in intra-bloc trade fell in all regional economic communities
except CEN-SAD, EAC and ECCAS. ECCAS made commendable gains in the
share of manufacturing of low skill and low technology intensity in its intra-bloc
exports, as the latter rose from 4.8 per cent in the period from 1996 to 2000 to 39.1
per cent in the period from 2007 to 2011. This is because ECCAS members such
as Chad, Equatorial Guinea and Gabon increased their regional export intensities
in manufactured goods over that period, i.e., the share of manufactured goods in
their African exports rose relative to the share of manufactured goods in their world
exports.


Figure 3. Distribution of intra-African trade by main product category, 1996–2000 and 2007–2011


Fuels
(16.1%)


Fuels
(32.2%)


Manufactured
goods


(53.6%)


Primary
commodities,


excl. fuels
(29.5%)


Primary
commodities,


excl. fuels
(22.7%)


Other
(0.7%)


Other
(2.5%)


1996–2000 2007–2011


Manufactured
goods


(42.6%)


Source: UNCTADstat database.




38 Economic Development in Africa Report 2013


Intra-industry trade is low in Africa and inhibits the expansion of intra-African
trade.


A recent study by Ofa, Spence, Mevel and Karingi (2012) estimates that intra-
industry trade, that is the simultaneous exportation and importation of products
in the same industry, in Africa is low at around 10 per cent of total trade for the
average country in the sample. For 32 countries in their sample of 50, intra-industry
trade was actually below average. Only 7 countries, namely Côte d’Ivoire, Egypt,
Equatorial Guinea, Mauritius, Mozambique, Senegal, Tunisia and Uganda scored
above 20 per cent on their index of intra-industry trade. Excluding the importing
and re-exporting of petroleum products, only 4 countries (Egypt, Mauritius, Tunisia
and Uganda) had relatively higher levels of intra-industry trade. The study also finds
evidence of a positive association between export diversification and intra-industry
trade in Africa.


Intra-industry trade can involve the trading of goods at the same stage of
processing within a given industry (horizontal differentiation) or goods at different
stages of processing within an industry (vertical differentiation). Intra-industry trade
can be associated with the level of manufacturing development of trading partners
and the existence of intra-firm trade within fragmented production networks
(Gouranga, 2003; van Marrewijk, 2008). Intra-industry trade matters for intraregional
trade. For instance, trade in intermediates accounted for most of the strong rise


Figure 4. Share of manufactured goods in intra-African trade and extraregional trade, 1996–2011


0


10


20


30


40


50


60


1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


P
er


ce
nt


ag
e


Extraregional Intra-trade


Source: UNCTADstat database.




39CHAPTER 1. The State of intra-African Trade and Investment


in intraregional trade among emerging economies in Asia at the start of the last
decade, which in turn led to a sharp rise in the Asian share of world trade (Zebregs,
2004). The participation of these emerging economies in Asia in vertically integrated
regional manufacturing production networks led to an increase in intra-industry
(namely intra-manufacturing) trade across countries and a rise in intraregional
trade. China performs a vitally important role in Asian regional manufacturing value
chains as a demander of subcomponents from other countries and in linking Asian
regional value chains to global supply chains. That type of spatial development
in Africa, where some countries act as development engines for the rest of the
region and use their expansion into global value chains to create a demand for
intermediate products from other African countries and drive up intraregional trade,
has yet to emerge in Africa. Understanding the constraints to intra-industry trade
in Africa is relevant for assessing the factors that could potentially provide a boost
to it. Low levels of intra-industry trade in Africa inhibit the expansion of intra-African
trade and of the African share of world trade.


Intra-African investment is rising in some countries but unexploited opportunities
remain to be reaped.


Data on intra-African investment are scarce. There is however evidence to
suggest that investment flows within the region have risen over the last decade, but
that significant intra-investment opportunities remain to be exploited. One study
of all foreign direct investment (FDI) projects by value in Africa from 2003 to 2010
indicates that only 5 per cent of that total value or $46 billion originated from intra-
African FDI (Africa Investor, 2012). In contrast, the share of intra-ASEAN FDI inflows
in total FDI inflows to ASEAN averaged 16.7 per cent from 2008 to 2010 (ESCAP,
2012).


Table 11 provides estimates from UNCTAD on intraregional FDI inflows and
inward FDI stock for selected African countries. Countries such as Madagascar
and Kenya received between 6 and 11 per cent of their FDI flows from other African
countries over the period from 2007 to 2010, while southern countries such as
Mauritius, Malawi, Mozambique, Namibia, Uganda and the United Republic of
Tanzania received between 17 and 80 per cent of their FDI flows from the region,
most likely originating from South Africa. Between 2008 and 2010, Botswana,
Malawi, Nigeria, Uganda and the United Republic of Tanzania had more than 20
per cent of their total FDI inward stock sourced from the rest of Africa.


Surveys undertaken by private companies, such as the Ernst and Young Africa
attractiveness survey, estimated that intra-African FDI in new projects grew between
2003 and 2011 at an annual compound growth rate of 23 per cent and that growth




40 Economic Development in Africa Report 2013


Table 11. Intraregional foreign direct investment in Africa (various years)


Country Period average/year


Source region
($ million)


Share of
Africa


in world (%)Africa World


FDI inflows


Algeria 2000–2001 183.5 831.8 22.1
Cape Verde 2004–2006 0.2 84.7 0.2
Egypt 2008–2010 121.2 11 139.5 1.1
Ethiopia 1992–1994 0.1 7.0 1.6


2002–2004 37.3 421.7 8.8
Kenya 2007–2008 65.2 622.7 10.5
Madagascar 2008–2010 67.7 1 094.3 6.2
Malawi 2008–2010 31.6 74.8 42.3
Mauritius 1994–1996 0.9 25.1 3.8


2009–2011 62.2 352.5 17.6
Morocco 1996–1998 20.3 664.7 3.1


2008–2010 55.2 3 636.0 1.5
Mozambique 2009–2011 403.4 1 325.0 30.4
Namibia 2006–2008 522.7 653.4 80.0
Nigeria 2008–2010 1 978.5 7 665.7 25.8
Tunisia 1998–2000 8.5 605.3 1.4


2008–2010 72.3 1 986.2 3.6
Uganda 2008–2010 189.6 701.5 27.0
United Republic of Tanzania 2006–2008 121.6 461.6 26.3


Inward FDI stock


Botswana 1997 769.7 1 280.2 60.1
2010 374.5 1 148.9 32.6


Kenya 2008 241.5 2 773.0 8.7
Madagascar 2002 43.0 165.5 26.0


2010 289.6 4 382.6 6.6
Malawi 2000 103.6 357.7 29.0


2010 358.3 1 149.8 31.2
Morocco 2010 320.8 45 081.6 0.7
Nigeria 2010 15 570.3 60 326.7 25.8
South Africa 1990 183.8 9 210.4 2.0


2000 301.1 43 451.0 0.7
2010 974.3 153 133.0 0.6


Uganda 2010 1 437.9 5 575.2 25.8
United Republic of Tanzania 2008 2 076.4 6 239.9 33.3
Zambia 2001 143.2 1 084.8 13.2


Source: UNCTAD, FDI/TNC database.




41CHAPTER 1. The State of intra-African Trade and Investment


rate has surged to 42 per cent since 2007. The number of new intra-African FDI
projects grew from an estimated 27 to 145, driven mainly by Kenya, Nigeria and
South Africa. Supplementary data from UNCTAD (see table 12) indicates that
a growing share of intra-African FDI is going to the services sector. This is an
encouraging trend for the continent, given that access to services such as finance
and transport is likely to be a crucial factor in determining the competitiveness of
African enterprises. Between 2003 and 2011, of 673 deals relating to intra-African
greenfield investments, only 3.7 per cent took place in the primary sector, compared
to 7.3 per cent for the period from 2003 to 2007. In the period from 2003 to 2011,
68.4 per cent of deals covered the services sector compared to 54.5 per cent from
2003 to 2007. However deals related to manufacturing accounted for only 27.9 per
cent of all deals from 2003 to 2011, as opposed to 38.2 per cent between 2003
and 2007. Within the services sector, 69.6 per cent of all intra-African greenfield
deals were in the finance sector. Data on the number of mergers and acquisitions
confirm the preponderance of the services sector and within it finance in intra-
African deals. Evidence from UNCTAD shows that South Africa is among the top
five investing countries in the region, despite the growing importance of trade and
investment coming to Africa from emerging economies such as China. However,
there is no other African country besides South Africa among the top 20 investors in
Africa (see table 13). While the analysis on intra-African investment remains limited
in the absence of reliable data, the low level of intra-African trade suggests that
there is scope for significantly raising intra-African investment, especially as growth
on the continent continues and more African companies search for high returns
and diversification opportunities in the region.


To conclude, the stylized facts presented in this chapter confirm the popular
discourse on African trade that highlights Africa as a marginal player in world trade,
with low levels of intraregional trade. However, they also demonstrate that both intra-
African trade and African trade with the rest of the world have been growing vibrantly,
displaying nominal growth rates that are comparable to those in other regions. The
empirical analyses also show that significant regional trade opportunities remain
to be exploited in multiple sectors, including primary commodities, manufacturing
and agriculture. Regarding investment, the evidence suggests that there has been
a significant increase in the number of new intra-African FDI projects, driven mainly
by Kenya, Nigeria and South Africa. However, most of the new deals relating to
intra-African greenfield investments were in the services sector. Furthermore, South
Africa remains the only African country in the top 20 investors in Africa, as reported
by investing economies.




42 Economic Development in Africa Report 2013


Table 12. Net cross-border mergers and acquisitions (1990–2011) and greenfield
investment projects (2003–2011) in Africa
(number of deals by sector/industry of the seller and by investing region)


Sector/industry of the target country


M&As in Africa by
ultimate acquiring region,


1990–2011


Greenfield investments in
Africa by source region,


2003–2011


World Africa


Africa's
share in
world
(%)


World Africa


Africa's
share in
world
(%)


Total 1 532 167 10.9 5 145 673 13.1
Primary 349 12 3.4 517 25 4.8


Agriculture, hunting, forestry and fishing 33 3 9.1 2 - -
Mining, quarrying and petroleum 316 9 2.8 515 25 4.9


Manufacturing 427 25 5.9 2 060 188 9.1
Food, beverages and tobacco 119 -1 -0.8 351 50 14.2
Textiles, clothing and leather 11 3 27.3 173 12 6.9
Wood and wood products 9 4 44.4 32 1 3.1
Publishing and printing 13 2 15.4 3 1 33.3
Coke, petroleum products and nuclear fuel 5 2 40.0 115 9 7.8
Chemicals and chemical products 78 6 7.7 192 19 9.9
Rubber and plastic products 8 - - 70 1 1.4
Non-metallic mineral products 54 - - 161 32 19.9
Metals and metal products 36 2 5.6 158 14 8.9
Machinery and equipment 22 - - 140 5 3.6
Electrical and electronic equipment 28 3 10.7 269 27 10.0
Precision instruments 15 3 20.0 15 - -
Motor vehicles and other transport equipment 30 1 3.3 343 8 2.3
Other manufacturing 1 - - 38 9 23.7


Services 756 130 17.2 2 568 460 17.9
Electricity, gas and water 10 2 20.0 128 6 4.7
Construction 3 2 66.7 69 3 4.3
Trade 91 22 24.2 73 11 15.1
Hotels and restaurants 37 7 18.9 198 14 7.1
Transport, storage and communications 149 31 20.8 357 37 10.4
Finance 211 45 21.3 821 320 39.0
Business services 209 20 9.6 786 63 8.0
Public administration and defence 2 - - - - -
Education 6 - - 40 2 5.0
Health and social services 12 - - 29 1 3.4
Community, social and personal service
activities


13 1 7.7 36 1 2.8


Other services 13 - - 31 2 6.5


Source: UNCTAD cross-border mergers and acquisitions database for M&As, and information from
the Financial Times Ltd, fDi Markets (www.fDimarkets.com) for greenfield projects.




43CHAPTER 1. The State of intra-African Trade and Investment


Table 13. Top 20 investors in Africa as reported by investing economies
(percentage shares)


Rank Region/country of origin Shares in total inward FDI stock in Africa


Developed economies 76.2
Developing economies 23.2
Southeast Europe and CIS 0.6


1 France 17.9
2 United States 17.5
3 United Kingdom 14.6
4 Malaysia 6.0
5 South Africa 5.7
6 China 4.0
7 Germany 4.0
8 Switzerland 3.9
9 Italy 3.2
10 Singapore 3.0
11 Norway 2.9
12 Japan 2.5
13 Belgium 2.3
14 Hong Kong, China 2.0
15 Canada 1.5
16 Portugal 1.5
17 Sweden 1.2
18 Netherlands 0.9
19 India 0.8
20 Denmark 0.6


Others 3.8
Source: UNCTAD, FDI/TNC database.
Note: Geographical breakdown of inward FDI in Africa is not available for most African


countries. This table is based on outward stock data of Ukraine (2000); The former
Yugoslav Republic of Macedonia (2001); Latvia (2004); India (2005); Singapore (2006);
Poland (2007); Australia, Brazil and Romania (2008); Canada and the Czech Republic
(2009); Bulgaria, China, Croatia, Cyprus, Denmark, Estonia, France, Germany, Greece,
Hong Kong (China), Ireland, Israel, Italy, Morocco, Netherlands, Norway, Oman,
Pakistan, Portugal, Republic of Korea, Russian Federation, Slovenia, South Africa,
Spain, Sweden, Switzerland, Turkey and United Kingdom (2010); Austria, Belgium,
Chile, Finland, Hungary, Iceland, Japan, Kazakhstan, Malaysia, New Zealand, Taiwan
Province of China, Thailand and United States (2011). Data for India and the Taiwan
Province of China are on an approval basis.






2CHAPTER
INTRA-AFRICAN TRADE:
DRIVERS, CHALLENGES


AND POLICY OPTIONS




46 Economic Development in Africa Report 2013


A. INTRODUCTION


The empirical facts and analyses of African trade and investment presented in
chapter 1 indicate that there has been a significant increase in the growth of intra-
African trade over the past two decades but that the level is still very low compared
to the levels observed on other continents. They also suggest that actual intra-
African trade is low relative to potential trade, indicating that there are unexploited
opportunities for regional trade, particularly in the agriculture and manufacturing
sectors. The continent has an abundant supply of natural and human resources,
which could form the basis for an expansion of agricultural production and trade.
For example, with 733 million hectares of arable land, Africa has about 27 per cent
of the world’s arable land while Asia has 628 million hectares and Latin America
570 million hectares (Juma, 2011). However, many countries on the continent are
now net importers of food and agricultural products, as shown in chapter 1, and are
food insecure. Reversing this worrying trend will be vital to boosting intra-African
trade.


This chapter provides an analysis of the drivers of intra-African trade, with a view
to enhancing understanding of African regional trade performance. It begins with
a discussion of the mechanisms through which regional blocs could affect trade
and growth and then provides an assessment of the empirical evidence on the link
between regional blocs on the one hand and trade and growth on the other. It also
discusses some challenges facing African countries in boosting intra-African trade
and provides new insights into how to enhance implementation of existing regional
trade agreements to promote intra-African trade.


B. REGIONAL BLOCS, TRADE AND GROWTH


The formation of regional trade blocs has been an important and well-documented
feature of economic integration in Africa. There are currently 17 regional trade blocs
on the continent, of which 8 are officially recognized by the African Union (UNCTAD
2009). Although African regional economic communities were established mostly to
promote economic cooperation, they are increasingly active in non-economic areas
as well. For example, ECOWAS and SADC have been very active in the promotion
of peace and security within their regions. Interestingly, in a recent survey of
African countries and regional economic communities conducted by the Economic
Commission for Africa (ECA), 39 per cent of respondents indicated that they joined




47CHAPTER 2. Intra-African Trade: Drivers, Challenges and Policy Options


regional blocs for economic reasons while 31 per cent indicated that they joined
for political reasons. Geographical, cultural and historical factors are other reasons
identified by African countries for joining regional economic communities (see figure
5).


The large number of regional trade blocs in Africa suggests that policymakers
on the continent believe that trade blocs present opportunities for promoting
regional trade, boosting growth and engendering development. This conviction
can be rationalized based on insights from the literature on economic integration,
indicating that there are potential static and dynamic gains resulting from tariff
liberalization within the context of regional trade agreements (Viner, 1950). The
static gains are due to better and more efficient allocation of resources which
occur when the elimination of trade barriers among members of a trading bloc
creates trade by shifting production from high- to low-cost producers within the
bloc. However, liberalization within trade blocs can also divert trade by inducing a
shift from low-cost producers outside the bloc to high-cost producers within the
bloc. The net welfare impact will be positive if the trade creation effect dominates
the trade diversion effect and this is more likely if bloc members are competitive
and production structures differ across economies; the bloc is large in terms of


Figure 5. Main motive for joining regional economic communities
(percentage of respondents)


Economic
(39%)


Political
31%


Geographical
(16%)


Cultural
(8%)


Historical
(6%)


Source: Economic Commission for Africa (2012a).




48 Economic Development in Africa Report 2013


number of members and share of world trade and production; existing tariffs
among members are high; and distances between members are small. Obviously,
African regional blocs do not meet some of these criteria and so the economic case
or rationale for regional trade blocs on the continent may rest more on dynamic
gains (or growth effects) rather than on traditional static arguments for integration.


Regional trade blocs can yield dynamic or growth benefits to members through
providing domestic firms with access to a larger market, making it possible to exploit
economies of scale and overcome limitations imposed by the small size of national
economies. With 54 countries, Africa has more States but a lower population than
Asia. This fragmentation of the continent into small States is costly because, in
addition to the impact on market size, it makes provision of public goods inadequate
and also expensive, with implications for the competitiveness of domestic firms
(Collier and Venables, 2008). Regional trade blocs can also have growth effects
by facilitating technology transfer from more technologically advanced members
to other members of the bloc. In addition, they can reduce duplication of research
and development activities in different countries and generate scale effects in such
activities. Another channel through which regional trade blocs affect growth is by
intensifying competition, forcing domestic firms to use resources more efficiently
and be more productive. Better access to a large market through regional trade
arrangements can also boost growth by reducing risk and uncertainty for firms and
spurring entrepreneurship. This can influence the decisions firms take on location
and also enhance their growth, thereby having a positive impact on employment,
investment and growth in the economy (Schiff and Winters 2003; Elbadawi 1997;
Krugman 1991).


The literature on economic integration also provides interesting insights into
the distribution of benefits in a trade bloc. More specifically, it suggests that the
distribution of benefits depends on country characteristics and that the formation
of a trade bloc is likely to affect members in a different manner. For example,
the benefits of bloc membership are likely to be high for landlocked countries,
particularly if some members of the bloc have access to the sea and the formation
of the bloc results in the development of regional infrastructure. Furthermore, large
countries are in a better position to exploit opportunities created in trade blocs and
so may derive more benefits. Venables (2003) suggests that in a regional trade
agreement between developing countries, the relatively large countries attract the
manufacturing sectors and so derive most of the benefits from the partnership. This
leads to income divergence rather than convergence, as is the case in partnerships




49CHAPTER 2. Intra-African Trade: Drivers, Challenges and Policy Options


between developed countries. The reason for this outcome is that in the framework
under consideration, integration benefits countries that have characteristics closer
to the world average, which in the case of developed-country trade blocs tend
to be the poorer members, while in the case of developing-country trade blocs
they tend to be the richer members of the bloc (Collier, 2008). The distribution of
benefits in African regional trade blocs will to a large extent affect the effectiveness
and sustainability of these blocs. It played a pivotal role in the collapse of the East
African Community in 1977 and is a contentious issue in other regional economic
communities, particularly in ECOWAS, where Nigeria is a dominant member, and
SADC, where South Africa is a relatively large and wealthy member. Therefore, as
African countries step up efforts to boost intra-African trade through strengthening
regional trade blocs, it is crucial that they establish credible mechanisms and means
to ensure promotion of equitable development among members.


The growing interest by policymakers in trade blocs as vehicles for promoting
trade and growth has generated interest in assessing the impact of regional trade
agreements on trade and growth (Schiff and Winters, 2003). Gravity models have
been used to examine the impact of trade blocs on intraregional trade. Cernat
(2001) found that African trade blocs did have a positive impact on intraregional
trade. In contrast, Longo and Sekkat (2004) found no evidence that trade blocs in
Africa boosted intraregional trade. Regarding the growth effects of trade blocs, the
earlier empirical studies in this area focused mainly on the experience of developed
countries, particularly the European Union, and the results have been largely
inconclusive. For example, while Italianer (1994) found that regional integration in
the European Union had a positive effect on trade and growth, Vamvakidis (1999)
found that it had a negative impact on growth and investment, although in some
cases the estimates were statistically insignificant. Furthermore, Wooster, Banda
and Dube (2008) found that for the European Union, intraregional trade had a lesser
impact on per capita output growth than extraregional trade. Using a different
approach, Liu (2012) provided evidence indicating that regional trade blocs among
non-WTO members promote growth while those among WTO members have an
insignificant growth effect.


Empirical studies have also been conducted on the impact of trade blocs on
growth, based on the experiences of developing countries. For example, Jalles
(2012) suggests that regional trade blocs in South and South-East Asia have an
unclear and in some cases potentially detrimental impact on growth. Regarding
Africa, Sandberg and Martin (2001) found that intra-SADC trade had a negative but




50 Economic Development in Africa Report 2013


statistically insignificant impact on growth in the region. However, Kamau (2010)
provides evidence indicating that COMESA, EAC and SADC promote growth in
the region. There is also strong evidence, using data for ECOWAS, that regional
exports contribute to productivity growth, diversification and employment creation
(von Uexkull, 2012). There are two inferences that people often draw from the
mixed evidence on the impact of trade blocs on growth. The first is to argue, as do
most opponents of regionalism, that trade blocs are a barrier to growth and that
broad liberalization is much better than preferential liberalization (Schiff and Winters,
2003). The second, and much more balanced, interpretation is that trade blocs can
make a positive contribution to growth but that the ultimate impact depends on the
characteristics of its members and the design and implementation of agreements
(UNCTAD, 2009). A relevant question to ask at this stage is why intra-African
trade is low, especially given the relatively high number of regional trade blocs on
the continent. The next section provides explanations for African regional trade
performance.


C. UNDERSTANDING AFRICAN REGIONAL
TRADE PERFORMANCE


One of the characteristics of the African continent is the multiplicity of national
borders that act as barriers to intra-African trade. With 54 countries, Africa has very
small national markets. In 2010, for example, 24 out of 53 African countries had a
population of less than 10 million, with 17 of those 24 countries having a population
of less than 5 million. Moreover, the GDP of 29 countries was less than $10 billion,
with 18 countries having less than $5 billion of GDP. These economies are smaller
than a number of large corporations. In 2012, for example, 266 of the Fortune
500 companies had revenues that were higher than $10 billion.8 The existence of
too many small economies limits the potential for economies of scale, hampering
production efficiency and competitiveness. Furthermore, crossing too many borders
and complying with different trade regimes implies weak market integration, a factor
that discourages intra-African trade. A detailed discussion of the factors holding
intra-African trade below its potential is proposed in the following sections. Three
categories of factors are highlighted: poor competitiveness in production and trade;
product and market concentration; and external factors that affect the capacity of
African economies to trade with each other.




51CHAPTER 2. Intra-African Trade: Drivers, Challenges and Policy Options


Poor competitiveness in production and trade


Intra-African trade is hampered by the weak supply response to regional market
opportunities and lack of export competitiveness. Firms in most African countries
face high production costs due to poor access to production factors such as
electricity, credit, skilled labour and other inputs. As a result, they find it difficult
to produce competitively. Africa lags behind other developing-country regions in
terms of physical and social infrastructure. Road density on the continent is 7.2
kilometres per 100 square kilometres of arable land compared to 127 for non-
African developing countries. Electricity production is 398 megawatts per million
population compared to 2,475 for non-African developing countries. Furthermore,
only 67 per cent of the population have access to water and 35 per cent have
access to improved sanitation facilities. The corresponding figures for non-African
developing countries are 85 and 70 per cent respectively (Beck et al., 2011). The
continent also has a very low Internet penetration rate: 3 per cent relative to the
world average of 14 per cent. In addition, infrastructure services cost twice as
much in Africa as in other developing-country regions.


Surveys of manufacturing firms in the textiles sectors in Kenya, Lesotho,
Madagascar and Swaziland show that the cost of production is affected by power
outages and access to water supply. Furthermore, more than 50 per cent of African
firms surveyed between 2006 and 2010 identified the lack of access to reliable
electricity as the major constraint to their business. In comparison, transportation
was identified as the major constraint by 27.8 per cent of firms (Oseni, 2012). Many
firms rely on their own generators to produce electricity, albeit at a higher cost,
tying up an important part of their capital, particularly for small and medium-sized
enterprises (SMEs). This imposes additional costs on firms and diminishes their
competitiveness. Moreover, relying on a generator to produce electricity is not only
expensive but also limits the possibility of achieving economies of scale in view
of the limited amount of energy a generator can produce (Foster and Steinbuks,
2009). In addition to high production costs, African firms also face relatively high
trade costs stemming from tariff and non-tariff barriers, transaction costs (transport
and insurance) and administrative barriers.


Intra-African trade is still faced with relatively high tariffs. An African exporter
to markets outside the continent faces an average protection rate of 2.5 per cent,
largely as a result of the preferences African exporters enjoy under the Generalized
System of Preferences, the Everything But Arms initiative and the African Growth




52 Economic Development in Africa Report 2013


and Opportunity Act. However, if the same good is exported to an African market,
the exporter faces an average applied protection rate of 8.7 per cent. This average
rate of protection varies across countries and products with higher rates of
protection characterizing particularly trade between sub-Saharan and North African
countries. For example, on average, Ethiopian exports to Tunisia face a protection
rate of 50.4 per cent while a Tunisian exporter to Ethiopia faces a protection rate of
15.7 per cent. Moroccan exports to Nigeria face an average protection rate of 65.7
per cent while a Nigerian exporting to Morocco faces an average protection rate of
17.6 per cent (Mevel and Karingi, 2012).


African countries also impose non-tariff barriers in the form of price controls,
product standards, discriminatory foreign exchange allocation, imposition of quotas,
non-automatic licensing, administrative hurdles, excessive and unnecessary
document requirements and unnecessary delays (see box 1). Given the nature of
non-tariff barriers, their effect on trade is hard to quantify. Nevertheless, it is widely
believed that these barriers have a negative effect on intra-African trade and need to
be addressed. Furthermore, there are concerns that the reduction of tariff barriers
in Africa may make the use of non-tariff barriers more pervasive as countries seek
to protect their markets from external competition. Empirical evidence suggests
that this could indeed be the case. In SADC, for example, econometric evidence
suggests that non-tariff barriers reduce intra-SADC trade, while increasing exports
of non-SADC countries into the community (Keane et al., 2010). As a result, non-
tariff barriers have created a perverse incentive structure which penalizes instead of
encouraging intra-SADC trade. In this context, African countries need to take more
proactive steps to address the issue of non-tariff barriers inhibiting intra-African
trade.


Transaction costs (transport and insurance costs) are also very high in Africa
and are an impediment to the growth of intra-African trade. Business surveys reveal
that road transport is the main mode of moving goods in the context of intra-African
trade (UNCTAD, 2009). The quality of the roads, particularly the major roads linking
regional markets, is therefore of particular importance to the competitiveness of
African goods. Africa currently has fewer kilometres of roads than it did 30 years
ago and the region has the highest costs for transporting goods in the world. In
Central Africa, for example, transporting one ton of goods along the route from
Douala in Cameroon to N’Djamena in Chad costs $0.11 per kilometre, which is
more than twice the cost in Western Europe, where the cost is $0.05, and more
than five times the cost in Pakistan ($0.02). On the whole, high transport prices in




53CHAPTER 2. Intra-African Trade: Drivers, Challenges and Policy Options


Africa have been found to harm the expansion of trade more than tariff and non-
tariff trade restrictions (Teravaninthorn and Raballand, 2008).


On average, transaction costs are higher for intra-African trade than for trade
with the rest of the world. For example, average transport costs in Africa represent
7.7 per cent of total export value, which is twice the world average of 3.7 per
cent. The persistence of high intra-African trade costs more generally, is a reflection
of the fact that the continent is still affected by its colonial trade patterns, where
infrastructure and trade policies were set in order to orient trade towards countries
out of the continent, mostly the former colonial powers. Boosting intra-African
trade will require extensive changes in trade policy and the establishment of new
infrastructure specifically designed to foster it.


Disaggregated data show that in some sectors and countries transport costs
represent an even higher proportion of total export value than the average of 7.7
per cent (UNDP, 2011a). In landlocked countries, poor transport infrastructure not
only increases trade costs but also production costs, due to uncertainty over the
supply of inputs. As a result of the unreliability of supply routes, firms in landlocked
countries face high levels of uncertainty over their production costs and hence


Box 1. Negotiating trade facilitation measures


In an effort to reduce non-tariff barriers hampering trade between Rwanda and other EAC
countries, Rwanda has initiated bilateral negotiations with its partners over the last two
years. In this regard, a memorandum of understanding was signed between Rwanda and
the United Republic of Tanzania on 17 October 2012. The two countries committed to take
action in order to boost their bilateral trade. Commitments included in the memorandum
illustrate the wide range of issues at stake when negotiating the removal of non-tariff barriers.
Some of the commitments made by them are to fast-track the construction of a one-stop
border post at one of the border crossings between the two countries; ensure interfacing
of the customs information technology systems used by the revenue authorities of the
two countries; consider adopting and accepting a single customs bond in both countries;
facilitate prompt clearance of goods by adopting a 24-hour operation system at all border
crossings; speed up coverage of the electronic cargo tracking system; reduce delays by
putting in place an optimal number of weighbridges, road blocks and checkpoints; widely
disseminate information on the availability of police escorts after 1800 hours for convoys
of 10 trucks or more between Isaka and Rusumo; issue simplified certificates of origin for
goods originating in EAC free of charge; and exchange lists of sensitive commodities.


Source: Joint communiqué of the bilateral meeting between the Ministry of Trade and Industry
of Rwanda and the Ministry of Industry and Trade of the United Republic of Tanzania,
Kigali, 17 October 2012, available at http://www.minicom.gov.rw/IMG/pdf/JOINT_
COMMUNIQUE.pdf.




54 Economic Development in Africa Report 2013


their competitiveness. Firms in Burundi and Zimbabwe, for example, are forced to
hold higher than optimal inventories of imported inputs, covering up to one year of
production, in order to prevent stocking-out. High inventories, although necessary,
increase production costs, thus diminishing the competitiveness of the goods
produced (Nkurunziza, 2012).


Product and market concentration


The external trade of African countries is concentrated around a limited range
of products. At 0.411 in 2011, the export concentration index in Africa is twice
the value of the second highest index, 0.203 in South Asia. Eastern Asia, a region
that has been cited as a model in terms of export diversification in the last few
decades has a concentration index of 0.103, a quarter of the value in Africa. In
addition, many of the products exported are not appealing to consumers in African
countries. For example, the 15 landlocked countries in Africa (before South Sudan
became independent) export primarily diamonds, uranium, coffee, cotton, textiles
and garments, livestock, tobacco, sugar and copper. Most of these products are
not vital for intra-African trade as they are not typically used either for consumption
or as inputs in the industries of other African countries (Nkurunziza, 2012).


While the narrow production base in Africa restricts regional trade, it does
not fully explain intraregional trade dynamics. In ECOWAS, for example, despite
the existence of a narrow range of exported products, an index of the region’s
comparative advantage shows that exports from countries within the region differ
considerably from their imports. Hence, there is potential for increasing intraregional
trade, particularly in food and agricultural products where African countries have
a current comparative advantage. Regionalism increases the potential for trade,
owing to economies of scale, product differentiation and intra-industry trade.
Product concentration may therefore be seen as a short-term constraint to intra-
African trade. Over time, the existence of a large market can alter existing patterns
by developing new products, reallocating resources towards new industries and
rationalizing existing ones (UNCTAD, 2009; Keane et al., 2010). Hence, the political
commitment to boosting intra-African trade will need to go hand in hand with
measures to boost industrialization and intra-industry trade development.


With respect to market concentration, some countries depend on a handful of
export markets. In SADC, for example, South Africa is such a dominant economy
that it accounts for a large proportion of the imports by other SADC countries. In




55CHAPTER 2. Intra-African Trade: Drivers, Challenges and Policy Options


the second half of the decade beginning in 2000, about 59 per cent of intra-SADC
imports were sourced in South Africa. That was a drop from a decade earlier when
intra-SADC imports from South Africa represented 81 per cent of total intraregional
imports (Keane et al., 2010). The concentration of trade on a few countries is
not particular to Southern Africa. In EAC, Kenya dominates intraregional exports,
accounting for nearly 75 per cent of total intra-EAC exports. In West Africa,
Nigeria, and to some extent Côte d’Ivoire, dominate the intraregional export trade,
accounting for about 70 per cent of total intraregional exports (UNCTAD, 2009).


External factors


Intra-African trade cannot be analysed in isolation from external factors that have
been shaping international trade. Globalization and trade liberalization in Africa have
intensified competition. What used to be local and regional markets are now part of
a relatively open global market. African consumers have become more exposed to
imported products, including from the emerging economies in the South, that are
cheaper alternatives to locally or regionally produced goods (Kaplinsky and Morris,
2008; Ighobor, 2013). This has contributed to deindustrialization, as evidenced by
the fact that the share of manufacturing in African GDP fell from 15 per cent in
1990 to 10 per cent in 2008 (UNCTAD and UNIDO, 2011). The implications of this
trend for intra-African trade and how African countries can rebuild their productive
capacities and attain competitiveness should be part of the new regional agenda
to boost intra-African trade.


There are other external factors that may not have a direct effect on intra-
African trade but could potentially be important determinants in future. UNCTAD
has identified a number of these factors in the past (UNCTAD, 2009), but at least
two of them, namely the economic partnership agreements and the African Growth
and Opportunity Act, are worth noting, given their relevance for the future of intra-
African trade. Economic partnership agreements have been under negotiation
between the European Union and regions in the African, Caribbean and Pacific
(ACP) group of countries for several years. Many issues have been raised as to
whether these agreements will strengthen or hamper regional integration in Africa,
including through a series of major publications assessing regional integration
in Africa, which have been produced since 2004 by ECA in collaboration with
the African Union Commission and the African Development Bank (AfDB). One
of these publications acknowledges that the potential benefit of the economic
partnership agreements could be great “If the negotiating groups adopt common




56 Economic Development in Africa Report 2013


external tariffs as a basis from which to make market-access offers to the European
Union in the comprehensive EPA agreements” (ECA, AUC and AfDB, 2010). In
this scenario, “…regional EPAs would contribute towards enhanced economies
of scale” and in addition, “The goal of enlarged regional markets could also begin
to be realized”. It is further argued that this could “stimulate investment, increase
domestic competition and promote the diffusion of technology”. Equally, however,
the report raises serious concerns about economic partnership agreements, in
particular the implications of the “reciprocity principle governing EPA negotiations”
and its impact on trade displacement in the regional economic communities.
The report concludes that, as a result of this principle, “The EPAs pose a major
challenge to the ability of African countries to raise inter- and intra-REC trade”. The
projections in the report suggest that, with reciprocal trade arrangements under
the economic partnership agreements, “European import surges could displace
intraregional exports or inter-African trade by up to 16 per cent” (ECA, AUC and
AfDB 2010). African Governments should factor these assessments by important
regional organizations such as ECA, the African Union Commission and AfDB into
their approach to economic partnership agreements.


There are other concerns that have been expressed about the agreements. For
example, it has been argued that Africa will lose substantial revenue if import taxes
on products from the European Union are totally removed. Although, the number of
countries that rely on customs for their revenues has been declining, some recent
estimates show that in the long run, African countries could lose up to 71 per cent of
their import tariff revenue on imports if they sign economic partnership agreements
(Fontagné et al., 2010). In signing such agreements, African countries need to study
carefully and employ effectively some of the provisions contained in the agreements
that could bring benefits. For example, they include provisions that allow ACP
countries to treat up to 20 per cent of the products that are potentially exported
by the European Union as sensitive products. This will allow African countries to
designate certain products that are traded regionally as sensitive products, thereby
protecting intra-African trade. Furthermore, in the long run, Africa should ensure
that the development provision included in the agreements supports intra-African
trade by requiring, in their negotiations, that the European Union provides additional
and targeted support for building the productive capacity of African economies in
order to enhance their productivity and competitiveness (Milner et al., 2011).


The African Growth and Opportunity Act offers unilateral preferential access to
the United States market for eligible goods exported from African countries that




57CHAPTER 2. Intra-African Trade: Drivers, Challenges and Policy Options


are party to the arrangement. Oil products dominate African exports under the act,
followed by textiles and clothing. Through its third country fabric provision (although
this does not come for free and only certain countries comply and benefit), the act
offers flexible rules of origin, allowing exporters of textiles and clothing to source
their fabrics in third countries where they are cheapest, including China. African
countries, particularly West African cotton producers, could consider transforming
their cotton into fabrics and exporting them to countries that are eligible under
the act. Sourcing fabrics from other African countries would encourage the
establishment of regional value chains, increasing intra-African trade while at the
same time supporting the industrialization of the continent.


D. ENHANCING IMPLEMENTATION OF
REGIONAL TRADE AGREEMENTS


Lifting several of the obstacles to expanding intra-African trade identified in
the previous sections will require the effective implementation of regional trade
agreements by African countries. More specifically, the removal of tariff and
non-tariff barriers to trade will contribute to expanding intra-African trade and
should rightly be on the African regional integration agenda. Due to concern over
possible short-run revenue losses that might arise from removing tariff barriers,
it is understandable that this is a contentious issue, particularly for small African
countries. But it is difficult to understand why countries are reluctant to adopt
common standards and regulations from which they are all likely to gain. African
regional economic communities have signed many agreements on removal of tariff
and non-tariff barriers. While some progress has been made in implementation
of these agreements, it is a well-known fact that the implementation rate has
generally been low and continues to hamper regional trade (ECA, AUC and AfDB
2012). Moreover, although some regional economic communities (COMESA, EAC,
ECCAS, ECOWAS and SADC) have set up free-trade areas as envisaged in the
Abuja Treaty, others have not reached this stage yet. Even among regional economic
communities that have established free-trade areas, lack of implementation of
regional trade agreements is also a major challenge. Table 14 presents information
on private sector perception of the extent to which selected ECOWAS member
States are implementing the ECOWAS trade liberalization scheme launched in
1990 and reaffirmed as part of the ECOWAS Revised Treaty in 1993. It shows
more than two decades after the scheme was launched, member States have not
fully implemented its provisions regarding free movement of persons, goods and




58 Economic Development in Africa Report 2013


transport. There are also problems of implementation in other regional economic
communities. For example, an article in The Independent newspaper of 14 October
2012, reported that Uganda sent a delegation to Kenya in 2012 to discuss the
imposition of a cash bond by the Kenya Ports Authority on Ugandan traders using
the Mombasa port, which Uganda considers as a non-tariff barrier against the spirit
of EAC trade agreements.


If African Governments want to make significant progress in boosting regional
integration they will have to make more effort to address the problem of lack of
implementation of regional agreements. Overlapping membership of regional
organizations, concern about ceding national sovereignty to regional organizations,
inadequate domestic financial resources and dependence on donor funding, setting
of unrealistic targets and deadlines and lack of effective mechanisms to compensate
potential losers from integration are some of the reasons for lack of implementation
of regional trade agreements. There is a need for African Governments to consider
taking the following actions to enhance implementation of regional agreements and
promote intra-African trade.


Leadership by relatively large and wealthy countries (Algeria, Egypt, Nigeria
and South Africa) is required to enhance implementation. These countries have
relatively better productive capacities to exploit opportunities from integration in
the short to medium term. They can facilitate the integration process by voluntarily
earmarking a small percentage of the value of their intra-African trade for setting
up an integration fund to build export capacity in smaller countries that may lose
from integration in the short run. In addition, resource-rich countries in the region
should also show more goodwill and commitment to the integration process by
contributing a small percentage of their resource revenue for the development of
regional infrastructure. Several countries have set up sovereign wealth funds and so
are capable of making these contributions if they wish. These gestures by countries


Table 14. Implementation of ECOWAS trade liberalization scheme by member States
(percentage of private sector respondents confirming implementation of the protocol)


Benin Burkina Faso
Côte


d’Ivoire Ghana Niger Nigeria Mali Togo


Free movement of persons 36 60 27 49 56 59 53 61


Free movement of goods 64 60 71 47 61 50 63 70


Free movement of transport 43 75 60 73 75 34 77 54


Source: West Africa Trade Hub technical report No.33, December 2009.




59CHAPTER 2. Intra-African Trade: Drivers, Challenges and Policy Options


that are both large and resource-rich will enhance implementation by sending a
clear signal to other African countries that they are committed to promoting regional
integration and are not pushing for integration to advance national over regional
priorities. Large and resource-rich countries should have the incentive to do this
if they adopt a long-term view of the development process because it is in their
interest, given that they cannot achieve sustained growth and development while
the rest of the continent experiences economic retrogression. National leadership
can also enhance implementation of regional programmes by giving them more
visibility and unblocking obstacles to implementation, as we have seen in the case
of the Presidential Infrastructure Champion Initiative projects championed by seven
African heads of State and Government.


Monitoring is also crucial to enhancing implementation of regional trade
agreements. The use of a monitoring tool, such as the internal market scorecard of
the European Union which measures the extent to which members have transposed
regional trade rules into national law by the agreed deadline, can put peer pressure
on members who have very low rates of implementation as it shames non-compliers
and empowers compliers. Regional institutions such as ECA and AfDB (that are to
some extent neutral in the process) should be mandated to compile and report on
this indicator every two years and the results should be presented at the African
Union summit.


Rationalizing regional economic communities or harmonizing agreements
across existing communities will also reduce compliance costs to members and
make implementation of commitments easier. Many African countries belong
to more than one regional economic community and more often than not they
have different tariff reduction schedules, rules of origin and ambition regarding
regional integration. Consequently, as a result of overlapping membership of
those communities, member States are faced with conflicting commitments which
makes implementation challenging even in situations where the political will to fulfil
commitments is present. The African Union attempted to address this issue by
recognizing only eight regional economic communities but it has not eliminated
the problem of overlapping membership. In this context, the tripartite free trade
arrangement between COMESA, EAC and SADC is an essential and timely step
in dealing with the challenge of overlapping membership of regional economic
communities and could serve as a model for communities in West, Central and
North Africa. This will set the stage for a continent-wide free-trade area, which is
the ultimate and long-term objective of the African Union.




60 Economic Development in Africa Report 2013


Being realistic in terms of setting objectives and deadlines for achievable targets
will play a crucial role in enhancing implementation of commitments. More often
than not African Governments set ambitious targets in action plans, knowing full
well that the deadlines for achieving these are not realistic, given weak domestic
and institutional capacities and binding financial and human resources constraints.
Furthermore, action plans are developed without any credible mechanism for either
mobilizing the required finance or enforcing implementation. It is time for African
leaders to move away from signing treaties and developing action plans to delivery
and implementation. As Donald Kaberuka (President of AfDB) said at the 2012
World Economic Forum on Africa, “The most dangerous thing is to confuse an
action plan with action.” The minimum integration programme, which involves a
set of projects or activities which regional economic communities and member
States have agreed to carry out to speed up the integration process, is an example
of a well-intentioned programme with unrealistic deadlines. Although the first
phase of the plan, covering 16 identified priority sectors, was for the period from
2009 to 2012, costing for the action plan was only endorsed by the coordination
meeting of the African Union Commission, the regional economic communities,
ECA and AfDB in January 2012, leaving very little time for resource mobilization
and implementation.


The activities of Africa’s development partners also have an impact on the ability
and willingness of members to implement regional agreements. The increase in the
number of bilateral partnerships with development partners is a burden on African
countries both in terms of human and financial resources. It also encourages a race
to the bottom and creates an incentive for African Governments to pursue national
interests over regional priorities, thereby undermining efforts to strengthen regional
integration. Development partners have indicated that they are supportive of the
African regional integration agenda. Now is the time for them to take concrete
actions to strengthen integration in Africa by striking a good balance between their
national interests and African development needs, for it is only by achieving such a
balance that they can lay the foundation for a long and mutually beneficial partnership
with Africa. The African Union Commission has indicated it intends to make an
effort to address this issue as part of its strategic plan over the period from 2013 to
2063. At the African Union summit in January 2013, the Chair of the African Union
Commission in her statement to the Executive Council stated that Africa should
impose a moratorium on new partnerships with development partners. This is a
step in the right direction and should be welcomed and supported by development
partners. Dependence on donor resources by African regional organizations often




61CHAPTER 2. Intra-African Trade: Drivers, Challenges and Policy Options


compels member States to consider donor priorities as more important than regional
interests, thereby affecting implementation as well as ownership of development
programmes and outcomes. In 2013, development partners will account for 56
per cent of the total budget of the African Union Commission, estimated at $277.1
million. The figure is much higher if the focus is on the programmes budget, where
development partners account for 97 per cent and African countries for 3 per cent.
Dependence on donor resources also presents challenges for the implementation
of regional agreements because donors often prefer dealing with national rather
than regional authorities. The key reason why African regional organizations
depend excessively on donor resources is that many member States have not met
their financial obligations to the organization. At the time of the nineteenth African
Union summit in July 2012, only 11 out of 54 countries had fully met their financial
obligations. In 2011, the African Union took an important step towards addressing
the problem of dependence on donor resources by setting up a high-level panel on
alternative financing chaired by Olusegun Obasanjo, former President of Nigeria.
The outcome of the work of the panel should be taken seriously as it will go a
long way towards giving African countries more ownership of their development
strategies, programmes and outcomes. It will also enhance implementation of
existing regional trade agreements and pave the way for expanding intra-African
trade.






3CHAPTER
THE PRIVATE SECTOR,


ENTERPRISES AND
PRODUCTIVITY




64 Economic Development in Africa Report 2013


A. INTRODUCTION


Africa has a rich and long history of attempts to promote trade through
regional economic cooperation. However, the focus of regional trade initiatives
on the continent has been more on the elimination of trade barriers and less on
the development of productive capacities, particularly in manufacturing and agro-
related industries. While lifting tariff and non-tariff barriers to intra-African trade is
important, policymakers must also foster entrepreneurship and address supply-
side constraints inhibiting the ability of the private sector to produce and export.
Elimination of tariffs across countries will not have any significant impact on intra-
African trade if market imperfections on the input side (for example in credit, labour
and capital markets) are not adequately dealt with. In this regard, there is a need
for sustained measures to boost productive capacity to enable African countries to
meet regional demand that may be created by eliminating barriers to regional trade.
If this is not done there is a risk that domestic firms will be unable to take advantage
of the market access opportunities created by regional integration, leaving ample
space for foreign firms to capture most of the benefits from the process, with dire
consequences for domestic enterprise and industrial development.


The nature of the goods produced and exported by African enterprises matters
for growth and the expansion of intra-African trade, both from a demand and a
supply perspective. On the demand side, manufacturing products have high income
elasticity of demand, indicating that they create more room for export market
expansion relative to primary commodities. On the supply side, manufacturing is also
of strategic importance because its growth is not constrained by land, as is the case
for agriculture, and so in economies with rapid population growth and increasing
pressure on land, diversification into manufacturing will be necessary to boost and
sustain regional trade. The joint UNCTAD and UNIDO Economic Development in
Africa Report 2011 shows that manufacturing accounts for about 10 per cent of
African GDP compared to 35 per cent in East Asia and the Pacific and 16 per cent
for Latin America and the Caribbean. In terms of exports, manufacturing represents
about 39 per cent of total merchandise exports compared to about 89 per cent
for East Asia and the Pacific and 61 per cent for Latin America and the Caribbean.
Furthermore, Africa accounts for only 1 per cent of global manufacturing value
added and global manufacturing exports.


The fact that African countries do not have diversified production and export
structures limits the possibilities for regional trade. In this context, there is a need




65CHAPTER 3. The Private Sector, Enterprises and Productivity


for structural transformation of African economies to unlock the trade potential
of the continent. The key question then is how to accomplish this objective and,
more importantly, what kinds of private sector enterprises are required. This
chapter highlights and discusses key distinctive features of the African enterprise
structure that have important implications for expanding intra-African trade. It also
identifies characteristics that enable enterprises to enter the export market, using
information obtained from surveys of manufacturing firms in Africa. Finally, it offers
policy recommendations on how to unlock private sector dynamism to boost intra-
African trade.


B. FEATURES OF
THE ENTERPRISE STRUCTURE IN AFRICA


There are five distinctive features of the enterprise structure in Africa that need
to be addressed by African Governments if they are to succeed in promoting
entrepreneurship, private sector development and intra-African trade (UNIDO
2008; UNCTAD and UNIDO, 2011). These are (a) high and rising informality; (b)
the small size of African enterprises; (c) weak inter-firm linkages; (d) the low level of
competitiveness; and (e) the lack of innovation capabilities.


High and rising informality


A common feature of African countries is that they have relatively large informal
economies. Although it is difficult to give a precise indication of the degree of
informality in Africa, recent estimates suggest that for sub-Saharan Africa, the
informal economy accounts for about 38 per cent of GDP compared to 18 per cent
for East Asia and the Pacific, 27 per cent for the Middle East and North Africa, 25
per cent for South Asia and 35 per cent for Latin America and the Caribbean (see
table 15). There are also indications that the size of the informal economy in Africa is
increasing. For example, the share of informal employment as a percentage of local
non-agricultural employment rose from 40 per cent in the period from 1985 to 1989
to 61 per cent over the period from 2000 to 2007 (Schneider 2012). Interestingly,
informality accounts for a larger source of employment for women than men. In the
period from 2000 to 2007, the share of informal employment in non-agricultural
employment was 77 per cent for women and 63 per cent for men. This difference
across gender lines in some ways reflects the fact that women have much more
difficulty in establishing formal businesses than men.




66 Economic Development in Africa Report 2013


It has been suggested that one of the main reasons why firms often choose to
remain informal is that it allows them to avoid the cost of paying taxes and complying
with regulations. Informality inhibits enterprise development because informal
enterprises are not registered businesses and therefore operate outside the legal
framework, which means they have very limited access to the basic infrastructure
and finance needed for growth. There is a need for policy actions to stem the
rising level of informality in Africa as a crucial step towards enhancing private
sector development and promoting intra-African trade. This requires facilitation
of the transition of firms from the informal to the formal economy by simplifying
the procedures for obtaining permits for business registration; government
provision of information to all citizens on how to start a business and the rights and
responsibilities of entrepreneurs; simplifying the tax system to reduce the costs and
difficulties of complying with laws and regulations; and strengthening the capacity
of government agencies to administer laws and regulations.


African firms are relatively small


Firm size in Africa is highly skewed towards micro- and small-scale enterprises.
While some large firms exist on the continent, medium-scale enterprises that play
a crucial role in the economic development of emerging and developed economies
are either absent or few in number. Surveys of manufacturing enterprises indicate
that the average number of employees in manufacturing firms in sub-Saharan
Africa is 47, compared to 171 in Malaysia, 195 in Vietnam, 393 in Thailand and 977
in China. Furthermore, recent evidence indicates that not only informal firms but


Table 15. The informal economy as a percentage of GDP


Region Informal economyas a percentage of GDP


Sub-Saharan Africa 37.6


East Asia and Pacific 17.5


Europe and Central Asia 36.4


Latin America and Caribbean 34.7


Middle East and North Africa 27.3


High-income OECD 13.4


South Asia 25.0


World 17.1


Source: Schneider (2012).




67CHAPTER 3. The Private Sector, Enterprises and Productivity


also formal firms are very small in Africa (Dinh and Clarke 2012). The relatively small
size of African firms is a source of concern because it means they do not operate
at an optimum scale and so cannot benefit from the economies of scale needed to
be competitive.


The problem of the missing middle in Africa is compounded by the fact that there
is also very little upward mobility of firms on the continent. The lack of transition
from small to medium and large enterprises is in part due to the high hazard rates
of small-scale enterprises, lack of market information and weak access to finance
and business services. The small size of African firms, their high hazard rates and
the phenomenon of high and rising informality impose a serious constraint on the
growth of firms and the expansion of intra-African trade. African Governments
should facilitate the upward mobility of enterprises and promote the growth of firms
by increasing investment in training and education programmes for entrepreneurs
and providing better access to finance and business services, particularly for SMEs.
The establishment of guarantee schemes and also credit bureaux and registries (to
reduce information asymmetry between lenders and borrowers) are some of the
mechanisms that can enhance access to finance for SMEs. However, the need for
upward mobility of enterprises does not imply that Governments should promote
only SMEs. They should also support large-scale enterprises to enhance their
survival rates and their capacity to produce and export. Strengthening development
banks will enhance the access of firms to the long-term finance needed for the
growth and survival of exporting firms. More effective regional cooperation can also
increase the survival rates of African firms, given recent evidence indicating that
trade cooperation initiatives can reduce hazard rates for African exports, thereby
enhancing export survival and growth (Kamuganga 2012).


Weak inter-firm linkages


African firms also exhibit weak inter-firm linkages. For example, there is limited
linkage between the formal and informal economies, between small and large
firms and between domestic and foreign firms. Intense competition arising from
global economic integration has created the need for large firms (both domestic
and foreign) to establish business linkages with SMEs by integrating them into their
supply chains. Such linkages enable large firms to reduce input costs, increase
productivity, shorten lead times and focus on their core competencies. Interaction
between SMEs and large firms is also a good source of learning and technology
adoption for SMEs. It can also enhance access to finance, particularly trade credit,
and help SMEs grow, thereby creating employment in the economy.




68 Economic Development in Africa Report 2013


As a result of weak inter-firm linkages, SMEs in Africa are unable to benefit from
the skills base and innovation capabilities of large firms, with dire consequences
for enterprise development and the growth of firms. Some of the reasons for weak
inter-firm linkages are that SMEs often have limited access to finance and market
information, lack the necessary skills both in management and production and are
unable to meet product quality standards (Jenkins et al., 2007). Developing the
capacity of SMEs to meet the needs of large firms through training and the provision
of business services and market information should therefore be a priority for African
Governments. The development of industrial clusters is also a useful and proven
way to promote inter-firm linkages. They permit labour market pooling, enhance
access to intermediate inputs and services and create knowledge spillovers. As a
result, they facilitate interaction among firms, reduce transaction costs and increase
collective efficiency. Large firms can also contribute to the development of business
linkages by providing SMEs with information on opportunities in their supply chains
and also invest in education and training aimed at building the skills of the local
community. Jenkins et al. (2007) argue that large firms are interested in developing
relationships with SMEs and are increasingly doing so, even though it is costly to
develop and maintain these relationships.


As regards the linkages between FDI and the performance of domestic firms,
a recent investment survey of African countries suggests that transnational
corporations in Africa generally have a negative effect on domestic firms operating
in the same sector, largely due to the fact that they reduce the ability of domestic
firms to compete in the market. However, they have a positive effect on domestic
firms operating in other sectors of the economy (UNIDO, 2011). This suggests that
while FDI has the potential to contribute to trade and development in Africa, the
benefits are not automatic and African countries will have to find ways to reap the
benefits, perhaps through seeking to attract more FDI into priority sectors, such
as manufacturing, and also strengthening linkages between FDI and the domestic
economy. The promotion of joint ventures between foreign and domestic firms and
the use of economic incentives to encourage foreign firms to source inputs locally
are some policy options for strengthening those linkages.


Low levels of export competitiveness


Enhancing the competitiveness of domestic firms is critical to promoting intra-
African trade. Africa currently accounts for less than 4 per cent of global trade, due




69CHAPTER 3. The Private Sector, Enterprises and Productivity


in part to its low level of international competitiveness. The global competitiveness
of countries in Africa ranks low compared to other developing countries. For
instance, in the Global Competitiveness Index for 2012-2013 compiled by the
World Economic Forum, the most competitive African economy, South Africa,
ranked 54th out of 144 countries and the second most competitive, Mauritius,
ranked 55th. In developing Asia, Malaysia was the most competitive economy
with a ranking of 25th, followed by Brunei Darussalam at 28th. Among the 20
least competitive economies in the world, there were 14 African countries, with
Guinea, Sierra Leone and Burundi among the 4 least competitive economies in the
world. Furthermore, the Africa Competitiveness Report 2009 indicates that Africa
is 19 per cent less competitive than East Asia and 18 per cent less competitive
than South Asia, based on cost shares as indicators of competitiveness. In the
report, Mauritius, Morocco, Namibia, South Africa and Tunisia are listed as the best
performers in Africa based on the enabling trade index, which reflects how factors,
policies and services within a given country facilitate the free flow of goods over
borders and to destinations. However out of 118 countries included in the index,
only Mauritius and Tunisia ranked among the top 50.


Lack of export competitiveness can arise from low labour productivity and also
high labour costs. Recent studies indicate that the productivity of firms in sub-
Saharan Africa is lower than in most of the other developing-country regions. For
example, the mean labour productivity in sub-Saharan Africa measured in 2005
United States dollars is $4,734 per worker compared to $6,631 in East Asia (Dinh
and Clarke 2012). Low productivity in Africa is to some extent related to the issue
of firm size because African firms tend to be small relative to those in other regions
and it has been shown that small firms are generally less productive than large
firms. Other factors that could account for low levels of export competitiveness
include low levels of education and skills among workers, low capital intensity, weak
infrastructure, poor access to finance, particularly for investment and training, lack of
exporting experience and macroeconomic and political instability – which increase
country risk and hence the cost of capital. African Governments should address the
constraints on intra-African trade imposed by the lack of competitiveness of African
enterprises through, for example, subsidizing the cost of factor inputs, improving
infrastructure and providing better access to finance, for example through the
establishment of credit bureaux and registries to reduce information asymmetry
between lenders and borrowers.




70 Economic Development in Africa Report 2013


Lack of innovation capabilities


The development of innovation capabilities is crucial to withstanding
international competition and taking advantage of trading opportunities (UNCTAD
and UNIDO, 2011). Firms that survive and are successful in global markets tend to
be those that are able to innovate and respond to new opportunities and a rapidly
changing market environment. As emerging economies with open and outward-
oriented trade regimes, African countries cannot afford to ignore or escape the
effects of these fundamental changes in the global economy and their implications
for competitiveness at both regional and global levels. With growing knowledge
intensity of production and its generalization across all sectors of the economy,
increasingly knowledge inputs, in particular investment in new technologies,
innovation capability and the skills associated with them, have become important
components of production activities and in some cases, overshadow investments
in tangible goods such as machinery and equipment. Moreover, this trend is not
confined exclusively to large firms, high-tech industries or advanced economies
but also affects firms in developing countries and the so-called traditional industries
such as textile, forestry, horticulture, leather and food processing.


In conjunction with this trend, the ability to learn, innovate, produce and utilize
knowledge, initiate organizational changes and generally adjust rapidly to changing
market conditions at the level of the firm have become important determinants of
competitiveness. This is not to imply that other factors, such as product price or
cheap labour, no longer hold dominant positions as competitive factors. On the
contrary, the cost of production still matters and in fact, for some products and
markets, it is an important source of competitive advantage. However, dynamic
enterprises today are those that compete not only on price but also on the basis
of their ability to acquire knowledge and sustain a process of innovation: designing
new products, adapting existing technologies to their needs, ensuring high-quality
output, modifying product processes and improving eco-efficiency. This calls for
investment and policies that encourage knowledge flows and innovative activities,
including the generation of a highly skilled labour force through formal learning
and on the job training (Kraemer-Mbula and Wamae, 2010). Unfortunately, African
countries generally have a very weak knowledge base and lack enterprises with
innovative capabilities.


One way African countries can develop their innovative capabilities is by
investing in research and development and encouraging the commercialization of
the results through linkages with private sector firms. Indeed, for many policymakers




71CHAPTER 3. The Private Sector, Enterprises and Productivity


in Africa, the process of innovation is often synonymous with inventions or major
technological breakthroughs that take place in specialized scientific or research
and development centres. Although such activities are vital for advancing the
frontiers of technology, they contrast radically with the reality of the innovative
process in a highly competitive environment. In the current dynamic and open
market environment, innovative activities are aimed at maintaining competitive
advantage and tend to be continuous, incremental and adaptive and to take place
predominantly at the enterprise level. They require interaction between key agents
in the production system, for example between users and producers, between
bodies in the knowledge producing sector, such as universities and research and
development institutions and enterprises, and between domestic and foreign
enterprises. They also need investment in learning, including at the enterprise level.


The notion of innovation, as defined by UNCTAD, refers to “a process by which
firms master and implement the design and production of goods and services that
are new to them, irrespective of whether or not they are new to their competitors
— domestic or foreign.” Defined as such, the innovation process encompasses
the wide range of incremental changes that enterprises undertake in order to
remain competitive and profitable through improvements in the technologies
they use, in product design, technical performance and product quality and by
introducing changes in organizational structures, management style, marketing and
maintenance routines, as well as other knowledge-intensive elements of production.
These types of innovative actions at the level of the firm have kept both large and
small firms from the East Asian region competitive in global markets for a lengthy
period. Unfortunately, however, in Africa and in many other developing countries,
efforts by enterprises to introduce such changes receive very little attention, if at
all, from policymakers, as they are not considered innovative activities. Innovation
is considered to be those research and development activities by research centres,
universities or big firms aimed at the invention of new technology or new products
or processes that push forward the frontiers of knowledge. It is important that this
misconception is corrected and that African countries begin to see that the efforts
of enterprises to remain competitive by adopting all sorts of minor changes and
innovative activities are as important from a trade and competitiveness perspective
as research and development activities by the public sector, research centres or
large private firms.


Thus, while investment in research and development is necessary and can
stimulate innovation and enhance the capacity of domestic firms to imitate and
absorb foreign technologies, it can do so only if investment in research and




72 Economic Development in Africa Report 2013


development is geared to promoting innovation at the level of the firm, rather than
more general research to enhance scientific capacity. In this regard, there is a need
for African Governments to enhance linkages between universities and research
institutes on the one hand and domestic and foreign firms on the other. This will
ensure that they address the innovation needs of the private sector and enhance
their capacity to adapt, imitate and absorb existing technologies (see box 2).


There is also a need for African Governments to use economic incentives to
support firms directly in developing the innovation capabilities that are critical for export
success. African countries should also take advantage of the opportunities created
by the growing role of large developing countries in innovation and technological
change. This is particularly important because the technologies produced by other
developing countries are likely to be more appropriate and easier to adapt than
those from more advanced economies. In a recent survey conducted for the 2011
African Economic Outlook, about 60 per cent of respondents felt that developing-
country partners are typically most effective at meeting the development objectives
of African countries in the area of innovation. In this context, there is a need for
African countries to strengthen efforts to attract more FDI from developing-country
partners, particularly in sectors crucial for promoting structural transformation.


Box 2. Building capacity for innovation through linkages between universities and industry


The successful partnership between Nestlé Nigeria and the University of Agriculture in
Abeokuta (UNAAB), Nigeria, illustrates the importance of university-industry linkages in
building capacity for innovation in African countries. In 1999 Nestlé was facing challenges in
meeting its demand for high quality soybeans used for producing baby foods. It recognized
that UNAAB had better knowledge than it did of local sourcing of soybeans and started
a joint project called the UNAAB-Nestlé popularization and production project. The aim of
the project was to stimulate the interest of local farmers in producing high-quality soybeans
that would meet the needs and quality standards of Nestlé and also improve the welfare
of the farmers.


Until 1999, Nestlé had most of its farms in northern Nigeria. Although these farms were
relatively inefficient, Nestlé relied on them because it assumed that soybeans could not be
grown in the south-west of the country, due to high rainfall which it considered damaging
to soybeans prior to harvesting. But as a result of research collaboration with UNAAB, it
discovered that soybeans could be profitably harvested in the south-west. The discovery
of this new process for growing soybeans provided Nestlé with an alternative and cheaper
source of supply of high-quality soybeans. It also boosted UNAAB extension activities,
popularized its model of soybean production in the south-west and built local capacity for
innovation at the farm level. Furthermore, it enhanced technology adoption for soybean
processing and made south-western Nigeria an important producer of soybeans, thereby
improving the livelihoods of people in the region.


Source: Juma 2011.




73CHAPTER 3. The Private Sector, Enterprises and Productivity


C. MANUFACTURING FIRMS,
EXPORTS AND PRODUCTIVITY


This section uses the results of a series of surveys to provide comparative
information on the performance of manufacturing firms in Africa and how that is
affected by the enterprise structure of Africa. In doing so, it seeks to provide a
better understanding of why some firms export while others do not. It also provides
a basis for understanding the drivers of regional trade relative to external trade.
There are two levels at which the issue of why some firms export while others
do not can be addressed. The first is to seek an explanation for exporting at the
level of the enterprise — farm or firm — and the second is at a more macro level
where the focus is on factors affecting the overall demand for exports and factors
that increase their supply. The former approach, with which we begin, focuses on
factors that differ across firms.


Firm size, efficiency and exporting


A wide range of factors such as firm size and firm-level efficiency have been
identified as important for export participation by domestic firms. Rankin, Söderbom
and Teal (2006) provide comparative survey data for African firms in five countries
— Ghana, Kenya, Nigeria, South Africa and the United Republic of Tanzania —
which can be used to examine the relationship between exporting by African firms
on the one hand and firm size and efficiency on the other. Although the survey
covers only five countries, the sample is representative of the broad groups of
countries on the continent, namely relatively advanced manufacturing economies,
oil exporters, least developed countries, agricultural exporters and oil importers.
The data set has a sample of 1,012 firms spanning the period from 1992 to 2003.
The results presented in figure 6 indicate that larger firms are far more likely to
export, Nigeria being the exception. In Nigeria, the proportion of firms exporting is
extremely small. Figure 6 also indicates that there is a difference between exporting
within and outside Africa for these manufacturing firms. If we consider the patterns
of exporting within Africa, we see that the pattern in Ghana is very different from that
for Kenya, South Africa and the United Republic of Tanzania. Large Ghanaian firms
are more likely to be oriented to trade outside Africa, whereas for the other three
countries trade within Africa is more important and in the case of both Kenya and
the United Republic of Tanzania very substantially so. While the data does not allow
the country of destination to be identified, the results of other enterprise surveys




74 Economic Development in Africa Report 2013


indicate that most Kenyan exporters regard Uganda and the United Republic of
Tanzania as their most important export destinations.


Size matters directly for exports, particularly in economies where most firms
are on a small scale. Firms incur additional costs when they export to distant
markets. Such increases in cost underlie the view that to export firms must operate
at an optimum scale — they need to be able to meet the higher costs of foreign
markets. Large firms may well be more likely to engage in intraregional trade as
they need a larger market for their products. Firms which sell only, or primarily, to
foreign markets may be larger for additional reasons. The costs of accessing a
foreign market may require additional investment in marketing and foreign sales,
which require a certain minimum scale for the firm to be able to export profitably.
Furthermore, the management skills required for exporting may be scarce and thus
more efficiently concentrated in larger enterprises.


Figure 6. Percentage of firms exporting to Africa and outside Africa


0 10 20 30 40 50 60 70


Large


Medium


Small


Large


Medium


Small


Large


Medium


Small


Large


Medium


Large


Medium


Small


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To Africa To outside Africa


Source: UNCTAD.
Note: A large firm is one with more than 75 employees, medium-sized firms have from 21 to


75 employees and small firms fewer than 21 employees. Median figures are reported
so that the results are not dominated by outliers.




75CHAPTER 3. The Private Sector, Enterprises and Productivity


Another interesting result from the analysis shows that African manufacturing
firms produce mostly for the domestic market. The top panel in figure 7 shows the
percentage of output exported by manufacturing firms in Africa. With the exception
of Ghana, the proportion of output exported is less than 15 per cent. In the bottom
panel of figure 7 we show the percentage of output exported conditional on any
exporting. While the pattern differs across the five countries, it is clear from the
bottom panel of figure 7 that, with the exception of Ghana, even on condition that
they undertake some exporting, exports are not more than 40 per cent of output
even for large firms. Thus exporting is not a specialist activity in these economies. In
both Kenya and the United Republic of Tanzania there is a general pattern whereby
exporting within Africa is a less specialist activity than exporting outside Africa.
This lack of specialization suggests that firms are entering the export market only
when their scale of operations becomes too large for the domestic and regional
markets; they are not entering markets for which there is little or no demand locally.
Such a pattern highlights both the advantage and challenge of intra-African trade in
manufactured goods. The advantage is that entering regional markets may involve
lower costs than entering distant markets. However, while the market is larger it
is still very limited relative to what would be available if a world market could be
accessed.


A second factor that is considered important for a firm to be able to export is its
level of efficiency. Findings from analysis of data from firms across both developed
and developing countries show that more efficient firms are more likely to export.
In general, the key factors driving efficiency include the degree of competition in
markets, investment in fixed capital, which is affected by access to finance, and
characteristics such as firm size, organization and location. Skills may also matter
as they enable a firm to deal with more complex markets and they may be critical
for enabling firms to meet the quality and predictability of supply demanded by
foreign markets. Foreign ownership may also have an effect on the efficiency of the
firm, but in addition it may supply information about foreign markets and increase
the supply of quality inputs, all of which may potentially assist the firm in exporting.
However, skills and foreign ownership are likely to be associated with the size of
firms, as larger firms will have more skilled workers and management.


To sum up, the evidence and analysis presented in this subsection shows
that firm size and efficiency are important determinants of participation in export
markets. In particular, large and efficient firms are more likely to engage in exporting
than small and inefficient firms. Boosting intra-African trade will therefore require




76 Economic Development in Africa Report 2013


Figure 7. Percentage of output exported to Africa and outside Africa
G


ha
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A
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To Africa To outside Africa


0 5 10 15 20 25


Large


Medium


Small


Large


Medium


Small


Large


Medium


Small


Large


Medium


Large


Medium


Small


A. Percentage of output exported


0 10 20 30 40 50 60 70


Large


Medium


Small


Large


Medium


Small


Large


Medium


Small


Large


Medium


Large


Medium


Small


B. Percentage of output exported, conditional on any exporting


Source: UNCTAD.
Note: For definition of firm sizes, see figure 6.




77CHAPTER 3. The Private Sector, Enterprises and Productivity


efficient firms of optimal scale. The evidence also suggests that firms in Africa tend
to produce mostly for the domestic market and engage in exporting when their
scale of operation becomes too large for the domestic market. This suggests that
regional markets may be more promising for manufacturing firms in Africa because,
compared to global markets, the demands of regional and domestic markets are
more similar and thus firms do not require different standards or product types to
satisfy demand.


Labour productivity across countries


Domestic firms may also be unable to enter and penetrate export markets
because of high costs, particularly in relation to their underlying productivity. The
top panel of figure 8 shows how labour productivity (gross output per employee)
varies across countries and within countries by firm size for the countries surveyed.
The bottom panel shows a similar breakdown for capital per employee. Two
features are striking: the first is the common fact across all five countries that both
labour productivity and capital per employee increase as firm size increases. The
second is that the labour productivity differential between South Africa and the
other countries is far greater than is the differential in capital per employee. This
finding points to the higher measured total factor productivity for South Africa.


While both labour productivity and capital per employee increase with firm size,
this does not necessarily imply there are increasing returns to scale. Indeed the
evidence from the work on the firm surveys points to constant returns to scale. The
sample for South Africa contains no small firms so we cannot know if the pattern we
observe for small firms is a common one across all the countries. However, for four
countries, what is striking about small firms is just how low their labour productivity
and their capital per employee are. In Ghana and the United Republic of Tanzania,
output per employee is only just over $2,000 (in 1991/92 prices) and the capital
per employee is well below $1,000 (in 1991/92 prices). Clearly to set up firms with
such low amounts of capital does not require a substantial investment. While large
firms have many times this amount of capital, their median, excluding South Africa,
is $10,000 (at 1991/92 prices), which again is very small by international standards.


In figure 9 we bring together the results from figure 8 to show in the top panel
both labour productivity and capital per employee. It is the gap between these
numbers which determines in large part the measure of total factor productivity
in the data. The bottom panel of figure 9 shows the differences in total factor




78 Economic Development in Africa Report 2013


Figure 8. Labour productivity and capital per employee, by firm size
G


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f
Ta


nz
an


ia


Large


Medium


Small


Large


Medium


Small


Large


Medium


Small


Large


Medium


Large


Medium


Small


Large


Medium


Small


Large


Medium


Small


Large


Medium


Small


Large


Medium


Large


Medium


Small


0 10,000 20,000 30,000 40,000 50,000


A. Median labour productivity ($, 1991/92 prices)


0 5,000 10,000 15,000 20,000


B. Median capital per employee ($, 1991/92 prices)


Source: UNCTAD.
Note: For definition of firm sizes, see figure 6.




79CHAPTER 3. The Private Sector, Enterprises and Productivity


Figure 9. Productivity across countries and by firm size


Output per employee Capital per employee


-0.2


-0.1


0


0.1


0.2


0.3


0.4
B. Total factor productivity differences*


Ghana Kenya Nigeria South Africa United Rep.
of Tanzania


0


5 000


10 000


15 000


20 000


25 000


30 000


35 000


40 000


45 000


A. Labour productivity and capital intensity for large firms
($, 1991/92 prices)


Source: UNCTAD.
* Total factor productivity measured relative to Ghana.




80 Economic Development in Africa Report 2013


productivity across countries, which is based on how much of labour productivity
cannot be explained by capital intensity. South Africa emerges as the country with
the highest total factor productivity, Nigeria is second and Ghana is third. The
country with the lowest total factor productivity is the United Republic of Tanzania.


How important are differences in total factor productivity in explaining the
differences in exporting across countries? Rankin, Söderbom and Teal (2006)
examined this issue by asking whether the size effect observed in exporting is
a reflection of the fact that larger firms have higher levels of productivity. Their
regression results indicate that firm size, measured by the number of employees, is
not a proxy for either efficiency or capital intensity. Furthermore, the findings indicate
that firms with higher labour productivity are more likely to export and this effect is
of about the same order of magnitude as that of size measured by employment.
The focus of the analysis has so far been on the link between productivity and
firm size among African firms. But it would also be interesting to know how the
productivity of African firms differs from those on other continents. Dinh and Clarke
(2012) examined this issue using recent manufacturing survey data. They found
that the average manufacturing firm in Africa is less productive than those found
in East Asia and Latin America and the Caribbean (see table 16). However, they
also found that if adjustments are made for differences in income, infrastructure,
access to credit and other political and geographical differences, then firms in Africa
perform better than those in other regions, indicating that lifting these constraints
will be crucial for improving manufacturing performance in Africa.


To sum up, the analysis presented in this subsection indicates that firms with
higher labour productivity are more likely to export than those with lower labour
productivity. They also suggest that African manufacturing firms generally have
lower labour productivity than firms on other continents. Poor infrastructure and


Table 16. Labour productivity and costs in Africa and other regions (mean)


Region
Labour cost
per worker


($)


Value added
per worker


($)


Africa 1 464 4 734


East Asia 1 733 6 631


Eastern Europe and Central Asia 4 046 10 297


Latin America and the Caribbean 3 241 8 890


South Asia 817 1 483


Source: Dinh and Clarke (2012).




81CHAPTER 3. The Private Sector, Enterprises and Productivity


weak access to credit are some of the factors accounting for these differences in
productivity. Thus, if African Governments want to boost intra-African trade they
will have to enhance the export competitiveness of African manufacturing firms by
addressing these obstacles to productivity growth.


Exporting and geography


The evidence from the five sub-Saharan African countries presented above
points to similar factors determining export participation outside and within Africa.
These factors are the scale at which the firm operates and its level of efficiency.
Are there, however, aspects in which intra-African trade differs from trade outside
Africa and how might intra-African trade differ in its consequences? The most
obvious factor distinguishing intra-African from trade outside Africa is geography, in
particular transport costs within Africa and the distance to its markets. These are
factors common to all firms within a given locality. A panel data analysis of the data
set indicates that these fixed effects are important and indeed highly correlated with
aspects of efficiency, pointing to the importance of these geographical factors in
the growth of different types of exports.


A study of the determinants of exports by Elbadawi, Mengistae and Zeufack
(2006) covers 18 countries, of which half are from sub-Saharan Africa and one,
Morocco, from North Africa. The study argues that “one part of the effect of
geography operates through Africa’s lower ‘foreign market access’: African firms
are located further away from wealthier or denser potential export markets. A
second occurs through the region’s lower ‘supplier access’: African firms face
steeper input prices, partly because of their physical distance from cheaper foreign
suppliers, and partly because domestic substitutes for importable inputs are more
expensive.” There seems to be clear evidence that proximity to markets matters for
trade. One reason given for the relative success of Morocco in being able to export
garments produced in a labour-intensive way is its close proximity to the European
Union market. The (largely unrecorded) trade in agricultural products within Africa
points to the importance of being close to markets for such trade. However there
are important differences between the export structure of Morocco and that of
countries in sub-Saharan Africa. Trade between Morocco and the European
Union in labour-intensive products is exploiting fundamental differences in labour
endowments, whereas intra-African trade in agricultural products is exploiting
in part local differences in geographical endowments and in part differences in
demand across areas which traverse national borders.




82 Economic Development in Africa Report 2013


In summary, the analysis presented here suggests that transport costs and
distance to markets are also important determinants of exports in Africa. The
successful promotion of intra-African trade will therefore require that government
efforts to reduce transport costs are stepped up through, for example, addressing
the constraints posed by weak infrastructure. Furthermore, the fact that proximity
to markets matters for exports suggests that in the short to medium term African
manufacturing firms have a better chance of succeeding in regional than in global
markets.


Exporting and firm growth


The evidence presented in previous sections suggests that larger firms are more
likely to export than small firms, both within and outside Africa. African economies
are dominated by small firms that produce mostly for the domestic market. As a
result, their growth is very much limited by the growth of domestic incomes. An
interesting issue therefore is why larger firms are not becoming an important part of
Africa’s industrial landscape. It has been argued in previous sections that there is
very little upward mobility of enterprises in Africa. In particular, small firms hardly ever
transit into medium- and large-scale enterprises. The literature suggests that firm
growth depends on firm size and age, innovation capabilities, level of development
of input markets, state of infrastructure and entrepreneur characteristics such as
education and gender. Goedhuys and Sleuwaegen (2010) investigated this issue
using African data and found that product innovation and access to good means
of transportation and the Internet affect the growth of firms on the continent. They
also found some evidence that education plays a role.


Another way to look at the issue of the size of firms in Africa is to ask whether
domestic firms are unable to grow larger because they cannot export. The evidence
strongly points to that being at least part of the story, but if growth is limited by
the inability to export, what are those factors that limit exporting? The answer is
that costs are too high for the vast majority of firms to be competitive in export
markets. These costs divide between those that occur at the level of the firm,
the prices it pays for its labour, capital and inputs and the price which it obtains
for its output and the costs which are common to all firms in a locality. Lowering
costs is, however, not the only way to increase exports. In fact some studies
suggest that market familiarity or access is another mechanism by which firms can
increase exports (Fafchamps et al., 2008). The idea is that for firms to successfully
penetrate an export market they have to produce goods that appeal to consumers




83CHAPTER 3. The Private Sector, Enterprises and Productivity


in that market and this comes from familiarity with consumer tastes and market
conditions. Both lower costs and market familiarity may be subject to “learning-
by-doing” and there is some evidence that manufacturing firms do learn from
exporting. Fafchamps et al. (2008) tested the two models of learning-by-doing and
selection into exporting. In particular, they compared the role of learning-by-doing in
lowering cost (productivity learning) and in enabling a firm to acquire better market
familiarity (market learning). They argue that productivity learning depends on the
general experience of the firm and implies that older firms are more likely to export.
On the other hand, market learning depends on export experience and implies
that once a firm starts exporting, it is more likely to develop new products suited
to its export market. A test of this model using data on Moroccan manufacturers
suggests that there is strong evidence in support of market learning. Exporting
firms tend to develop new products very quickly after they enter the market. The
results of the study also suggest that among Moroccan firms there is no strong
support for the productivity learning hypothesis in the sense that it is young firms
rather than old firms that seem to export and most do so immediately after they
are set up. While the evidence suggests that productivity learning is not important
for Moroccan firms, this does not mean that it is not important for other African
countries. In fact it is likely that the relative importance of the two mechanisms of
selection into exporting will differ from country to country.


Discussion


To sum up, most African countries continue to be dominated by agricultural
exports and by small-scale enterprises overwhelmingly geared to local domestic
markets. If regional trade is to develop, the current structure of enterprises needs
to develop in a manner that creates more complementarities in regional patterns
of demand and supply and an increase in the scale at which enterprises operate.
This section has identified four factors that may enable firms to expand their intra-
African trade. These are the scale at which firms operate, their level of efficiency,
the costs they face and market familiarity and access. All these factors also matter
for trade outside Africa, but they may matter for different reasons. For firms that
trade regionally, such markets offer a straightforward extension of their domestic
markets. The evidence which points to foreign market familiarity and access being
important suggests that larger firms may be needed for exporting outside Africa,
as the fixed costs of acquiring knowledge of foreign markets necessitate a certain
minimum scale of operation. Higher levels of efficiency will enable firms to enter




84 Economic Development in Africa Report 2013


both regional and more distant markets. However, it is possible that this effect is
more important for the regional than the international markets. Relatively greater
efficiency may be the key to success against local competitors, while more general
issues of market familiarity and access may matter for more distant markets.


D. STRENGTHENING THE PRIVATE SECTOR
TO BOOST REGIONAL TRADE


As one of the main stakeholders in any economy, the private sector has a
crucial role to play in boosting intra-African trade. In this context, there is a need
to strengthen the capacity of the private sector to produce and export goods,
particularly those with high income elasticity and export demand. In the 1980s and
1990s, many African countries embarked on reform of the business environment
(protection of property rights, relaxation of labour regulations, etc.) with a view to
promoting private sector development. The experience of the past three decades
has shown that, while these reforms may be necessary, they are not sufficient to
promote entrepreneurship, unlock private sector dynamism and boost productive
capacity in the region (UNIDO, 2008). Consequently, there is a need for a more
balanced and pragmatic approach to promoting private sector development on the
continent. This section identifies and discusses some key elements of a credible
package to promote private sector development and boost intra-African trade.


Invest in infrastructure


Realizing the trade and development potential of Africa requires that constraints
imposed by a lack of transport, energy, communications and water infrastructure
be lifted. Inadequate infrastructure limits access to markets, raises trade costs and
reduces productivity, thereby hampering intra-African trade. It is estimated that the
poor infrastructure in Africa reduces the productivity of companies by 40 per cent
and per capita output growth by about two percentage points. Given the scale and
scope of African infrastructure needs, there is an understanding that addressing
these challenges requires a regional and continental solution. In this context, the
African Union launched its programme for infrastructure development in Africa in
Kampala in July 2010. The programme emphasizes local ownership and is forward
looking, covering the period from 2010 to 2040. It brings under one umbrella existing
initiatives on infrastructure such as the short-term action plan of the New Partnership
for Africa’s Development (NEPAD), the NEPAD medium and long-term strategic




85CHAPTER 3. The Private Sector, Enterprises and Productivity


framework, and the African Union infrastructure master plan. If implemented as
planned, it is expected to reduce the cost of electricity by $30 billion per year,
increase access to power from 39 per cent of the population in 2009 to 70 per cent
in 2040, yield efficiency gains of $172 billion from reduced transport costs over 30
years, ensure water and food security and result in a gain of 20 percentage points
in broadband connectivity. The short and medium-term infrastructure development
projects (priority action plan) covering the period from 2012 to 2020 is expected
to cost $68 billion, while the total cost of implementation is $360 billion. Energy
and transport projects account for 95 per cent of the estimated cost, reflecting the
widely held view that problems in these two sectors are key obstacles to expanding
intra-African trade. At the sixteenth African Union summit in January 2011, African
leaders showed renewed commitment to improving infrastructure development on
the continent by adopting the Presidential Infrastructure Champion Initiative, which
focuses on seven regional infrastructure projects to be implemented over the period
from 2010 to 2015. Each of the seven projects is championed by a NEPAD head of
State or Government, with the President of South Africa as the Chair or convener
of the initiative. The champions of the initiative are expected to provide visibility for
it, unblock any bottlenecks, coordinate resource mobilization and ensure project
implementation.


Mobilization of resources will play a key role in the implementation of programmes
on infrastructure development in Africa. Based on a recent study by the Africa
Infrastructure Country Diagnostic, the funding gap for sub-Saharan Africa alone is
about $50 billion per year. Although, the study did not include North Africa, it is obvious
that adding this region will increase the funding gap for the continent significantly.
Given the limited financial resources of many African countries, Governments will
need to find ways to leverage private investment in infrastructure. Over the past
decade, there has been an increase in private investment in infrastructure in sub-
Saharan Africa from $3 billion in 1997 to $12 billion in 2009 (OECD, 2012). In
2011, commitment to the infrastructure in sub-Saharan Africa by the private sector
was about $11.5 billion, which represents a decline of about 17 per cent relative
to the figure in 2010 of about $13.8 billion. It is worrying that most of the private
investment in Africa goes to telecommunications and Governments need to step
up their efforts to catalyse more private investment into other infrastructure areas
such as energy and transport (see table 17). Public-private partnerships have been
adopted by African Governments to leverage private investment in infrastructure,
but if they are to play a crucial role in infrastructure development in Africa,
Governments will have to develop bankable projects, enact enabling legislation and




86 Economic Development in Africa Report 2013


regulations, provide or facilitate loan guarantees, avoid policy reversals and reduce
political instability. Furthermore, having a highly trained and experienced local team
to negotiate with private investors is necessary to ensure that societal interests are
adequately protected in public–private partnership contracts.


Governments also need to explore new and innovative sources of financing
for infrastructure projects on the continent. For example, South Africa and Kenya
have successfully used infrastructure bonds to finance road projects. Other African
countries should explore this option. Sovereign wealth funds have been set up by
resource-rich countries such as Botswana, Chad, Ghana, Libya and Nigeria. It is
estimated that African countries had invested about $114.3 billion in sovereign
wealth funds as at December 2009 (Triki and Faye, 2011). These resources could
be leveraged to fund regional and continental infrastructure projects. Regional
development finance institutions, such as AfDB, also have an important role to
play in financing infrastructure development. There are already indications that
AfDB is becoming more active in infrastructure finance: over the past five years
it has invested about $11 billion in infrastructure development on the continent.
Furthermore, in August 2012, the President of AfDB indicated that it plans to float
a regional infrastructure bond to raise $22 billion from member States. If this plan
is successfully implemented it will be a big boost for infrastructure development
on the continent. Development partners are also beginning to pay relatively more
attention to infrastructure development in Africa, as evidenced by the number of
initiatives such as the G20 infrastructure action plan, the EU-Africa Infrastructure
Trust Fund and the Infrastructure Consortium for Africa. It is estimated that in 2011,
members of the consortium committed $11.9 billion to infrastructure in Africa,
while the Arab Coordination Group committed $2.9 billion and China $14.9 billion
(ICA, 2012).


Table 17. Private sector commitments to sub-Saharan Africa infrastructure, 2011


Sector Share(%)
Total


($ million)
No of


projects


Telecommunications 79 9 040 7


Energy 13 1 495 9


Transport 7 851 3


Water and sewerage 0 - 0


Total 100 11 387 19


Source: ICA (2012).




87CHAPTER 3. The Private Sector, Enterprises and Productivity


Make finance more accessible and less costly


Lack of access to affordable finance is a major challenge for firms in Africa. Only
about 23 per cent of African enterprises have loans or lines of credit compared
to 46 per cent for non-African developing countries (Beck et al 2011). The lack of
access to finance is especially serious for SMEs because banks tend to target large
enterprises and microfinance institutions focus on microenterprises, while meeting
the financing needs of SMEs is hardly given priority by domestic financial institutions.
Several characteristics of African economies are crucial to understanding why there
is limited access to finance on the continent. The financial system is dominated by
banks which, compared to those on other continents, are often small, concentrated
and in many countries foreign-owned. Many countries on the continent also have
a weak financial infrastructure — for example, a lack of credit bureaux, collateral
registries, credit rating agencies and payment and settlement systems — and
this affects access to credit and hampers the smooth functioning of the financial
system (see box 3). These characteristics, coupled with excessive documentation
requirements by banks, high perceived risks due to information asymmetry, the
informal nature of SMEs and the fact that they do not follow established accounting
and auditing standards, contribute to limited access to finance in Africa. African
Governments need to work closely with the private sector to improve the financial
infrastructure on the continent. For example, they could work with the private sector
to enhance access to credit by reducing information asymmetry between lenders


Box 3. Credit bureaux, registries and access to finance in Africa


Information asymmetry between lenders and borrowers is a major factor militating against
access to finance in Africa. The establishment of private credit bureaux and public credit
registries can reduce the information gap between lenders and borrowers and enhance
access to credit. Using data for 42 African countries, Triki and Gajigo (2012) examined
the effects of private credit bureaux and public credit registries on access to finance in
Africa for companies. They found that economies with private credit bureaux have better
access to finance than either those with only public credit registries or those lacking both
institutions. Furthermore, they found that in economies where public credit registries collect
both positive and negative information on borrowers’ credit history, the access to finance
for firms improves. Algeria, Egypt, Mauritius, Mozambique and Rwanda are countries in
the data set in which public credit registries collect both positive and negative information.
Private credit bureaux differ from public credit registries because they are usually created
by the private sector while public credit registries are generally public institutions created
primarily for banking supervision.


Source: Triki and Gajigo (2012).




88 Economic Development in Africa Report 2013


and borrowers through financing the establishment of private credit bureaux and
public credit registries. Furthermore, provision of business support services to
SMEs can facilitate their transition from informal to formal enterprises and enhance
their access to credit. The private sector should also find innovative methods to
address the barriers inhibiting access to credit for SMEs. For example, they could
use value-chain finance and leasing to overcome the problem of lack of collateral.
An example of value-chain finance (also called buyer and supplier finance) is when
an input supplier provides inputs such as fertilizers on credit to a farmer (or members
of a farming group) with the understanding that repayment will be made after the
harvest. This has been successfully used in the agricultural sector in Ghana and
Mozambique (Beck et al., 2011). Regional development finance institutions can
also play a crucial role in enhancing access to finance for SMEs. In this context,
in 2012 AfDB took an important step for improving access to finance for SMEs
by launching the African Guarantee Fund, which will be financed in partnership
with the Governments of Denmark and Spain. The fund will operate by providing
financial guarantees to financial institutions, thereby incentivizing them to finance
SMEs. Reducing the cost of finance and trade should be on the priority list of
African Governments because it hampers investment and regional trade. Financial
institutions in Africa tend to charge high fees and interest rates. Consequently,
they have high interest rate spreads and margins. It is estimated that interest rates
charged by banks in Africa to SMEs are 5 to 6 percentage points higher than in
other developing-country regions (Martinez Peria, 2009). While the high interest
rates charged by banks often reflect the fact that they are small and face higher
risks, the spreads are often too wide relative to what would be expected on the
basis of those risks.


While the problem of finance is more acute for SMEs, large firms in Africa also
face significant financing challenges that have to be addressed. For example, they
have difficulty obtaining access to long-term finance. It is well known that financial
institutions on the continent tend to offer short-term loans and are reluctant to
provide long-term finance. About 95 per cent of loans to firms in Africa are for
five years or less (Beck et al., 2011). The short duration of financial contracts in
Africa is not conducive to promoting investment and building productive capacity.
Governments need to use economic incentives (particularly guarantee schemes)
to encourage financial institutions to lengthen the duration of financial contracts,
reduce fees and interest rate margins and make finance more accessible and
affordable for domestic firms. Strengthening development banks and promoting the
development of regional capital markets will also contribute to enhancing access to
finance on the continent.




89CHAPTER 3. The Private Sector, Enterprises and Productivity


A major issue of concern to exporting enterprises is how to deal with the
payment risks associated with regional trade. Payment risk largely depends on the
creditworthiness of the importer and the convertibility of the importer’s currency.
The formation of currency unions is one way African Governments could reduce
payment risks associated with currency inconvertibility. Currency unions would
also eliminate the transaction cost associated with using multiple currencies
and thereby boost regional trade. However, it takes time for countries to fulfil the
conditions necessary to establish a functional currency union, as we have seen in
the case of the West African monetary zone. As African countries strengthen their
efforts towards currency unification, in the short run they should therefore consider
strengthening cooperation in payments systems to reduce transaction costs and
make regional trade easier. This will allow them to facilitate regional trade while putting
in place the institutions and rules necessary to implement a full currency union in
the medium to long term. African countries are aware of the importance of effective
payments and settlements systems for trade and several of the regional trade blocs
have initiatives or projects under way on developing and strengthening regional
payments systems. For example SADC launched a regional payments system in
1996 and EAC has a project to integrate payments and settlement systems among
its member States. Nevertheless, the implementation of these initiatives or projects
has been very slow and there is therefore a need for renewed government efforts
to fully implement or operationalize existing initiatives and projects (ECA, AUC and
AfDB 2010). COMESA has made significant progress in implementing its regional
payment and settlement system, which became operational on 3 October 2012
with the central banks of COMESA member States as the main participants. Under
the system, central banks guarantee trade payments by pre-funding commercial
bank accounts with the central bank, thereby eliminating the need for confirmed
letters of credit by importers and exporters.


Develop and strengthen workforce skills


Domestic firms are increasingly facing intense competition in exports markets
as a result of globalization. Their ability to withstand competition depends in part on
their technological capabilities, which can be developed either through technology
transfer or domestically through investment in education, training and research
and development. Relative to other regions of the world, African countries are not
investing enough in either education and training or research and development. In
2009, gross enrolment in tertiary education was only 6 per cent in sub-Saharan
Africa compared to a world average of 27 per cent (see figure 10). Furthermore,




90 Economic Development in Africa Report 2013


Figure 10. Tertiary education gross enrolment ratios by region
(percentage)


0


10


20


30


40


50


60


70


80


World


P
er


ce
nt


ag
e


Arab States East Asia and
the Pacific


Latin America
and the Caribbean


North America and
Western Europe


South and
West Asia


Sub-Saharan
Africa


1999 2009


Source: : Elaborated using data from the UNESCO Institute for Statistics fact sheet, Nos. 21
and 22, December 2012.


Africa devotes less than 1 per cent of its gross domestic product to research and
development and accounts for only 0.9 percent of global expenditure on it (see
table 18). As a result of these facts, lack of availability of key skills is a major problem
facing African firms. In the sixteenth annual survey of chief executive officers (CEOs)
conducted by PricewaterhouseCoopers, eighty-two percent of African CEOs
listed availability of key skills as the top business threat they are concerned about.
Availability of workforce skills is crucial for building supply capacities and promoting
regional trade. Firms cannot produce and compete if they do not have affordable and
reliable access to key skills. In this context, there is a need for African Governments
to invest more in high-quality education and the development of workforce skills.
They should also consider allocating more resources to science and technology
fields, particularly engineering, manufacturing and construction, deemed crucial for
private sector innovation and the development of supply capacities.


ILO (2010) provides a strategic framework for skills development, stressing that
it should focus on increasing the availability of good-quality education; matching




91CHAPTER 3. The Private Sector, Enterprises and Productivity


skills supply with the needs of the labour market; enabling workers and enterprises
to adjust to changes in technology and markets; and anticipating and preparing for
the skills of the future. There are indications that African Governments are paying
more attention to some of these issues. For example, over the period from 1999
to 2009, the percentage of the population enrolling in technical and vocational
education training programmes increased from 9 to 16 per cent in sub-Saharan
Africa. However, the development of workforce skills is not the responsibility of
Governments alone. The private sector can also play a role through on-the-job staff
training and also by contributing to financing research and training programmes in
universities and research institutes.


Strengthen mechanisms for consultation with the private sector


The establishment of a credible mechanism for effective State-business relations
is also needed to unlock private sector potential, build productive capacity and
enhance prospects for boosting intra-African trade. Although Governments have
the responsibility for setting priorities, making rules, signing trade agreements and
facilitating trade, it is the private sector that is in a position to take advantage of
opportunities created in the trading system. In this regard, African Governments
need to undertake regular consultations with the private sector for a better
understanding of the constraints they face and how to address them. Such
information is crucial in designing effective policies to promote entrepreneurship
and boost intra-African trade. Purposeful and predictable leadership will also be
needed to build trust between Governments and the private sector and create an
environment that can enhance and sustain dialogue between them. Governments
must also make sure that dialogue with the private sector is done in such a way that


Table 18. Investment in research and development, 2009


Percentage of GDP
devoted to R&D


Percentage of global
R&D expenditure


Africa 0.4 0.9


Europe 1.8 28.5


Latin America and the Caribbean 0.7 3.1


North America 2.7 32.7


Asia 1.6 33.0


Oceania 2.2 1.8


Source: Elaborated using data from the UNESCO Institute for Statistics fact sheet, Nos. 21 and
22, December 2012.




92 Economic Development in Africa Report 2013


it serves the interests of society as a whole. Checks and balances are also needed
to ensure that close collaboration with the private sector does not exacerbate rent-
seeking behaviour. Transparency in dealings with the private sector and also the
inclusion of civil society in dialogues between firms and Governments is a good way
to reduce the scope for rent-seeking and corruption.


Build local and regional value chains


Local and regional value chains have vital roles to play in broadening the
manufacturing base of African economies, expanding productive capacity and
boosting intra-African trade. Regional value chains present opportunities for
improving productivity and quality standards, both for domestic firms with export
potential and those that produce goods predominantly demanded at the national
and regional levels. For domestic firms that have good export potential but face
challenges competing in international markets, regional value chains give them the
opportunity to upgrade and achieve international competitiveness, thereby making
it easier to connect to global value chains. About 80 per cent of the global trade
in goods takes place along value chains. Therefore, if African countries want to
increase the benefit they derive from the trading system they have to integrate
into global networks. Insertion into global production networks is not easy and
requires domestic firms to meet very demanding market requirements on price,
quality and lead times. In this context, the development of regional value chains
could facilitate the entry of African firms into global networks. Regional markets
will permit domestic firms to learn, meet the product standards and develop the
production capabilities required for successful participation in global production
networks. Given the fact that most African countries currently have a comparative
advantage in commodities, resource-based industrialization provides one channel
for the development of regional value chains on the continent and African countries
should seize the opportunity that it presents (ECA and AUC, 2013). They do,
however, need to put more investment into developing the innovation capabilities
of domestic firms to enhance their ability to upgrade into more advanced segments
of the value chain.


The experience of Asian countries indicates that regional value chains tend to
be successful and sustainable if they have a global presence. The regional value
chains in Asia trade intermediate inputs regionally and use them to produce final
goods for export to the rest of the world (particularly the United States and the
European Union). If African countries want to use the regional value chain approach




93CHAPTER 3. The Private Sector, Enterprises and Productivity


to promote intra-African trade, it is important that they see it as an essential part
of an overall strategy to improve international competitiveness and integrate the
region into the global economy, rather than a mutually exclusive option. Another
important lesson from the experiences of other developing-country regions is
that the participation of large and wealthy countries in regional production chains
enhances the likelihood of success of regional value chains. China and Japan
played this role in Asia. Algeria, Egypt, Nigeria and South Africa are examples of
African countries with the potential to play this role in the development of regional
production chains in Africa. However, they will have to undergo significant structural
transformation and also invest in national and regional infrastructure in order to play
this role effectively.


Maintain peace and security


Achieving peace and security is the most pressing development challenge
facing Africa and must be a key element in any credible policy package to
strengthen private sector development and boost intra-African trade. Insecurity
has been a reoccurring problem on the continent since the 1960s. It takes various
forms, ranging from civil wars, criminal violence and political unrest to terrorism and
piracy. While significant progress was made in the last decade, several countries
are currently involved in violent conflicts which have dire consequences for their
economies and for regional trade and development. For example, in 2012 there
were coups d’état in at least two countries, violence in at least three countries,
piracy attacks in at least two countries and terrorist attacks in at least two countries.
Insecurity has wreaked havoc on African economies (see box 4). It has a negative
impact on infrastructure development, private investment and entrepreneurship.
It also has serious consequences for country risk premiums and hence access
to finance for intra-African trade. It is estimated that in a country in conflict, trade
drops by as much as 12-25 percentage points in the first year of the conflict and
that it can take up to 25 years before it returns to pre-crisis levels. While there are
many possible causes of insecurity, there is an understanding that the systematic
exclusion of some stakeholders from the institutions of political governance and
access to assets and social services is a major cause of conflicts (United Nations,
2012). In this regard, inclusive growth policies and mechanisms are needed for
conflict prevention and resolution in order to promote peace and security in Africa
and lay a good foundation for expanding regional trade. In July 2002, the African
Union took a bold step in addressing peace and security issues by adopting the




94 Economic Development in Africa Report 2013


Protocol relating to the Establishment of the Peace and Security Council of the
African Union, which entered into force in December 2003. The adoption of the
protocol paved the way for the African Peace and Security Architecture which is
now the framework for crisis management on the continent. African Governments
need to pay more attention to peace and security issues because they are
necessary conditions for boosting regional trade and promoting development on
the continent.


Box 4. Effect of the political shock in Côte d’Ivoire on West African economies


The historically open policy of Côte d’Ivoire encouraged free trade and the free movement
of people in West Africa. Before the country’s political instability, there were intensive
exchanges through trade and travel with people from neighbouring countries (Burkina
Faso, Ghana, Guinea, Liberia and Mali) and even beyond (Benin, the Niger and Togo).
Several landlocked countries in West Africa depended on the ports of Côte d’Ivoire to
access international markets. The country was also a financial hub for the region and many
West African countries benefitted from positive spillover from the economic success of
Côte d’Ivoire. As a result, the political problems that arose in 1999 affected not only Côte
d’Ivoire itself but also several other countries. Although some countries benefited from the
diversion of trade away from Côte d’Ivoire, the cumulative loss of intra-WAEMU trade was
estimated at $9 billion. Actual intra-WAEMU trade was 60 per cent lower than it should
have been without the conflict. The most affected countries were the ones which were
most dependent on the Ivorian economy. The CFA franc 35 billion worth of yearly imports
from Côte d’Ivoire into the Niger dropped substantially at the height of the conflict in 2010.
Landlocked, the Niger was forced to divert its import and export routes to more expensive
alternatives in order to avoid the ports of Côte d’Ivoire which it had traditionally used.
Insecurity in Côte d’Ivoire also forced Burkina Faso to divert transport routes to the ports
of Lomé, Accra and Cotonou, despite the fact that these options were more expensive
than using the port of Abidjan. High import and export costs increased consumer prices
in the country. Moreover, the prices of traditional imports from Côte d’Ivoire, including
some inputs, increased by 15-30 per cent. For a country where 32 per cent of total official
imports were from Côte d’Ivoire, instability in the latter country had a serious negative effect
on the trade and economy of Burkina Faso in general. Similar effects were noted for Benin,
Guinea, Mali and Togo.


Source: UNDP Regional Bureau for Africa, “The conflict in Côte d’Ivoire and its effect on West
African countries”, issue brief, April 2011, available from http://web.undp.org/africa/
knowledge/issue-cotedivoire.pdf.




4CHAPTER
BOOSTING INTRA-AFRICAN


TRADE IN THE CONTEXT
OF DEVELOPMENTAL


REGIONALISM




96 Economic Development in Africa Report 2013


This chapter begins with the recognition that boosting intra-African trade
cannot be done in isolation. To be successful and have maximum impact, it has to
be part of an overall strategy to promote private sector development and regional
integration in Africa. In this context, the chapter considers the basic tenets for
promoting private sector development and boosting intra-African trade within the
framework of developmental regional integration. It explores the defining features
and scope of developmental regionalism and compares it to the predominant
paradigm of market-led regional integration that is characterized by a specific
focus on the reduction of tariffs and the elimination of other border measures that
inhibit cross-border trade in Africa. A brief review of African integration reveals
that, although there are elements of a developmental integration agenda in some
subregions, a comprehensive, coherent developmental integration agenda has yet
to be developed and implemented.


Comparative experience, specifically in the Greater Mekong Subregion in Asia
is reviewed here, drawing lessons for enhancing the African integration strategy to
encompass a developmental agenda and address constraints on the capacity to
produce goods and services competitively. Lessons concerning the management
of such a developmental integration agenda involving broad stakeholder inputs are
also drawn from this case study. A key feature of the developmental integration
agenda is that, in addition to supporting intraregional integration to ensure benefits
to national member economies, it also provides a platform for competitive integration
into the global economy. The chapter also discusses the tools and drivers of a
developmental integration agenda led by the State but with significant and active
private sector participation. These include industrial policy and specific initiatives
such as special economic zones and development corridors. A brief detour back to
the traditional integration agenda reveals that aspects of this agenda and the non-
implementation of the agreed integration initiatives may well also be responsible for
the limited success of regional integration in promoting intra-African trade to date.
The chapter concludes with recommendations for the design of a developmental
integration agenda, recognizing that there may well be associated challenges that
have to be factored into the agenda to ensure enhanced development outcomes.


A. CONCEPTUALIZING
DEVELOPMENTAL REGIONALISM


This report considers developmental regionalism as a development-based
integration agenda aimed at securing the traditional benefits of regional integration,




97CHAPTER 4. Boosting intra-African Trade


ensuring that such benefits flow to all member countries and seeking to enhance
the integration of member countries into world markets as a means of fostering
sustainable development (UNCTAD, 2011). This approach assumes the need
for gradual and sequenced trade liberalization alongside conscious and planned
policy actions aimed at building the productive capacities of member countries
(mainly in the domestic private sector) and promoting industrial restructuring.
The development of productive capacities and enhancing competitiveness are
necessary to enable domestic businesses to participate in regional and global value
chains and to compete in global markets.


Developmental regionalism encompasses cooperation in the area of trade,
with an emphasis on the promotion of intraregional trade and integration into
the global economy. It goes beyond the domain of trade per se by including
cooperation in other, more ambitious areas, such as industrial policy. Emphasis
is placed on implementing “strategic” trade policies (i.e. those which include both
more and less traditional policy tools, such as export promotion and selective
protection) and ensuring that these are consistent with the domestic industrial
policy framework of each State involved. For instance, regional trade can be
promoted through coordination of investment into strategic areas, such as regional
transport and other ancillary infrastructure, in order to improve linkages between
countries and thereby facilitate the creation of larger markets. Thus, prioritizing
investment in areas of common interest can help to overcome the pre-existing
bias against regional trade caused by the colonial legacy that still characterizes
many poor and least developed countries around the world (i.e. small domestic
markets which are not conducive to industrial diversification), including in Africa.
Developmental regionalism can therefore involve a variety of policy tools which are
not generally included in market integration initiatives. The agenda extends beyond
tariffs and non-tariff measures, import and export quotas and bans, technical and
phytosanitary standards, to include issues such as competition policy, the provision
of infrastructure and other public goods, investment, promotion of research and
development and building the domestic productive capacities of both the private
sector and State-owned enterprises, among other things. To ensure the greatest
impact and efficiency, these policies should be harmonized and coordinated among
participating countries in a regional arrangement. At the same time, the promotion
of developmental regionalism should go hand in hand with the strengthening of the
structures, institutions and capabilities of national Governments to implement such
policies in order to foster sustainable development.




98 Economic Development in Africa Report 2013


B. CURRENT REGIONAL INTEGRATION
INITIATIVES IN AFRICA: ARE THEY CONDUCIVE


TO DEVELOPMENTAL REGIONALISM?


Since gaining independence, most African countries have embraced
regionalism as a framework to address obstacles to intra-African trade and
improve the competitiveness of their small and fragmented economies. However,
the African integration agenda, which has been followed by the regional economic
communities, is based on the linear model of market integration, in which groups of
countries move progressively from a free trade area to a customs union, a common
market, an economic union and eventually a political union, by reducing barriers
to economic and non-economic transactions amongst participating countries.
Although some progress has been made by some regional economic communities
in their attempt to integrate, the implementation record as a whole has been poor.
Regional initiatives have largely failed to uplift the economic conditions of African
economies and ensure sustainable growth and development, and intraregional
trade as a proportion of total trade remains much lower in Africa than in other
developing regions such as Asia and Latin America, as demonstrated in chapter 1
above.


Several constraints and challenges have emerged to consolidating and furthering
the integration agenda in Africa and to expanding intra-African trade. These include
the overlap and duplication of integration agendas and objectives, given the
multiplicity of memberships in various regional economic communities; a lack of
political will; the poor quality of the infrastructure, particularly in energy, transport and
communications; the high dependence of most member countries on the export
of primary commodities; a poor macroeconomic and financial environment; the
lack of a compensation mechanism; institutional barriers; and limited private sector
involvement (Attah-Mensah, 2012; Maruping, 2005; UNCTAD, 2009). Although
inefficient customs and regulatory procedures certainly hamper trade in the region,
experience has demonstrated that the main barriers to increasing intra-African
trade are often not found at the border. Given that the linear market integration
approach tends to focus more on tariffs and other border barriers to trade without
adequately addressing supply-side constraints, a development-led integration
agenda that includes structural transformation, investment, services, regional
infrastructure, enterprise and private sector development, institutional capacity and
technology and innovation could address the constraints facing African economies
far more effectively than an agenda which focuses almost exclusively on border




99CHAPTER 4. Boosting intra-African Trade


measures (Hartzenberg, 2011). However, many of the current regional integration
initiatives in Africa are still not conducive to such an approach; explaining why
the trade expansion and market integration objectives of most regional economic
communities have not been met. Although a number of important steps have been
taken in recent years in an attempt to deepen the integration process (e.g. the EAC
industrialization strategy and the SADC regional infrastructure development master
plan), efforts need to be further scaled up in a pragmatic way in order to achieve
ultimate economic development and transformation objectives for Africa.


Furthermore, the private sector and other local stakeholders remain passive
participants in African regional integration initiatives. This contrasts markedly with
other integration initiatives, for example in Asia, where the private sector plays a
crucial role in shaping the integration agenda. Implementation challenges continue
to bedevil African integration arrangements: missed deadlines for tariff reductions
and the lack of domestic implementation and application of regional agreements
are characteristic of all African arrangements. This has led some cynics to question
whether African countries are indeed serious about rules-based integration.
High-level political commitment aside, the litmus test of real commitment is the
implementation of regional commitments at the national level. Since much of the
implementation of regional commitments has to take place at the national level,
the capacities of nation States will be an important determinant of the success
of regional integration. Weak institutions, in terms of the capacity to make and
implement policy, will provide a weak basis for regional integration. Furthermore,
arrangements for robust regional dispute resolution are not a hallmark of all African
integration arrangements at this stage (Erasmus, 2011). However, rules-based
governance is essential for the achievement of development outcomes at a national
and regional level and could be used to address challenges of non-compliance with
regional obligations.


It is in this context that the need for a paradigm shift to enhance and reinvigorate
the African integration agenda has become evident. Market integration initiatives
aimed at reducing tariffs and non-tariff barriers have traditionally been the hallmark
of African integration efforts. However, African growth and development prospects
will remain unfulfilled unless the challenges of inadequate infrastructure, a low level
of diversification, the limitations imposed by small and fragmented economies
and a weak private sector are addressed, alongside efforts to promote market
integration. Indeed, it has been recognized that removing artificial obstacles to
intra-African trade may not be sufficient to expand trade and deepen economic
integration on the continent, given the structural deficiencies and other weaknesses
which remain (ECA, AUC and AfDB 2010).




100 Economic Development in Africa Report 2013


Built-in constraints to effective integration, and specifically to increasing
intraregional trade, are also to be found in existing arrangements in very specific
provisions on, for example, rules of origin. Rules of origin are essential in a
preferential trade agreement. By determining the origin of goods, rules of origin are
the instrument used to prevent trade deflection, to ensure that only the member
States of a preferential trade arrangement benefit from the negotiated tariff
preferences. However, rules of origin can of course also be used, just as the import
tariff can, to protect domestic industry from import competition. It is important
therefore to find an appropriate balance between preventing trade deflection, while
not imposing significant costs on firms obliged to use inputs from specific sources
and adapt production processes to meet the rules of origin requirements to qualify
for preferential market access. SADC rules of origin follow a line-by-line approach
with rules devised for a specific product or sector. Rather than having a generic
rule, or set of rules, that applies to all sectors and products, SADC rules have
sector- or product-specific requirements (Naumann, 2011). For garments, the rule
requires that two stages of transformation take place in a SADC member State
for the garment to qualify for SADC preferences. This means that both the fabric
and the garment have to be manufactured in a SADC member State. With very
little textile manufacture in this region, the rules effectively limit trade in garments
in this region. This approach to rules of origin does not support developmental
regionalism in SADC and demonstrates that a developmental regional integration
agenda requires scrutiny of the provisions in the current linear integration agenda of
African regional economic communities.


Adopting a “developmental regionalism” approach, in which regional integration
is used to build an industrial base and address supply-side constraints to private
sector development with the aim of improving international competitiveness, thus
holds much promise for Africa. It is argued that to meet the key challenge of
economic transformation, regional integration initiatives need to be designed and
carried out within a broader development framework, which promotes economic
diversification, structural transformation and technological development, thereby
enhancing the productive capacities of African economies, realizing economies
of scale, facilitating infrastructure development and supporting industrialization.
This in turn leads to increased foreign and domestic investment, enhanced trade,
improved competitiveness and development of human capital (UNCTAD, 2009;
ECA, 2012b). In this way, Africa will be able to attain high, sustainable and shared
economic growth and become further integrated into the global economy. However,
political commitment to boosting intra-African trade, as recently reaffirmed in the




101CHAPTER 4. Boosting intra-African Trade


African Union Commission action plan for boosting intra-African trade, needs to
be followed through by the requisite implementation and operationalization at the
regional and national levels.


Box 5. African regional economic communities and developmental regionalism


This box provides an overview of developments in regional integration in SADC, EAC
and COMESA, with a view to highlighting some areas where the framework is or is not
consistent with the paradigm of developmental regionalism.


Southern African Development Community


Since its inception, SADC has formulated policies and strategies for regional integration in
support of economic growth and development. Current SADC regional integration priorities,
policies and programmes are contained in the regional indicative strategic development
plan adopted by the Council of Ministers in August 2003. The plan notes that SADC
has adopted a “development integration” approach, which recognizes the political and
economic diversities of member countries and aims to address many of the production,
infrastructure and efficiency barriers arising from the underdevelopment of the region.
The plan thus provides a comprehensive development agenda for social and economic
policies for SADC, with priority intervention areas including trade/economic liberalization
and development; infrastructure support for regional integration and poverty eradication;
science and technology; information and communication technologies; private sector
development; and environment and sustainable development (SADC secretariat, 2003).


East African Community


The EAC integration process is guided by the Treaty for the Establishment of the East African
Community, which entered into force in July 2000, and the rolling five-year development
strategies. Significant progress has been achieved over the past 12 years, particularly
through improved intra-EAC trade and investment which has broadened prospects for
economic growth and development. Nevertheless, from a macroeconomic perspective,
significant imbalances among the EAC partner States remain, highlighting the challenges
of integrating partners at different stages of development The current EAC development
strategy, covering the period 2011/12 to 2015/16, focuses on deepening and accelerating
integration, in particular through consolidation of the benefits of a fully-fledged customs
union; implementation of the common market; concluding and establishing the monetary
union; and laying the foundation for a political federation. In order to support the regional
integration process, the strategy has prioritized the expansion of productive capacities
to facilitate product/service diversification and infrastructure network development for
enhanced connectivity within the region and the global community (EAC, 2011). It is thus
evident that the EAC agenda contains elements of a developmental regionalism approach,
as these initiatives indicate:


s 4HEADOPTIONOFTHE%!#INDUSTRIALIZATIONPOLICY WHICHHASAS ITSOVERALL
objective to enhance industrial production and productivity and to accelerate the
structural transformation of the economies of EAC member States.




102 Economic Development in Africa Report 2013


s 4HEIDENTIlCATIONANDDEVELOPMENTOFREGIONALINFRASTRUCTUREPROJECTSINCLUDINGINROADS
railways, power/energy, civil aviation, telecommunications and metrology. Examples
include an East African transport strategy and regional road sector development
programme; an East African railways master plan; and the ongoing development of a
regional power master plan and interconnection code, in collaboration with the Eastern
Africa Power Pool.


Common Market for Eastern and Southern Africa


In order to spur growth, COMESA is currently pursuing a strategy of “economic prosperity
through regional integration”. COMESA has traditionally emphasized market integration
through the removal of barriers to trade and investment, although increasing emphasis is
being placed on development integration by focusing on supply-side constraints and thus
investment in the productive sectors, in line with recent developments at both the global
and regional levels. The core of the COMESA development integration agenda is fourfold:
trade development, infrastructure development, investment promotion and coordination
and science and technology development. The private sector is viewed as the main driver
of the economic integration process and efforts are being made to create an environment
in which private investors can play a central role. Programmes have been established in the
following areas to assist in achieving COMESA objectives: trade policy, trade facilitation,
competition policy, removal of non-tariff barriers, private sector development, investment
promotion, multilateral transport, information and communications technology, energy,
gender mainstreaming and science and technology, among other things.


This review indicates that there are elements of a developmental integration agenda in these
regional economic communities. However, these and other aspects of a developmental
integration agenda need to be coherently structured in a comprehensive strategy and
effectively implemented. These two challenges bedevil most African integration initiatives
which involve the integration of partners at different stages of development. This means
that the benefits and adjustment costs of integration may accrue unequally to member
States of a regional economic community. A developmental integration paradigm will have
to explicitly factor this into the equation.


Sources: COMESA strategy, retrieved February 2013 from http://about.comesa.int/index.
php?option=com_content&view=article&id=78&Itemid=118; SADC secretariat (2003);
EAC (2011).


Box 5 (contd.)




103CHAPTER 4. Boosting intra-African Trade


C. DEVELOPMENTAL REGIONALISM IN PRACTICE:
LESSONS FROM SOUTH-EAST ASIA


The history of the Greater Mekong Subregion economic cooperation programme
in South-East Asia provides a good example of how regional integration — and
developmental regionalism in particular — can be used and adapted in the face
of changing domestic and global circumstances in order to enhance and support
economic development and transformation. The Asian Development Bank (ADB)
played a critical role from the outset to ensure the successful management of the
programme by providing both advice and finance to member countries. Drawing
on the experiences and lessons learned from the programme may provide African
leaders with useful insights moving forward, given the slow implementation track
record on the continent to date. An overview of the programme will be provided in
what follows, along with some of the key lessons and recommendations for Africa.


In 1992, the six countries sharing the Mekong River in South-East Asia —
Cambodia, China, the Lao People’s Democratic Republic, Myanmar, Thailand and
Viet Nam — launched a subregional programme of economic cooperation with the
assistance of ADB in order to promote development in the subregion by enhancing
economic linkages across their borders. The underlying strategy of this initiative,
known as the Greater Mekong Subregion economic cooperation programme, was
to integrate the countries of the subregion through improvements in infrastructure,
with an initial focus placed on overcoming barriers to physical connectivity within
the subregion, thereby promoting trade and investment and stimulating economic
growth. At the same time, the countries of the subregion agreed on the need for
subregional cooperation on other sector issues in order to complement national
efforts (ADB, 2007). Since its inception, the programme has thus adopted a
developmental regionalism approach to integration by focusing on infrastructural
development and sectoral policy coordination in several areas of cooperation
(including agriculture, energy, the environment, human resource development,
telecommunications, transport and tourism), as well as promoting cooperation in
the cross-cutting areas of trade and investment (ADB, 2012a).


The first development planning framework for the programme, the 10-year
strategic framework (2002–2012), was adopted by the leaders of the subregion
in November 2002. The framework contained five strategic objectives: (a)
strengthening infrastructure linkages, with a multisectoral approach; (b) facilitating
cross-border trade, investment, and tourism; (c) enhancing private sector




104 Economic Development in Africa Report 2013


participation and improving competitiveness; (d) developing human resources
and skills competencies; and (e) protecting the environment and promoting
sustainable use of shared natural resources. To operationalize the framework, 11
flagship projects were outlined, with the aim of achieving closer links among the six
countries of the subregion and facilitating cross-border commerce (ADB, 2007).
These included the development of three economic corridors9 — the north-south,
east-west, and southern economic corridors — which are considered to be key
connectivity facilities for region-wide integration. Two medium-term development
plans were subsequently adopted to facilitate implementation of the programme,
each of which contained specific priority projects and activities in each of the
identified sectors. Since 2002, the countries of the subregion have met frequently
at various levels in order to review the programme and adapt it to changing global
and regional circumstances and developments within the subregion, taking into
account the progress, issues and challenges related to implementation (ADB,
2007).


Over the past two decades, the programme has made a notable contribution
to the increased integration and prosperity of the Mekong subregion, which has
seen a significant improvement in socioeconomic development and reduction in
poverty since the early 1990s.10 As of June 2012, projects had been implemented
with a total investment of approximately $15 billion (ADB, 2012b). Overcoming
geographical barriers, integrating regional markets and promoting new economic
opportunities have been key dimensions through which regional projects have
complemented national development agendas. What, specifically, has contributed
to the success of the programme over the past 20 years and what lessons can
Africa draw from this example of developmental regionalism in practice? A number
of important points are highlighted below:


(a) The programme adopted a pragmatic, activity-based and results-oriented
approach to the design and implementation of sector-specific subregional
projects, focusing initially on improving economic linkages through
infrastructure development (particularly physical infrastructure such as
transport and communications networks) and more recently on further
developing the policy and institutional framework in order to enhance
competitiveness. The fact that these projects are realistically attainable
within a reasonable time frame and many have already been successfully
implemented has helped to build confidence among participants in the
region, which is an important ingredient for success. In Africa, regional




105CHAPTER 4. Boosting intra-African Trade


initiatives have tended to focus largely on politically visible yet practically
limited commitments to overly ambitious integration agendas, such as
establishing a common market, without adequate planning of how to
achieve such goals. Regional leaders need to recognize that regional
cooperation and integration can only succeed once the hard and soft
infrastructures are in place (Page, 2011).


(b) In preparing the strategic frameworks and plans of action, the countries of
the subregion have emphasized the need to take cognizance of emerging
global and regional trends and remain flexible and adaptable in response
to changing circumstances, given that these developments present
challenges, opportunities and threats to further regional integration (ADB,
2011). By continuously updating and fine-tuning the programme, the
countries of the subregion have thus ensured that it remains relevant and
appropriate in the light of a changing context. An important lesson from
this approach is that global economic developments require a flexible and
adaptive approach to developmental regionalism; new approaches and
policies may be required to promote development in a fast-changing global
economic environment. African leaders need to be aware of the constantly
changing world around them and adapt their integration programmes and
efforts accordingly;


(c) The countries of the subregion and their Governments have actively
encouraged participation by all stakeholders in the management and
coordination of the programme, including civil society, non-governmental
organizations, the private sector, academia and the donor community. It is
recognized, in the first instance, that the sustainability of the programme
will ultimately depend on its continued ownership by the member
countries. This entails the commitment and involvement of various levels of
government and civil society to the goals and objectives of the programme
and coordination between them. However, given the lack of capacity
and resources within the countries of the subregion, efforts to encourage
broader-based participation from other concerned stakeholders have
also been undertaken. There is a need to encourage wider stakeholder
participation in the regional integration process in Africa, particularly from
the private sector, in light of the vast financial resources and business
know-how they can provide. It will only be through collective efforts, with
dynamic political commitment to integration, that Africa will be able to




106 Economic Development in Africa Report 2013


overcome its significant development challenges (Attah-Mensah, 2012).
African integration has been to date a State-focused, top-down process,
with very little input specifically from the private sector and civil society. The
experience of the Greater Mekong Subregion and other experiences in
Asia indicate that there is much to be gained from the active involvement
of non-State actors, especially the private sector. African integration could
benefit significantly from such input;


(d) Critical to the impact and success of the Greater Mekong Subregion
programme has been the ability to mobilize substantial financial resources.
Securing the required financing, both from ADB and other development
partners, has enabled the programme to move from a general discussion
of strategies and approaches to the implementation of specific projects,
with tangible results. Looking ahead, the countries of the subregion have
also recognized the need to tap private sources of funding more effectively.
Developing public–private partnerships has been cited as a potentially
viable and important strategy over the coming decade. The lack of funding
for regional integration in Africa is another widely cited problem. African
leaders need to do more to mobilize the funding required to implement
their ambitious agendas and should explore various potential avenues,
including the pan-African financial institutions, development partners and
the private sector. A clear financing strategy is also needed to ensure that
the funding received is appropriately allocated to different areas based on
priority and feasibility of implementation. Regional development banks,
such as the AfDB and the Southern African Development Bank, can
play an important role in leveraging finance for infrastructure and other
development programmes;


(e) The Greater Mekong Subregion countries have also focused on establishing
the requisite institutions in order to provide a flexible and simple, yet
effective, administrative framework for implementing the programme. Since
its inception, ADB has played the role of secretariat and has undertaken
the monitoring and coordination of activities under the programme, as well
as providing critical technical assistance. Despite recent efforts in Africa,
there is an urgent need to strengthen economic governance by building
healthy institutions at the national, regional and continental levels. The
regional economic communities need to provide stronger leadership and
better coordination of regional development strategies, thereby helping




107CHAPTER 4. Boosting intra-African Trade


their member States to better prioritize projects and programmes aimed
at deepening integration. Supported by its member States, the African
Union should act as leader in the integration process. Regional institutions
such as secretariats, tariff boards, competition authorities and tribunals
or courts need clear mandates, resources and capacity, without political
interference.


D. FOSTERING DEVELOPMENTAL REGIONALISM
IN AFRICA: KEY POLICY TOOLS AND DRIVERS


As Africa continues to encourage regional economic integration on the continent
as an essential component of its collective development and transformation
strategy, various initiatives and areas for cooperation have emerged, through
which a developmental regionalism agenda can be pursued. These include the
use of industrial policy (at a national and regional level), development corridors
and special economic zones as tools to foster the objectives of boosting intra-
African trade and promoting industrialization, as well as developing regional value
chains in order to expand productive capacity and thereby encourage economic
development. The growth and strengthening of the private sector also has a crucial
role to play in facilitating growth and the financing of the future development of
Africa, as discussed in previous chapters. While some initial efforts have been made
to implement programmes and encourage cooperation in these areas (through
public–private partnerships for example), more needs to be done to take advantage
of the opportunities that these and other integration drivers present and to ensure
that the bold visions of African leaders are translated into practical and attainable
actions towards achieving wider African integration and transformation objectives.


1. Industrial policy


African countries recognize the need for deliberate government measures
to promote industrial development through industrial policy and many countries
are beginning to review their industrial development strategies to reflect this fact.
However, an effective industrial policy has to be complemented with a range of other
policies such as macroeconomic, trade, and finance policies (UNCTAD and UNIDO,
2011). Furthermore, industrial policy has to take into account the relationships and
linkages that exist among economic activities; focusing therefore on supporting the
core manufacturing activities, while also recognizing the complementary role to be




108 Economic Development in Africa Report 2013


played by agriculture and explicitly recognizing the role of services in all economic
activity. Indeed it is not possible to be competitive in manufacturing without
competitive services inputs.


To be successful, industrial policies need to be tailored to the needs and
challenges facing each country and its domestic firms; there is no “one size fits all”
approach, as UNCTAD and UNIDO argued in their Economic Development in Africa
Report 2011. Thus, African countries need to have flexible, strategic and dynamic
industrial policies which build on the initial conditions prevailing in the economy
and deliberately target the specific economic constraints that act as obstacles to
a sustained industrial growth path. It is important, however, to take into account
the limits imposed by available resources and government capabilities, as well as
the political feasibility of proposed policy actions, to ensure that industrial policies
and development programmes are not overly ambitious and have a good chance
of achieving success. Decisions about the sectors and activities to be supported
through industrial policy should be made in a transparent manner, based on
research and consultation with firms and other relevant stakeholders in order
to ensure public legitimacy and reduce the risk of political capture. Interaction
and coordination between the State and the private sector will also ensure that
policymakers have a clear understanding of the constraints facing local businesses
and entrepreneurs, which should thus have a positive impact on policy design and
implementation. Once decisions have been made regarding which activities to
support, clear benchmarks and criteria for judging success or failure need to be
put in place and continuous monitoring and independent evaluation of the activities
of firms being supported is required. It is also important for African countries to
give priority to the creation or development of linkages in the domestic economy to
ensure that the promotion of industrial development yields positive spillover in other
sectors (UNCTAD and UNIDO, 2011).


Since the fortunes of national economies in Africa are inextricably linked with
each other, individual Governments have an interest in promoting higher levels of
industrialization, not only to promote structural transformation within their local
economies but also to facilitate industrial development across the wider region.
National industrial policies should be complemented by regional industrial policies
in order to harness the market potential offered by larger, regionally integrated
areas, facilitate access to infrastructure and services for national firms and build
trade complementarities among the national industries of the region through, for
instance, the development of regional industrial value chains. By implementing




109CHAPTER 4. Boosting intra-African Trade


proactive and strategic national and regional industrial policies which successfully
promote structural change and improve competitiveness and economy-wide
efficiency, national Governments can thus facilitate the broader integration and
development agenda of the continent. In this context, the explicit incorporation
of industrial development and industrial policy in the African regional integration
agenda is gaining ground. A number of regional economic communities such as
EAC and ECOWAS do now have a regional industrial development policy. Industrial
development is also one of the three key pillars of the proposed tripartite free trade
area (see box 6) and there is a need for coherence between national and regional
industrial policies. Industrialization in Africa can contribute towards boosting intra-
African trade and supporting regional integration objectives if there is proper
coordination between the State and the private sector and they are embedded in a
common industrial vision shared by the member countries of the regional economic
communities.


2. Development corridors in Africa


Sustaining the growth that has been achieved across the continent in recent
years will require enhanced productive capacities in order to convert the natural
comparative advantage of Africa in resources into a competitive advantage and
to spread the benefits of growth more widely through well-focused linkages
between sectors of productive activity (African Union, 2008). There has been
growing interest in development corridors as a way of realizing latent economic
potential and encouraging development on the continent. Since the late 1990s,
the transformation of existing regional transport corridors into diverse, multisectoral
development corridors, based on the principles and strategies underlying the
spatial development initiatives approach, has become an increasingly important
means through which to encourage industrialization and thus support the broader
socioeconomic development process in Africa. Regional development corridors
in Africa have generally been established where there is proven, inherent but
currently underutilized economic potential (in particular, through the existence of
natural resources) and have made use of existing transportation and economic
infrastructure (including roads, railways and mines) through rehabilitation and/or
expansion, as well as enhanced operational efficiency and effectiveness. While
public sector support (financial, technical and political) has formed the backbone
for these projects, private sector support has also been actively encouraged (de
Beer, 2001).




110 Economic Development in Africa Report 2013


Box 6. The tripartite free trade area: a developmental integration paradigm?


In October 2008, the heads of State and Government of the 26 member States of
EAC, SADC and COMESA agreed to establish a grand free trade area incorporating the
economies of their States. This ambitious plan to establish a tripartite free trade area was
elaborated by technical experts who prepared a draft agreement and 14 annexes prior to
the launch of the negotiations. The plan was that these draft instruments would serve as
the starting point for negotiations on a comprehensive agenda, including matters relating
to trade in goods (tariffs, rules of origin, customs cooperation and management, trade
remedies and dispute resolution), services (including the movement of business persons),
competition policy, investment and many more trade-related issues. The free trade area
is to be anchored on three pillars: market integration, infrastructure development and
industrial development. The broad scope of the proposed free trade area suggests that
this could be a model for a new developmental regional integration agenda for Africa. The
infrastructure pillar reflects concerns about the infrastructure deficit and the concomitant
non-tariff barriers that inhibit intraregional trade and limit competitiveness in the global
economy. The industrialization pillar indicates that the supply-side constraints associated
with the lack of industrial development and diversification are acknowledged to be major
limitations on the ability of the region to develop productive capacities and regional value
chains and to integrate those value chains into the global economy. This could well be a
pilot for a broader pan-African developmental integration strategy. The African Union plan
to establish a continental free trade area by 2017 sets out the intention to use the tripartite
free trade area as the model for the continent-wide free trade area.


While the scope and coverage of the proposed tripartite free trade area reflects a
developmental regional integration agenda and there is ostensibly political support for
the initiative, there may be cause for concern. Negotiations are planned to take place in
distinct phases: phase 1 will cover the trade in goods agenda and, on a separate track, the
liberalization of the movement of business persons. Phase 2 will cover services and other
new generation issues. Phase 1 was launched in June 2011 and negotiations began early
in 2012. At this stage (February 2013), there is not much progress to report. Issues such as
sensitive products and rules of origin are proving to be highly contentious and are retarding
the negotiation process.
Sources: Based on the declaration at the eighteenth African Union summit available at http://


summits.au.int/en/sites/default/files/ASSEMBLY%20AU%20DEC%20391%20-%20
415%20(XVIII)%20_E_0.pdf.


The potential of development corridors for promoting industrialization and
economic growth in Africa is based on three characteristics which distinguish
them from traditional transport corridors. Firstly, the inclusion of production
functions, which make available basic goods and services, encourages cross-
border economic activity and therefore economic growth. Secondly, expanded
infrastructure networks (including transport, energy and information) increase
productive capacity, which enables these products to be transformed into value




111CHAPTER 4. Boosting intra-African Trade


added commodities which can then be sold to end customers. Finally, improved
access to regional and international markets increases opportunities for trade and
investment and enables integration into regional blocs and the global economy
(Bender, 2001). In light of the above, development corridors in Africa are viewed as a
means of promoting and upgrading interrelated infrastructure in defined geographic
areas with the aim of optimizing the use of such infrastructure, promoting trade
and investment-led economic growth, encouraging value added processing and
enhancing the competitiveness of African economies (Thomas, 2009). By their
nature, these corridors could facilitate developmental regionalism by providing a
focus for strategies to promote regional economic development and integration.


The history of spatial development initiatives and development corridors in
Africa, however, is not encouraging. Over 20 corridors are currently in operation
across the continent, most of which have been unable to translate improved
infrastructure development into broad-based growth that contributes to poverty
reduction and employment creation (ECA, AUC and AfDB 2010). The African spatial
development initiative strategy will require a considerable amount of concerted
effort and cooperation between a diverse group of actors and partners in order
for it to succeed. Strong political will and commitment at the national level are
needed; capacity-building initiatives to ensure that government officials are able to
effectively develop and manage the process must be put in place; and a strong legal,
regulatory and institutional framework established to provide the necessary support.
The importance of sociopolitical stability and sound governance as the necessary
backdrop for investment in development corridors cannot be underestimated
(Thomas, 2009). There may also be a need to negotiate sensitive social and
political issues in frontier areas and address complex environmental concerns.
The small size of African economies and the fact that many are landlocked means
that regional approaches to infrastructure development, harmonized institutional
and legal frameworks (customs administration, competition policy and regulation
of transport) and increased trade-related services are imperative to facilitate
integration and thereby stimulate economic growth and development (Page, 2012).


The Maputo Development Corridor provides an important case study of a
successful development corridor. This spatial development initiative programme was
conceived in South Africa in 1995 and began implementation in 1996. The corridor
links the Gauteng province in South Africa to the Mozambican port of Maputo. It was
the first spatial development initiative to be implemented at the regional level and
has been one of the most successful initiatives to date. A number of features of the




112 Economic Development in Africa Report 2013


corridor are important to note. Broad stakeholder involvement in the initiative, and
specifically a public–private partnership spanning South Africa and Mozambique,
has been the cornerstone of its success. The public–private partnership has been
important not only in the design and implementation of the corridor project, but
in providing a funding model which has seen private sector funding fill the finance
gap that government resources were not able to fill. Effective management of the
corridor, as well as lobbying to address challenges, has been the responsibility of
the Maputo Corridor Logistics Initiative. This initiative, which operates in both South
Africa and Mozambique, has provided a platform through which stakeholders can
engage to resolve logistical and operational issues. Enhanced border and customs
management programmes (one-stop border posts and single window border
management facilities) have further enhanced the impact of the corridor (Bowland
and Otto, 2012). Similarly to the Greater Mekong Subregion programme, the
Maputo Development Corridor highlights the importance of an integrated approach
to corridor or infrastructure development: the physical infrastructure forms the
basis for the initiative but finance, regulation, a platform for resolution of challenges
or disputes and linkages to other trade facilitation endeavours, such as border
management, are essential for success.


3. Special economic zones


Over the past few decades, many developing countries, particularly in East
Asia and Latin America, have implemented special economic zones as a means
of enhancing industrial competitiveness, attracting FDI, developing and diversifying
exports and piloting new policies and approaches to industrial development (FIAS,
2008). Special economic zones can be traditionally defined as geographically
demarcated areas within the national boundaries of a country, where the rules of
business are different — generally more liberal — from those that prevail in the
national territory (World Bank, 2012) and are aimed at attracting export-oriented
investment. Economic zones are designed as a tool of trade, investment and
spatial industrial policy with the aim of overcoming barriers that hinder investment
in the wider economy, including restrictive policies, poor governance, inadequate
infrastructure and problematic access to land (Farole, 2011), and thereby attract
FDI, alleviate large-scale unemployment and/or support a wider economic reform
agenda (Altbeker et al., 2012). Most special economic zones thus offer export-
oriented investors three main advantages relative to the domestic investment
environment: (a) a special customs regime, including expedited customs and




113CHAPTER 4. Boosting intra-African Trade


administrative procedures and (usually) access to imported inputs free of tariffs
and duties; (b) infrastructure (including serviced land, factory shells and utilities)
that is more easily accessible and reliable than is normally available in the domestic
economy; and (c) a range of fiscal incentives, including corporate tax holidays and
reductions, along with an improved administrative environment (Altbeker et al.,
2012).


Special economic zones can take different forms, depending on their intended
purpose, including export processing zones, free trade zones, enterprise zones,
and free ports. Since the mid-1980s, the number of newly-established zones
has grown rapidly in almost all regions, although they have had a mixed record of
success. While remarkable achievements have been made in implementing special
economic zones in some countries, including China, the Dominican Republic, India
and Malaysia, many in Africa have failed to deliver on their intended objectives and
have been criticized on grounds of rent transfer, failure to contribute to building
local economies, low competitiveness, high capital intensity and various social and
labour complaints (World Bank, 2012). Box 7 provides a summary of the factors
that have contributed to the implementation of some of the more successful special
economic zones around the world.


African countries in general have been late adopters of special economic zones,
with most programmes only being initiated in the late 1990s and 2000s. This is
significant, as the global economic climate today differs in important respects from
that of the 1970s and 1980s when the growth of special economic zones and
their success in contributing to export-led development in rapidly rising regions
was due, in part, to an unprecedented era of globalization of trade and investment
and the rise of global value chains. Today, African countries are confronted with
a more competitive environment, resulting from the consolidation of global value
chains, the emergence and entrenchment of “factory Asia” (the network of regional
value chains in Asia supplying world markets), the expansion of regional trading
arrangements, slowing demand in traditional export markets, increasing South–
South trade and investment and the growth of opportunities for offshoring services
(World Bank, 2012). In this changing context, the traditional approach to export
processing and special economic zones adopted by most African countries
may no longer be the most appropriate in serving the interests of the continent.
Drawing on the lessons from past failures in Africa (due for example to a lack of
competitiveness) and successful international experiences, it is evident that a more
flexible and integrated approach to the development of special economic zones is




114 Economic Development in Africa Report 2013


Box 7. Lessons from experience of special economic zones


The development of special economic zones over the past three decades suggests that
the failure or success of a zone depends on the investment climate, the policy and incentive
framework, the location and the way in which it is developed and managed and broader
issues within the domestic economy. International experience provides useful lessons on
the factors that determine whether a special economic zone programme is likely to be
successful. Two examples are provided here: China and Mauritius. The Chinese special
economic zones were formally established in 1979 as catalysts in the transition from an
inward-looking, centrally planned economy towards economic liberalization. China initially
established four zones along the south-eastern coastal region of the country. In 1984, 14
Chinese coastal cities set up industrial and technological development zones, many of
which nurtured clusters targeting a particular industry. The number of zones expanded
rapidly throughout the 1980s and 1990s; more than 200 zones of various kinds have now
been established around the country, offering low taxes and infrastructure at international
standards. The Chinese strategy, in which zones were used as experimental laboratories
for the application of new policies and approaches (introducing liberal economic policies
and testing them within the zones before extending them to the rest of the economy),
contributed strongly to the rise of China to become the world leading exporter of
manufactured goods and the principal recipient of FDI among the developing economies.


Mauritius, originally a sugar monocrop island economy, established an export processing
zone in 1971 as an enclave for foreign-oriented activities to absorb the growing labour
surplus in the face of a rapidly growing population and to generate much needed foreign
exchange revenues. According to Ancharaz (2003), the export processing zone act of 1970
led to the creation of a special incentive regime for firms catering exclusively to the export
market. The intended objective was to attract FDI into the zone through a package of
incentives stemming from duty-free imports of machinery, raw materials and other inputs,
tax holidays, subsidized power rates and factory space, free and unlimited repatriation of
profits and dividends and access to concessional credit (Ancharaz, 2003).


The combination of incentives as laid out in the act with a supply of relatively cheap semi-
skilled labour and flexible labour laws led to a wave of investment in the export sector. In
addition, there were external factors that favoured the success of the Mauritian export
processing zone. For instance, investors from Hong Kong, who were about to use up
their Multi-Fibre Arrangement quota ceilings in the then international trade regime, came
to invest in the zone, in order to benefit from the preferential access that was granted to
Mauritian textile and apparel exports into the then European Economic Community under
the Lomé Convention.


While initially most of the investment into the zone was from foreign sources, domestic
investment later grew significantly and eventually surpassed foreign investment. The
domestic-owned capital stock in the zone as of 1998 was estimated to be 4.8 times
larger than the foreign-owned capital stock (Ancharaz, 2003). The presence of a capable
indigenous private sector that had a long history of involvement in the sugar industry
and the creation of SMEs through special State-supported measures contributed to the




115CHAPTER 4. Boosting intra-African Trade


success of the export processing zone programme. The coexistence of a highly protected
sector in the domestic industry competing with imports with a liberal export-oriented sector
was a striking feature of the Mauritian experience.


Mauritius undertook a gradual and sequential trade policy reform as from 1984 to remove
an anti-export bias in its domestic industry. However, domestic manufacturers in the
protected sector also benefited from income tax rebates on the proportion of output
exported, thereby introducing export incentives for domestic enterprises. Ancharaz
(2003) reports evidence that the trade reform that was subsequently gradually introduced
in Mauritius boosted export performance by inducing a shift into the export sector and
stimulating domestic and foreign investment into the export processing zone. This suggests
a strong interface between trade and industrial policy. Furthermore public–private forums
such as the Joint Economic Council facilitated a constant dialogue between the State and
private entrepreneurs for diagnosing constraints and opportunities in manufacturing and
engaging in a collective vision of the country’s development path. Other State-supported
institutions, such as the Mauritius Export Development Investment Authority, were set up in
the early 1980s to mobilize foreign investment and market products from the zone abroad
(Ancharaz, 2003).


However some have argued (Sawkut et al., 2009) that the export processing zone in
Mauritius generated more costs than benefits, namely that the costs to the economy
in terms of incentives given outweighed the benefits generated. This points to the need
to carefully evaluate the contribution of export processing zones to national economies
through cost-benefit analysis. Drawing on these experiences and others documented in
the literature, a number of important success factors are highlighted below:


s 3TRONGSUPPORT ANDACTIVECOMMITMENT TO THEPROGRAMMEAT THEHIGHEST LEVELSOF
political leadership are required, along with sufficient domestic investment and
resource commitments. However, a key factor in ensuring that special economic
zones become successful and sustainable rather than stagnant enclaves is the extent
to which the programmes associated with them have been strategically integrated
into the broader economic and industrial policy framework of the country. This would
also mean that zone programmes benefit from interventions beyond strictly zone
policies, such as those that promote clusters, provide supporting trade and social
infrastructure, improve trade facilitation and address labour market issues.


s 0UBLIC PRIVATE PARTNERSHIPS ARE PLAYING AN INCREASINGLY IMPORTANT ROLE 7HILE
Governments provides strategy and policy formulation, legislation, regulation and
enforcement — key public goods the private sector cannot or should not provide —
the private sector develops and operates special economic zone projects.


s 4HE LEGAL AND REGULATORY FRAMEWORKS FORM THE CRITICAL FOUNDATION FOR ANY ZONE
programme. They must be comprehensive, transparent and with unambiguous
ground rules established for all actors.


s 4HEREISANEEDFORPOLICYCONSISTENCYEFFECTIVELYFUNCTIONINGINSTITUTIONSANDAHIGH
quality civil service. Policy consistency should be balanced with the need for special


Box 7 (contd.)




116 Economic Development in Africa Report 2013


needed to ensure that they are able to grow to a significant scale and generate the
desired spillover to the wider economy. The nature of the design, implementation
and management of current and future African special economic zones is thus likely
to prove crucial in determining whether they are able to promote employment and
economic growth on the continent (Woolfrey, 2012).


Economic zones in Africa may become increasingly attractive to investors,
domestic and foreign, as platforms from which to sell to regional markets. Given
the challenges of scale in most African countries and the significant transaction
costs in production and cross-border trade, tapping into the potential of special
economic zones to serve as platforms for regional markets represents an important
opportunity (Dobronogov and Farole, 2012). However, economic zones may also
serve as locations from which specialized regional inputs (notably in the natural
resources-based sectors in which African countries have a comparative advantage)
can be tapped and production scaled up. Strategic focus should thus be placed on
the use of special economic zones as a tool of spatial industrial policy in order to
support the diversification and scaling up of regional production in Africa. Special
economic zones have the potential to scale up production by allowing suppliers
to move into processing activities that are one stage or more downstream from


economic zone programmes to evolve to meet the changing needs of investors
and Governments and to experiment with different approaches to identify the most
effective policies.


s 'REATER STRATEGIC PLANNING AND POSITIONING IS NEEDED IN ORDER FOR ZONES TO ATTRACT
significant amounts of investment. The success in East Asia suggests that many zones
have established themselves as industry clusters, rather than focusing on a range
of manufacturing sectors that is too wide. Successful programmes should focus on
activities that align well with the comparative advantage of a country. However, over-
reliance on a specific sector and market can create vulnerability; balance is key.


s !LTHOUGHlSCALINCENTIVESMAYPLAYAROLEINATTRACTINGINVESTMENTINTHESHORTTERM
particularly in new programmes, successful zones compete on the basis of trade
facilitation, provision of facilities and infrastructure and services.


s 4HE LOCATIONOFASPECIALECONOMICZONE INACOUNTRYˆ INPARTICULAR ITSPROXIMITY
to major trade gateways (ports and airports) and metropolitan areas — is critical to
its success. This is particularly important for zones that rely on manufacturers who
require access to imported inputs, business services, large pools of labour and
transport networks.


Sources: Ancharaz (2003), Bek and Taylor (2001), Farole (2011), FIAS (2008) and Sawkut et al.
(2009).


Box 7 (contd.)




117CHAPTER 4. Boosting intra-African Trade


production and by integrating local value chains (providing raw material inputs,
services and support) with foreign investors, thus improving the likelihood of
capturing the spillover from FDI (Dobronogov and Farole, 2012).


Linking regional special economic zones to key trade infrastructure investments
(ports, roads, power projects etc.), as well as domestic industry clusters and local
labour markets, in order to create economic and development corridors may be
a powerful new route to enhanced competitiveness and improved growth (Farole
and Akinci, 2011). Regional integration initiatives combined with special economic
zones thus have the potential to generate significant synergies: by lowering barriers
to intraregional trade and facilitating the potential for realizing scale economies in
regional production, regional trade arrangements stimulate investment by both
foreign and domestic firms. On the other hand, by offering an improved regulatory
environment, special economic zones lower the cost and risk to firms in undertaking
such investments, while the provision of sector-specific public goods, such as
warehousing and logistics platforms, shared processing facilities, serviced land and
infrastructure increases the competitiveness of wider industry clusters in the region
(Dobronogov and Farole, 2012; Koyama, 2011). These potential benefits suggest
that greater emphasis should be placed on the supportive role special economic
zones can play in the regional integration agenda in Africa.


The success of the special economic zone model in Africa will depend on a
number of factors, some of which are highlighted in box 7. Importantly, special
economic zone programmes will need to be focused where they can best
complement and support sustainable sources of comparative advantage. In
addition, it is essential to place a strategic focus on them as a component of a
broader industrial and economic development policy, recognizing that they are a
tool to foster development and are not an end in themselves (DTI, 2012). In order
to make the most of a country’s sources of comparative advantage and improve
domestic spillover, Governments will need to adopt more integrative policies by
shifting away from the more traditional models to more open, flexible, multi-purpose
zones that allow for participation by local firms and facilitate linkages amongst local
suppliers, as well as between foreign investors and the domestic economy. This
will require the promotion of skills development, training and knowledge sharing;
cluster development; integration of regional value chains; and enhanced public–
private partnerships (Farole, 2011).


Recognizing the potential that special economic zones have to facilitate regional
synergies, it is also important to put them on the regional integration agenda (DTI,




118 Economic Development in Africa Report 2013


2012). Traditionally, incorporating special economic zones into regional integration
frameworks has proven difficult, given that, while regional trade agreements
incorporate bilateral or multilateral instruments, special economic zones are generally
instruments by which an individual country promotes investment and exports and
the two are potentially in conflict with one another. Although some efforts have been
made to harmonize special economic zone programmes across regional economic
communities in Africa — exceptions include EAC and COMESA — there are several
potential areas in which the complementarities between special economic zones
and regional integration initiatives could be better exploited, including harmonizing
the regulations for special economic zones and establishing integrated procedures
(notably customs); harmonizing financial incentives; establishing an integrated and
harmonized strategic framework, which may include the development of regional
manufacturing or service linkages using the special economic zones as hubs; the
specialization of zones based on the comparative advantages of member countries;
and joint marketing of the region as an investment destination (Koyama, 2011).
Such collaboration could generate considerable benefits for Africa by acting as a
step towards greater economic integration.


Other necessary preconditions for success include high-level political support
and commitment, sufficient State capacity to manage and implement the
programmes, sound legal and regulatory frameworks, high-quality hard and soft
infrastructures, greater private sector participation, support to domestic SMEs, a
comprehensive monitoring and evaluation mechanism and commitment over the
long-term. Although the effort required to successfully develop sustainable and
growth-inducing special economic zones in Africa is considerable, by focusing
on comparative advantage and on integration — with national industrial policies,
between government institutions and the private sector and between the zones
and domestic (and regional) markets — they have the potential to contribute to
improving the competitiveness of Africa and its integration into the global economy,
thereby helping to create jobs, raise incomes and improve growth (Farole, 2011).


4. Regional value chains


One of the key mechanisms through which to improve competitiveness
in Africa in the twenty-first century is by scaling up regional production, i.e.
integrating regional value chains (Dobronogov and Farole, 2012). In today’s world,
specialization is no longer based on the overall balance of comparative advantage
of countries in producing a final good, but increasingly on the relative efficiencies of




119CHAPTER 4. Boosting intra-African Trade


firms in providing different “tasks” at specific stages along the value chain (WTO et
al., 2011). Developing regional value chains thus allows firms to reap the benefits
of greater specialization and scale, creating opportunities for a greater number of
SMEs and hence countries, to participate in the global industrialization process and
in so doing, spur on their own national industrial development (UNCTAD and UNIDO,
2011). Successful integration of regional value chains would therefore promote
employment, spur the growth of downstream industries and create backward and
forward linkages across the region, thereby creating a platform for the upgrading
of capabilities into higher value and more diversified industrial and service activities
(Stephenson, 2012). Participation in regional and global value chains also provides
SMEs with greater access to international markets and opportunities for task-
based trade in foreign countries, as well as the opportunity to develop technological
capabilities (UNCTAD and UNIDO, 2011). The ability of African firms to develop and
insert themselves into regional and global value chains is thus being viewed as a
vital condition for Africa’s economic development (Stephenson, 2012).


The development of integrated regional value chains and the insertion of
African firms into global value chains will, by their nature, facilitate increased intra-
African trade and could contribute to sustainable long-term growth. However, the
barriers hampering intraregional trade and investment will be a key determinant
of the success or failure of this endeavour. Such challenges, as discussed in
the preceding chapters of this report, include high transport and logistics costs,
weak infrastructure, restrictive policies and incoherent regulations and inefficient
customs procedures (Page, 2011). In this regard, priorities for African Governments
include improving access to finance, reducing trade costs, improving logistics
services and infrastructure development, particularly in energy, transport and
telecommunications (UNCTAD and UNIDO, 2011). Trade facilitation measures have
also been identified as increasingly important tools to facilitate the expansion of
regional value chains in African economies (Brenton and Isik, 2012). It is important,
however, that African countries place the development of productive capacities at
the heart of their national policies. The development of domestic industry or service
networks requires the promotion of entrepreneurship through skills development
and training, as well as continuous technological upgrading and the promotion
of linkages between SMEs and multinational enterprises in order to enhance
competitiveness at the level of the firm (UNCTAD, 2010).


Although increased participation in regional and global value chains holds
significant opportunities for furthering a developmental regionalism agenda and




120 Economic Development in Africa Report 2013


promoting intra-African trade, policymakers need to be aware of the “fallacy of
competition” — the danger that firms which start out as low-cost suppliers in the
lower stages of a value chain (where entry is easier) may become trapped in that
position as they are unable to build up capacity and move up the value chain
(UNCTAD, 2012b). This phenomenon reiterates that the benefits that may accrue
from participation in global value chains are not automatic and that Governments
need to take proactive measures to create an enabling investment environment,
by establishing the hard and soft infrastructures required for the development of
regional value chains (Yamashita, 2010), and support the integration of SMEs into
global production networks by facilitating continuous upgrading opportunities for
domestic firms participating in value chains, building linkages across firms supplying
value chains in different sectors and forging closer relationships with foreign firms
in those value chains (UNCTAD and UNIDO, 2011). Governments also need to
invest in horizontal policy measures, including in education, innovation, technology,
intellectual property and industrial policies, in order to enhance access to global
value chains and the long-term benefits they offer (Draper et al., 2012).


E. CONCLUSION


The global economy has undergone significant changes in recent years and the
ingredients for successful regional integration and global competitiveness today are
no longer the same as those that were assumed to be indispensable 30 years ago.
A development-based integration agenda which goes beyond trade liberalization to
include broader economic and industrial policies aimed at addressing real economy
capacity constraints, strengthening the domestic private sector and facilitating
diversification and structural transformation holds great potential for Africa. This
agenda can help to minimize the costs of market fragmentation and provide the
necessary conditions for further integrating African economies into the global
economy, while at the same time addressing many of the systemic weaknesses of
Africa, such as a large informal economy, narrow production and export structures
and the poor competitiveness of African enterprises.


An agenda which covers not only trade in goods, but also trade in services,
investment, trade facilitation and elimination of non-tariff barriers, will provide a
foundation for enhancing policy, legal and institutional capacity at national and
regional levels. The trade in goods agenda has to be carefully crafted so that it
supports industrial development as well as facilitating trade. This requires, for




121CHAPTER 4. Boosting intra-African Trade


example, rules of origin that prevent trade deflection but that do not impose
significant costs on firms as they struggle to meet restrictive requirements related
to sourcing of inputs and their transformation. Effective implementation of tariff
phase-down commitments is essential to enhance intraregional trade. Enhanced
management of customs and other border procedures to reduce the time spent and
the cost of intraregional trade are also important. Closely linked to trade facilitation
is investment in the infrastructure, such as roads, rail and telecommunications,
necessary to facilitate the competitive access to infrastructure services that will
reduce the cost of production and trade.


Rethinking industrial development options, taking into account important
developments in the global economy and specifically the role of global and regional
value chains, requires the involvement of the private sector and other stakeholders to
identify key government initiatives to support industrial restructuring, transformation
and the development of sustainable industrial activities. However, it must be
recognized that a developmental regional integration agenda will set in motion a
process of adjustment at national and regional levels, with winners and losers,
as some industries grow and others decline in response to a changed incentive
environment. Mitigation of adjustment costs at national and regional level needs to
be explicitly factored into the development paradigm.


To promote the competitiveness of African firms and increase intra-African trade
requires the effective implementation of commitments undertaken. Checks and
balances in the form of robust dispute resolution will signal a strong commitment
to rules-based governance of developmental integration and support effective
implementation. Africa is poised to take advantage of developments in the resources
sectors and embark on a new pathway to industrialization through participation in
regional and global value chains. This renewed focus on industrial development
and diversification provides an opportunity to chart a new development trajectory.
There are elements of developmental regionalism in many African regional economic
communities but it is not yet a coherent strategy for African integration. It could,
however, be the development paradigm for Africa for the twenty-first century.






5CHAPTER
INTRA-AFRICAN TRADE:


UNLOCKING PRIVATE SECTOR
DYNAMISM - MAIN FINDINGS


AND RECOMMENDATIONS




124 Economic Development in Africa Report 2013


A. INTRODUCTION


At the African Union summit held in January 2012, African leaders renewed their
political commitment to boosting intra-African trade within the context of regional
economic integration. The rationale for this renewed commitment ranges from the
need to promote sustained growth and economic transformation to insulation of
African economies from external shocks and seizing the growing opportunities
for regional trade created by the recent economic growth in Africa and the rise
of the middle class. In this context, increasing intra-African trade is regarded by
African leaders as an important vehicle to boost growth, create jobs and promote
economic development on the continent.


Previous attempts to promote regional trade and integration in Africa had modest
results at best, due in part to the lack of implementation of agreements by States,
overlapping memberships of regional trade blocs, lack of structural transformation,
inequitable sharing of the benefits and costs of integration, setting of unrealistic
targets and timetables and the lack of involvement of key local stakeholders,
particularly the private sector, in the process. The African approach to regional
integration has also focused more on processes than on development outcomes.
For example, in the discourse on regional trade and integration, policymakers
seem to devote more attention to issues such as the choice of instruments and
the structure of institutions than to more substantive matters. There has also been
more emphasis on the elimination of trade barriers and less attention paid to the
promotion of entrepreneurship and the development of the productive capacities
needed to boost regional trade. Furthermore, Governments have been the active
drivers of regional integration on the continent with the private sector mostly playing
a passive role. If current efforts to promote intra-African trade are to succeed,
Governments need to provide more space for the private sector to play an active
role in the integration process. As African leaders strengthen their efforts to boost
intra-African trade, it is therefore important that they address these issues that have
for so long militated against efforts to promote regional integration on the continent.


Against this backdrop, the present report focuses on how to boost intra-African
trade, with particular emphasis on policy measures that have to be taken by
African Governments to promote domestic entrepreneurship, expand productive
capacity and boost regional trade. It provides stylized facts on intra-African trade
and investment and offers explanations for the relatively poor regional trade
performance of Africa. It also examines the challenges for regional trade posed




125CHAPTER 5. Main Findings and Recommendations


by non-implementation of regional trade agreements and provides new insights
into how to enhance implementation of existing agreements. Furthermore, the
report highlights distinctive features of the enterprise structure in Africa that have
to be addressed to promote regional trade and also provides empirical evidence
of the link between the characteristics of manufacturing firms on the one hand and
productivity and exports on the other. Finally, it discusses how to boost intra-African
trade in the context of developmental regionalism. It considers developmental
regionalism as a development-based integration agenda which aims to secure the
traditional benefits of regional integration, ensuring that such benefits flow to all
countries involved, and seeks to enhance the integration of those countries into
world markets as a means to foster sustainable development. The main findings
and recommendations are set out below.


B. MAIN FINDINGS


1. The level of intra-African trade has increased both in nominal and real
terms. Over the period from 2000 to 2011, intra-African trade rose by a
factor of 4.1 in nominal terms and in real terms by a factor of 1.7. In nominal
terms, the level of intra-African trade was $32 billion in 2000 and $130
billion in 2011. However when measured in real terms (at constant 2000
prices) intra-African trade increased from $32 billion in 2000 to $54 billion
in 2011. These facts suggest that although there has been an increase
in both the volume and value of intra-African trade over the past decade,
most of the increase was due to an increase in prices, which for primary
commodities are externally determined.


2. There has been a significant decline in the share of intra-African trade
in total African trade. The increase in the level of intra-African trade over
the past decade has been accompanied by a decrease in its share of total
African trade. The share of intra-African trade in total trade rose from 19.3
per cent in 1995, reached a peak of 22.4 per cent in 1997 and fell to 11.3
per cent in 2011. This decline was due to the fact that African trade with
the rest of the world grew much faster than intra-African trade. Over the
period from 1996 to 2011, intra-African trade grew annually by 8.2 per
cent while African trade with the rest of the world grew by 12 per cent.
Interestingly, the share of intra-African trade in total trade is significantly
higher for non-fuel exporters than for fuel exporters. Furthermore, when




126 Economic Development in Africa Report 2013


compared with other regions of the world, the share of intra-African trade in
total African trade is relatively low. For example, the average share of intra-
African exports in total exports over the period 2007-2011 was about 11
per cent compared with 21 per cent for Latin America and the Caribbean,
50 per cent for developing Asia and 70 per cent for Europe. These figures,
however, do not take into account the fact that recent surveys indicate
that there is a large informal trade in Africa. In SADC, for example, it is
estimated that informal trade accounts for between 30 and 40 per cent
of intra-SADC trade. Adding informal trade to official trade figures would
increase the share of intra-African trade in total trade to the levels observed
in Latin America and the Caribbean, but it would still be far below the
figures for Asia, Europe and North America.


3. African regional economic communities tend to undertake a significant
part of their trade in the continent within their own regional trade bloc.
With the exception of ECCAS, a very high percentage of the African trade
carried out by each regional economic community goes to its own region,
indicating that the formation of these communities has a positive impact on
trade within the bloc. In the period from 2007 to 2011, 78 per cent of SADC
trade within Africa went to the SADC region. The figures for ECOWAS and
CEN-SAD were approximately 66 per cent and 65 per cent respectively. It
should be noted that although these shares are high, they are low relative
to what they were over the period from 1996 to 2000. Among the eight
regional economic communities recognized by the African Union, the only
one that did not experience a decline in the share of its trade within Africa
in the period under consideration is COMESA.


4. There is significant country heterogeneity in the importance of intra-
African trade among African countries. Although the share of intra-African
trade in total African trade is relatively low, it is very high in a number of
countries. For instance over the period from 2007 to 2011, intra-African
exports accounted for at least 40 per cent of total exports in 9 countries:
Benin, Djibouti, Kenya, Mali, Rwanda, Senegal, Togo, Uganda and
Zimbabwe. In terms of imports, 11 countries imported at least 40 per cent
of their goods from Africa over the same period. These were: Botswana,
Burkina Faso, the Democratic Republic of the Congo, Lesotho, Malawi,
Mali, Rwanda, Sierra Leone, Swaziland, Zambia and Zimbabwe. Regarding
the share of intra-African trade in GDP, only 5 countries (Botswana,




127CHAPTER 5. Main Findings and Recommendations


Lesotho, Malawi, Swaziland and Zimbabwe) had shares above 30 per cent
over the period from 2007 to 2011.


5. Unexploited opportunities for intra-African trade exist in many product
categories, particularly food and agricultural products. Africa has
about 27 per cent of the world’s arable land which could be exploited for
expansion of agricultural production, yet many African countries import
food and agricultural products from countries outside the continent. In the
period from 2007 to 2011, 37 African countries were net food importers
and 22 were net importers of agricultural raw materials, but only about 17
per cent of African world trade in food and live animals took place within
the continent. Furthermore, Africa exported on average only 21 per cent
of its food items within the continent. In general, out of the nine standard
international trade classification (SITC) categories, Africa realized at least
25 per cent of its world trade regionally in only one product category,
namely chemicals and related products (SITC 5). These facts, coupled
with rising incomes and a growing middle class, suggest that there are
opportunities for regional trade in food and agricultural products that are
not being exploited by African countries.


6. The share of manufacturing in intra-African trade is higher than its share
in African trade with the rest of the world. However, the importance of
manufacturing in intra-African trade has declined over the past decade.
Over the period from 2007 to 2011, the share of manufacturing in intra-
African trade was about 43 per cent compared to about 14 per cent for the
share of manufacturing in African trade with the rest of the world. However,
the share of manufacturing in both intra-African trade and in trade with
the rest of the world have been declining since 1996, reflecting the fact
that African countries have experienced significant deindustrialization since
the 1990s. It should be noted that compared with other regions of the
world, the share of manufacturing in intra-African trade is relatively low. For
example, in Asia it was 65 per cent for the period from 2007 to 2011 and
in Latin America it was 56 per cent, compared with 43 per cent for Africa.


7. Intra-African investment has increased over the past decade, with the
services sector accounting for 68 per cent of new deals relating to
greenfield investment. Available data indicate that intra-African investment
is becoming important in several African countries. For example, between
2008 and 2010, Botswana, Malawi, Nigeria, Uganda and the United




128 Economic Development in Africa Report 2013


Republic of Tanzania received more than 20 per cent of their total inward
stock of FDI from other African countries. Furthermore, it is estimated that
intra-African FDI in new projects grew at an annual compound rate of 23
per cent between 2003 and 2011. A growing share of intra-African FDI
goes to the services sector. Between 2003 and 2011, about 68 per cent
of the 673 deals relating to intra-African greenfield investments went to
services, compared with 28 per cent for manufacturing and 4 per cent
for the primary sector. Within services, about 70 per cent of the deals
were in finance. To the extent that manufacturing firms rely on business
services, the growth of the service sector is likely to have a positive impact
on the development of productive capacity and therefore the performance
of manufacturing firms and intra-African trade.


8. African countries have large informal economies and the average size
of African manufacturing firms is relatively small. Recent studies suggest
that in sub-Saharan Africa, the informal economy accounts for 38 per cent
of GDP compared with 18 per cent for East Asia and the Pacific, 27 per
cent for the Middle East and North Africa, 25 per cent for South Asia,
and 35 per cent for Latin America and the Caribbean. Informality inhibits
enterprise development and makes it challenging to unlock African trade
potential because informal enterprises are not registered and operate
outside the established legal and policy framework, which means they
have very limited access to government support, or the basic infrastructure
and finance needed for firm growth. Surveys of manufacturing firms also
suggest that the average size of both formal and informal manufacturing
firms in sub-Saharan Africa is relatively small: 47 employees compared
with 171 in Malaysia, 195 in Viet Nam, 393 in Thailand and 977 in China.


9. Firm size and the level of efficiency matter for exports and for boosting
intra-African trade. Surveys of manufacturing firms indicate that firm size
and efficiency at the level of the firm are important for export participation
by domestic firms. Firm size matters directly for exports because firms
incur additional costs when they export to distant markets and so must
operate at a certain minimum scale to be able to bear this cost and make
exporting profitable. The small size of African manufacturing firms may in
part explain the finding that they produce mostly for the domestic market.
The proportion of output exported by firms in a recent survey was about
15 per cent. Another factor considered important for exporting is efficiency




129CHAPTER 5. Main Findings and Recommendations


at the level of the firm. In other words, it has been found that more efficient
firms are more likely to export. The degree of competition in markets,
investments in fixed capital, access to finance and firm characteristics
such as size, organization and location are all factors driving the efficiency
of firms. African countries need therefore to foster entrepreneurship and
build their supply capacity.


10. African manufacturing firms have lower labour productivity than firms in
other parts of the developing world. Labour costs and labour productivity
affect the level of competitiveness of a firm and its ability to export. It has
been found that African manufacturing firms have lower labour productivity
than firms on other continents. In Africa, labour productivity per worker is
$4,734 compared with $6,631 for East Asia, $8,890 for Latin America and
the Caribbean and $10,297 for Eastern Europe and Central Asia. However,
when adjustments are made for differences in income, infrastructure,
access to credit and other geographical differences, African firms perform
better than those in other regions, indicating that lifting these obstacles to
productivity growth and export competitiveness are crucial for improving
manufacturing performance in Africa and boosting intra-African trade.


C. MESSAGES AND RECOMMENDATIONS


The world is changing both in terms of economic structure, patterns of trade,
global governance and the prevailing economic orthodoxy. It is therefore important
that African countries also change their approach to regional trade and integration
in order to adapt to this rapidly changing world. In this context, the report argues
that a comprehensive but pragmatic approach to integration is needed to promote
intra-African trade and regional integration on the continent. The main message of
the report is that intra-African trade presents opportunities for sustained growth and
development in Africa, but that seizing these opportunities requires private sector
dynamism to be unlocked and a development-based approach to integration to
be adopted. The report suggests that success in boosting intra-African trade
will depend largely on the extent to which African countries are able to foster
entrepreneurship and build supply capacity, establish a credible mechanism for
dialogue between the State and business, build regional value chains, implement
existing regional trade agreements, rethink their approach to regional integration
and maintain peace and security.




130 Economic Development in Africa Report 2013


Foster entrepreneurship and build supply capacity


Promoting entrepreneurship and building supply capacity are vital to enhancing
the capacity of African enterprises to produce and export goods to both regional
and global markets. The report argues that efforts to promote entrepreneurship
and intra-African trade must address the challenges presented by five distinctive
features of Africa’s enterprise structure, namely high and rising levels of informality,
the relatively small size of African firms, weak inter-firm linkages, low levels of
competitiveness and the lack of innovation capability. In this context, it stresses
the need for policy actions to stem rising informality in Africa through facilitating the
transition of firms from the informal to the formal economy. This requires simplifying
procedures for obtaining permits for business registration, government provision
of information to all citizens on how to start a business and on the rights and
responsibilities of entrepreneurs, simplifying the tax system to reduce the cost
and complications of complying with laws and regulations and strengthening the
capacity of government agencies to administer laws and regulations.


African Governments should also facilitate the upward mobility of enterprises
and the growth of firms by providing better access to finance and business services,
particularly for SMEs. The establishment of credit bureaux and registries to reduce
information asymmetry between lenders and borrowers is one feasible mechanism
for enhancing access to finance for SMEs. Furthermore, developing the capacity
of SMEs to meet the needs of large firms through training and the provision of
business services and market information will promote inter-firm linkages and
should be a priority for African Governments. Large firms (both domestic and
foreign) can also contribute to the development of business linkages by providing
SMEs with information on opportunities in their supply chain and also investing in
education and training aimed at building the skills of the local community. African
Governments should also address the constraints on intra-African trade imposed
by the lack of transport, energy, communications and water infrastructure. The
report argues that, given the scale and scope of African infrastructure needs,
there is a need to strengthen domestic resource mobilization on the continent and
also catalyse more private investment into infrastructure through public–private
partnerships. It also recommends that regional development finance institutions
should float infrastructure bonds to mobilize more funds for infrastructure
development. Furthermore, it recommends that African Governments also address
the issue of the lack of competitiveness of African enterprises, perhaps through
granting subsidies to reduce the cost of factor inputs for exporting enterprises,




131CHAPTER 5. Main Findings and Recommendations


providing better and cheaper access to finance and supporting the development
and strengthening of skills among the workforce. African Governments also need
to use economic incentives to support domestic firms in developing the innovation
capabilities critical for export success.


Establish a credible mechanism for dialogue between the State and
business


The establishment of a credible mechanism for effective relations between the
State and business is also needed to unlock private sector potential, build productive
capacity and enhance prospects for boosting intra-African trade. Although
Governments have the responsibility for setting priorities, making rules, signing
trade agreements and facilitating trade, it is the private sector that is in a position
to take advantage of opportunities created in the trading system. In this regard,
African Governments need to have regular consultations with the private sector for
a better understanding of the constraints they face and how to address them. Such
information is crucial in designing effective policies to promote entrepreneurship
and boost intra-African trade. Purposeful and predictable leadership will also be
needed to build trust between Governments and the private sector and create an
environment that can enhance and sustain dialogue between both stakeholders.
However, Governments must make sure that dialogue with the private sector is
undertaken in a way that serves the interests of society as a whole. Checks and
balances are also needed to ensure that close collaboration with the private sector
does not exacerbate rent-seeking behaviour. Transparency in dealings with the
private sector and also the inclusion of civil society in dialogues between firms and
Governments is a good way to reduce the scope for rent-seeking and corruption.


Build regional value chains


The development of regional production networks or value chains is essential
to improving competitiveness and quality standards and to broadening the
manufacturing base of African economies. The report argues that since most
African countries have a current comparative advantage in commodities, resource-
based industrialization provides one channel for the development of regional
value chains on the continent and African countries should seize the opportunity
it presents. However, it stresses that regional value chains are successful and
sustainable over time if they have a global presence. In this regard, African countries
should see the development of regional production networks as part of an overall




132 Economic Development in Africa Report 2013


strategy to improve international competitiveness and integrate the continent into
the global economy. The report argues that African countries should promote the
development of regional value chains by increasing investment in hard and soft
infrastructures, facilitating continuous upgrading for domestic firms involved in
value chains, providing business services and market information, building linkages
across firms and investing in education and innovation. In each of these areas,
national and regional industrial policies will play a crucial role.


Enhance implementation of existing regional trade agreements


The lack of implementation of regional trade agreements by African countries
presents challenges for intra-African trade. The report encourages African
Governments to enhance implementation of existing regional trade agreements,
particularly those related to the removal of tariff and non-tariff barriers, to promote
intra-African trade. More specifically, it argues that leadership by both the relatively
large and resource-rich African countries is required to enhance implementation
of existing regional trade agreements. It recommends that large and resource-
rich African countries should consider contributing a small percentage of either
their regional trade or resource revenue to build regional infrastructure and also
finance an integration fund that will be used to build supply capacity in small African
countries that may lose from regional integration in the short run.


Monitoring is also crucial to enhancing implementation of regional trade
agreements. In this context, the report recommends the use of a monitoring tool,
such as the internal market scorecard of the European Union which measures
the extent to which members have transposed regional trade rules into national
law by the agreed deadline, to put peer pressure on members who have not
implemented regional trade agreements. Strengthening existing efforts to reduce
overlapping membership of regional economic communities will also contribute to
enhancing implementation of regional agreements through, for example, reducing
compliance costs. In this respect, the report suggests that the tripartite free trade
agreement between COMESA, EAC and SADC provides a framework for dealing
with overlapping membership of regional economic communities and could serve
as a model for communities in West, Central and North Africa.


The report stresses the importance of being realistic in setting objectives and
deadlines for enhancing implementation of regional trade commitments. It also
suggests that the activities of Africa’s development partners have an impact on




133CHAPTER 5. Main Findings and Recommendations


the ability and willingness of members to implement regional trade agreements.
For example, development partners tend to prefer dealing with national rather than
regional authorities and this creates an incentive for African Governments to pursue
national rather than regional priorities, thereby undermining efforts to promote
regional integration. The report suggests that development partners should strike
a better balance between their national interests and African regional priorities to
strengthen regional integration on the continent. It also recommends that African
Governments reduce their dependence on donor resources by strengthening
efforts to mobilize domestic resources.


Rethink the approach to regional integration


The report argues that the promotion of intra-African trade should not be done
in isolation. It must be part of an overall strategy to develop the private sector
and strengthen regional integration in Africa. It calls for a move away from a linear
and process-based approach to regional integration, which focuses mostly on the
removal of trade barriers, to a development-based approach, which pays as much
attention to the building of productive capacity and private sector development
as to the elimination of trade barriers. While the elimination of trade barriers is
important, it will not lead to a significant expansion of intra-African trade if productive
capacities are not developed. Furthermore, there is a need to ensure that the
benefits of integration flow to all African countries. Using regional integration to
enhance international competitiveness and integrate African countries into global
markets is also important. Against this backdrop, the report stresses the need for
African countries to promote intra-African trade within the context of developmental
regionalism. This requires deliberate government measures to strengthen the
domestic private sector and promote industrial restructuring and economic
transformation. It also requires a strategic approach to trade policy, coordination of
investment into priority areas and strengthening of the institutions and capabilities
of African Governments for implementing economic policies. The report identifies
industrial policy, development corridors, special economic zones and regional value
chains as important tools and vehicles for promoting intra-African trade within the
context of developmental regionalism.


Maintain peace and security


Peace and security are necessary conditions for private sector development
and expanding trade in Africa. They have important implications for investment and




134 Economic Development in Africa Report 2013


entrepreneurship. They also have serious consequences for country risk premiums
on borrowing and hence access to finance for intra-African trade. Domestic and
foreign entrepreneurs are unlikely to make the investments required to boost
production and trade in an environment devoid of peace and security. Eliminating
trade barriers and lifting supply constraints are likely to have the desired impact on
intra-African trade if there is political stability and security. The report recognizes
the important role of peace and security in creating a favourable environment for
expanding intra-African trade and recommends that African Governments promote
peace and security through the adoption of inclusive growth policies, better political
governance and strengthening mechanisms for conflict prevention and resolution.


D. CONCLUSION


Boosting intra-African trade to create employment, stimulate investment, foster
growth and enhance the integration of African countries into the global economy
is one of the main objectives of regional integration in Africa. In 2012, African
leaders renewed their political commitment to boosting intra-African trade and
made a decision to fast-track the establishment of a continental free trade area.
This report welcomes the renewed commitment to boosting intra-African trade but
argues that there is a need for more effort to foster entrepreneurship and build
productive capacity for trade in Africa. In this regard, the report stresses the need
for African Governments to shift from a process and linear approach to integration,
which focuses on the elimination of trade barriers, to a more development-based
approach to integration, which pays as much attention to the building of productive
capacities and private sector development as to the elimination of trade barriers.
In this respect, the report also suggests that African Governments should create
more space for the private sector to play an active role in the integration process.
Furthermore, it stresses the need for all African countries to benefit from the
integration process and for regional integration to be used as a mechanism to
enhance the integration of Africa into the global economy.




NOTES
AND


REFERENCES




136 Economic Development in Africa Report 2013


NOTES
1 These eight regional economic communities are the Arab Maghreb Union (AMU,


5 countries), the Common Market for Eastern and Southern Africa (COMESA, 19
countries), the Community of Sahel-Saharan States (CEN-SAD, 28 countries), the
Economic Community of Central African States (ECCAS, 11 countries), the Economic
Community of West African States (ECOWAS, 15 countries), the Intergovernmental
Authority on Development (IGAD, 7 countries), the Southern African Development
Community (SADC, 14 countries) and the East African Community (EAC, 5 countries).


2 These other regional communities are the Communauté économique et monétaire
de l’Afrique centrale (CEMAC), Common Monetary Area (CMA), Indian Ocean
Commission (IOC), International Conference on the Great Lakes Region (ICGLR),
Mano River Union (MRU), Southern African Customs Union (SACU) and West
African Economic and Monetary Union (WAEMU).


3 All data used in this chapter are downloaded from UNCTADstat, based on the
Standard International Trade Classification (SITC). SITC and the Harmonized
System (HS) are two different trade classifications. SITC, developed by the United
Nations, is focused more on the “economic functions of products at various
stages of development, whereas the HS deals with a precise breakdown of the
products’ individual categories” (source: International Trade Centre). SITC is usually
recommended only for analytical purposes and is more appropriate when analysis
takes place over longer time series, especially in developing countries, as is the case
here.


4 Figures on volume growth rates are from UNCTADstat and reflect percentage
changes over the third quarter of a given year as compared to the third quarter of
the previous year.


5 Calculated by deflating the export and import values for Africa (at current United
States dollars at current exchange rates) by unit value indices on exports and
imports (base year 2000). The latter series are available for Africa in UNCTADstat as
from 2000.


6 In volume terms (at constant 2000 prices), intra-African trade amounted to 11.4 per
cent of African world trade in 2000, rose to 12.5 per cent in 2009 and fell to 11.4 per
cent in 2011.


7 The nine SITC categories are: 0, Food and live animals; 1, Beverages and tobacco;
2, Crude materials, inedible, except fuels; 3, Mineral fuels, lubricants and related
materials; 4, Animals and vegetable oils, fats and waxes; 5, Chemicals and related
products; 6, Manufactured goods; 7, Machinery and transport equipment; and 8,
Miscellaneous manufactured articles. Agriculture and agricultural products in this
chapter refer to categories 0, 1, 2 and 4, less SITC 22 (crude fertilizers etc.) and less
SITC 28 (metalliferous ores and metal scrap).


8 See http://money.cnn.com/magazines/fortune/fortune500/2012/full_list/index.html.
9 An economic corridor is defined as a geographic area in which infrastructure


investments are linked directly with trade, investment and production opportunities
as a means of facilitating regional integration.




137Notes and References


10 Gross domestic product in the subregion has grown at around 8 per cent per year
on average over the past two decades, while the poverty rate in each country has
declined substantially. For example, the poverty rate in Viet Nam fell from 58.1 per
cent in 1993 to 14.5 per cent in 2008. See Asian Development Bank, The Greater
Mekong Subregion economic cooperation program: strategic framework 2012–
2022 (Manila, 2011).


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145Economic Development in Africa series


Economic Development in Africa series:


2000 Capital Flows and Growth in Africa – TD/B/47/4 – UNCTAD/GDS/MDPB/7
Contributors: Yilmaz Akyüz, Kamran Kousari (team leader), Korkut Boratav
(consultant).


2001 Performance, Prospects and Policy Issues – UNCTAD/GDS/AFRICA/1
Contributors: Yilmaz Akyüz, Kamran Kousari (team leader), Korkut Boratav
(consultant).


2002 From Adjustment to Poverty Reduction: What is New? – UNCTAD/GDS/
AFRICA/2
Contributors: Yilmaz Akyüz, Kamran Kousari (team leader), Korkut Boratav
(consultant).


2003 Trade Performance and Commodity Dependence – UNCTAD/GDS/
AFRICA/2003/1
Contributors: Yilmaz Akyüz, Kamran Kousari (team leader), Samuel Gayi.


2004 Debt Sustainability: Oasis or Mirage? – UNCTAD/GDS/AFRICA/2004/1
Contributors: Kamran Kousari (team leader), Samuel Gayi, Bernhard
Gunter (consultant), Phillip Cobbina (research).


2005 Rethinking the Role of Foreign Direct Investment – UNCTAD/GDS/
AFRICA/2005/1
Contributors: Kamran Kousari (team leader), Samuel Gayi, Richard Kozul-
Wright, Phillip Cobbina (research).


2006 Doubling Aid: Making the “Big Push” Work – UNCTAD/GDS/AFRICA/2006/1
Contributors: Kamran Kousari (team leader), Samuel Gayi, Richard Kozul-
Wright, Jane Harrigan (consultant), Victoria Chisala (research).


2007 Reclaiming Policy Space: Domestic Resource Mobilization and
Developmental States – UNCTAD/ALDC/AFRICA/2007


Contributors: Samuel Gayi (team leader), Janvier Nkurunziza, Martin Halle,
Shigehisa Kasahara.


2008 Export Performance Following Trade Liberalization: Some Patterns and
Policy Perspectives - UNCTAD/ALDC/AFRICA/2008
Contributors: Samuel Gayi (team leader), Janvier Nkurunziza, Martin Halle,
Shigehisa Kasahara.




146 Economic Development in Africa Report 2013


2009 Strengthening Regional Economic Integration for Africa’s Development -
UNCTAD/ALDC/AFRICA/2009
Contributors: Norbert Lebale (team leader), Janvier Nkurunziza, Martin
Halle, Shigehisa Kasahara.


2010 South–South Cooperation: Africa and the New Forms of Development
Partnership - UNCTAD/ALDC/AFRICA/2010
Contributors: Norbert Lebale (team leader), Patrick Osakwe, Janvier
Nkurunziza, Martin Halle, Michael Bratt and Adriano Timossi.


2011 Fostering Industrial Development in Africa in the New Global Environment
- UNCTAD/ALDC/AFRICA/2011
Contributors: Norbert Lebale (team leader), Patrick Osakwe, Bineswaree
Bolaky, Milasoa Chérel-Robson and Philipp Neuerburg (UNIDO)


2012 Structural Transformation and Sustainable Development in Africa -
UNCTAD/ALDC/AFRICA/2012
Contributors: Charles Gore and Norbert Lebale (team leaders), Patrick
Osakwe, Bineswaree Bolaky and Marko Sakai.


Copies of the series of reports on Economic Development in Africa
may be obtained from the Division for Africa, Least Developed
Countries and Special Programmes, UNCTAD, Palais des
Nations, CH-1211 Geneva 10, Switzerland (fax: 022 917 0046;
e-mail: africadev@unctad.org). The reports are also accessible on
the UNCTAD website at www.unctad.org/Africa/series.






African trade posed by non-implementation
of regional trade agreements and provides
new insights into how to enhance imple-
mentation of existing regional agreements.


The report argues that for African countries
to reap expected gains from intra-African
trade and regional integration, they will
need to place the building of productive
capacities and domestic entrepreneur-
ship at the heart of the policy agenda for
boosting intra-African trade. In this con-
text, the report recommends that African
Governments should promote intra-African
trade in the context of developmental
regionalism. In particular, it stresses the
need for a shift from a linear and process-
based approach to integration, which
focuses on elimination of trade barriers,
to a more development-based approach
to integration, which pays as much
attention to the building of productive
capacities and private sector develop-
ment as to the elimination of trade barriers.


www.unctad.org/Africa/series


ntra-African trade presents oppor-
tunities for sustained growth and
development in Africa. It has the
potential to reduce vulnerability
to global shocks, contribute to
economic diversification, enhance


export competitiveness and create em-
ployment. African Governments have
made several attempts to exploit this po-
tential of regional trade for development,
the most recent being the decision by
African leaders at the African Union sum-
mit in January 2012 to boost intra-African
trade and fast-track the establishment of
a continental free trade area. Against this
background, the Economic Development
in Africa Report (EDAR) 2013, subtitled
Intra-African Trade: Unlocking Private
Sector Dynamism focuses on how to
strengthen the private sector to boost
intra-African trade. The report provides
some facts on intra-African trade and
highlights distinctive features of Africa’s
enterprise structure that have to be ad-
dressed to promote intra-African trade.
It also examines the challenges for intra-


Printed at United Nations, Geneva
GE.13-50583–May 2013–5,375


UNCTAD/ALDC/AFRICA/2013


United Nations publication
Sales No. E.13.II.D.2
ISSN 1990-5114


USD 28
ISBN 978-92-1-112866-6




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