HR and Legal Lunch and Learn Session

HOW INTER-TRADE POLICIES IN AFRICA HELP INVESTORS

HOW INTER-TRADE POLICIES IN AFRICA HELP INVESTORS

INTER-TRADE POLICIES – Africa, a continent consisting of 54 countries has immense potential to be a force in the international market of the world. The continent is blessed with human capital, skilled and unskilled labor, massive market shares, and natural resources; Africa has everything it takes to improve its international standing in world production. Sadly, with the natural endowment that Africa is blessed with, there has been a consistency in failure to take advantage of those blessings which are already looking like a curse. 

Did you know that in the early 1960s, Nigeria, a West African country was the largest producer of oil palm with a global market share of 43%? What a massive impact it would have had on its GDP. Unfortunately, the country lost that dominance to Malaysia and Indonesia in 1966, and both countries contributed 80% of the total production of that commodity. It was reported that Nigeria would have made up to $20 billion annually if they kept that dominance. Many people thought the advent of crude oil was responsible for the fall in palm oil supply, but that was not the case. It had more to do with the lack of investment and eventually, the project was abandoned.

INTER-TRADE IN AFRICA

Inter-trade, also known as international trade is the trade between two or more countries. There is a need for countries to engage in international trade because the production pattern of each country differs.

What makes up the production pattern of a country lies within the natural resource and skillset of that country. You cannot expect a country with the majority of its laborers in agriculture to produce a car, neither can you expect a country filled with engineers to dominate in agricultural production. It will cost more for countries with fewer natural resources to produce goods that require those resources thereby, making many countries practice absolute cost advantage. They produce what they are specialized in for export and they import products that will cost them more to produce in the first place. This is why international trade is so important due to the difference in the cost of production for each country especially in Africa who has so much promise.

Africa countries have so much in common. Aside from the high level of poor governance and political instability, they also produce similar goods and services, especially agriculture and tourism. The continent is highly dependent on the primary stage of production which is agriculture. Because about 60% of Africans dwell in rural areas, the manufacturing industry is underdeveloped. In fact, Africa only contributes a small share of 1.5% of the total manufacturing output of the world. Agriculture in Africa contributes about 15% of the total GDP with just two countries heavily responsible for one-third of the production process. 

Investment is highly lacking in the agricultural sector with many farmers still using crude methods to cultivate and harvest their products. Not only do the products get attacked by pests and diseases, but poor infrastructure like good roads also affect the transportation of these goods to the market where they can be sold. These are some of the major challenges that affect the production of goods and services on the continent.

INTERNATIONAL TRADE POLICIES IN AFRICA

Decisions made by countries to either improve trade relationships or create barriers are known as inter-trade policies. What trade policies do is ensure that the best interests of all parties are achieved. A country will only look at policies that will improve its standard of living and boost productivity.

Trade policies are ways to manage and monitor what is imported and exported. For example, a country can ban a commodity from being imported to improve its home production of that product, which may benefit the home country. Another example may be to foster inter-regional relationships between countries by allowing free movement and minimal tariffs within the agreeing countries. This is mostly found in the European Union, Union of West African Countries, North America, and East African Union. The benefit of these trade agreements is to create partnerships between the countries in the agreement and build strong relationships to improve the region’s productivity.

It is important to note that even with these trade agreements in place to foster unity among countries, there has been little improvement in that aspect. Gambia and Senegal share the same borders in West Africa and are both members of the Economic Community of West African States (ECOWAS), but both countries hardly interact with each other in terms of trading. While Senegal conducts trade with France, Gambia does the same with the United Kingdom. This shows the lack of relationship between the duo.

Trade policies in Africa are subject to the countries dealing in trades which means every country has its independent policy and can set its own rules. While international trade within Africa is subject to the regions where the countries are situated. Regional unions in Africa include:

  • Arab Mahgreb Union (AMU): Countries involved include Algeria, Morocco, Egypt, Libya, Mauritania and Tunisia. Established in February 1989, the goal of the north African countries was to safeguard their asset which happens to be oil and gas. Sadly, not enough has been done to achieve that goal due to the conflict between the member nations and their last major meeting was held in July 2008.
  • Economic Community of West African States (ECOWAS): This union was established in May 1975 by 15 west African countries that include Cape Verde, Gambia, Guinea, Guinea Bissau, Cote d Ivoire, Ghana, Senegal, Togo, Nigeria, Benin, Burkina Faso, Liberia, Mali, Sierra Leone, and Niger. Both countries are dual lingual with French and English as the official mode of communication. The union do not only look out for each other in term of economic growth, they also help in peacekeeping missions and monetary support. Ecobank was a product of one of the union agreements. The goal of ECOWAS is to ensure there is free trade and free movement among its member countries and there is also a plan to introduce a common currency for international trade between the member countries.
  • Economic Community of Central African States (ECCAS): This union consist of Central African countries that seek to achieve collective autonomy, raise the standard of living of their populations and maintain economic stability through cooperation. The union was founded in 1964 with five member countries including Cameroon, the Central African Republic, Chad, the Republic of Congo, and Gabon. Equatorial Guinea later joined the union on 19 December 1983. The union practice a common market among its member countries and there is a level of integration among these countries.
  • Common Market for Eastern and Southern Africa (COMESA): This is a union that practice free trade without restrictions among 21 countries mainly found in the eastern and southern parts of Africa. The union was established in December 1994 with 9 member countries which include Djibouti, Egypt, Kenya, Madagascar, Malawi, Mauritius, Sudan, Zambia and Zimbabwe. Other countries that later joined were Rwanda, Burundi, Comoros, Libya, Seychelles, Tunisia, Somalia, DR Congo, Eritrea, Ethiopia, Uganda,  and Eswatini.

HOW CAN INTER-TRADE POLICIES IN AFRICA HELP INVESTORS?

  • Common Market: Common market is established when there is a free movement of goods and services, labour and capital among member countries in that market. Furthermore, there must be no trade barrier like tariffs and quota payments for goods and services to be imported among member countries, but all these restrictions should apply to countries outside the union. With the free movement of these factors of production, investors have a lot to gain in terms of the high supply of resources. When the availability of factors of production are high, there will be an increase in output which will bring about efficiency and production and a rise in profitability.
  • Large Consumer Market: With free trade, consumption of products and services would not be restricted to the home country alone. The market size will increase, which will benefit investors who want to expand their production. The larger the target market size, the larger the size of investment in the production of goods and services demanded.
  • Political Stability: A country cannot develop amid wars and conflicts caused by religion, politics, and tribe. This will discourage investors from making a move that would have improved the standard of living for that country. Inter-trade policies also ensure that member countries in unions experience peace by dialogue with conflicting parties.
  • Monetary Aid: Member countries in a particular union may not have an equal amount of financial strength due to their size or population. The union provides loans and grants to boost the financial standings of these countries so they can embark on infrastructural projects to make their country attractive to investors. A major player in Africa is the Africa Development Bank (ADB) and its mission is to help reduce poverty, improve the standard of living of Africans and direct resources to the right place for the continent’s economic and social development.

Africa stands to gain more when investors see policies that would benefit them in the long run, especially in international trade among countries on the continent and beyond. There is a need for Africa to ensure that its natural resources are well utilized and are adequately reinvested. 

Leave a Comment

Your email address will not be published.