The Black Dollar Part I: Cooperative Economics in Africa

Page 1


February 2022

Desiree Solomon and Jasmine Payne

The Black Dollar Part 1: Cooperative Economics in Africa

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Introduction Sustainable development starts within. Formerly a global moniker of wealth and prosperous trade, sub-Saharan Africa now accounts for the world’s largest concentration of extreme poverty.1 While the continent had thrived in intra-African trade during the 14th-18th centuries, once incorporated into the larger global market, the continent was divided, colonized, and served as the main supplier of wealth to Western Europe. Since then, the continent’s role has expanded to serve as a land of strategic importance to nations across the globe reliant on African exports. According to 2019 data provided by the United Nations Conference on Trade and Development (UNCTAD), total trade from Africa to the rest of the world averaged $760 billion in current prices in the period between 2015–2017, compared with $481 billion from Oceania, $4.1 billion from Europe, $5.1 billion from America and $6.8 billion from Asia (UNCTAD, 2019). Throughout the arduous process of gaining political independence and reassuming the agency to direct wealth accumulation, many African countries have remained financially dependent on exports and foreign aid. To combat poverty and spur economic growth, African governments accept foreign direct investment (FDI) from other countries and loans from transnational corporations (TNCs) and international financial institutions; however, in many cases, these agreements yield short-term economic benefits, cripple domestic industries and make borrowing nations more vulnerable to economic collapse. Surveying trade patterns and the history of the economic integration of pre-colonized Africa reveals the value of fostering intra-African collaborative economic methods of building wealth.

Sustainable development starts within.

1  The World Bank, Poverty and Shared Prosperity 2020 (World Bank, 2020) Retrieved from https://openknowledge.


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African nations must attempt to minimize dependency on FDI and neo-colonial partnerships and instead strengthen economic relations within themselves. IntraAfrican trade is a promising path toward creating sustainable development and decolonizing economic independence on the continent.

Africa’s Historical Wealth, Regional Economic Integration, Global Trade, and Colonization African trade and economic integration took place for centuries prior to European incursion on the continent. Complex trade routes throughout the Sahara and coastal commercial centers connected diverse regions and propelled ancient African kingdoms to participate in intra-African trade. Financial wealth accumulation boomed along these trade routes. From the 14th century kingdom of Mali2 in the west to the wealthy 16th-century city-state of Kilwa3 in modern-day Tanzania in the east, historical African kingdoms-built trade networks to circulate food, textiles, precious metals, and other consumer goods

2  Mali Empire- located in modern day Ghana 3  Kilwa Empire- located in modern day Tanzania


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across the continent. African wealth of this period garnered recognition abroad. The Catalan Atlas,4 one of the first maps of Africa that Europeans had access to, includes a depiction of Mansa Musa, ruler of the Mali empire, with a caption stating, “So abundant is the gold that is found in his country that he is the richest and most noble king in all the land” (Meredith, 2014). Other historical accounts of pre-colonial African wealth include the writings of scribes on European voyages. On the Portuguese voyage of Pedro Alvares, a scribe wrote of Kilwa, “This island is small, near the mainland, and is a beautiful country. The houses are high like those of Spain. In this land, there are rich merchants, and there is much gold, silver, amber, [mollusks], and pearls. Those of the land wear clothes of fine cotton and of silk and many fine things and they are Black men” (Freeman-Grenville, 1962). During this period, Africa was a global mainstay in trade and wealth. The advanced trade systems of this era were established and refined to maximize productivity by defining regular patterns of production in ecological trade zones; Economic Historian Erik Green describes these trade networks as highly efficient utilizing regional currencies such as small seashells or locally produced cloth and organizing markets on neutral land between villages.5 These systems allowed for a variety of production networks to develop through tropical forest zones, the savannah, and highlands each offering unique conditions for diverse production.6 Throughout the transition of regional rulers and kingdoms, the role of intra-African trade and commercial centers played an integral role in maintaining the political power and sovereignty of people groups. The shared coastal waters of Western Europe and Northern Africa, and the Middle East and the Horn of Africa, propelled cross-continental exchanges. Over time, international trade expanded and leaders from around the world sought to trade with African merchants for goods like ivory, gold, diamonds, oil, precious metals, and human capital. Africa became a continent of strategic importance to Western Europe in the 1600s as European currency relied on African gold and colonial development in the Americas drove demand for slave labor from the Trans-Atlantic slave trade. Demand for gold increased in Western Europe as the precious metal came to replace silver in their currency, “It has been estimated that as much as two-thirds of Europe’s requirements of gold came

4 Library of Congress Geography and Map Division, Mapamondi Catlan Atlas (Library of Congress, n.d) Retrieved from,0.061,1.559,0.699,0 5  Kilwa Empire- located in modern day Tanzania 6 Frankema, Ewout, Green, Erik, Hillbom, Ellen, Kufakurinani,, The History of African Development. An Online Textbook for a New Generation of African Students and Teachers. (African Economic History Network, 2022) Retrieved from: https://


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by camel caravans crossing the Sahara Desert” (Meredith, 2014). Likewise, as Britain, France, Spain, and Portugal colonized the Americas, the need for human labor intensified, and among the many resources and commodities exchanged through African trade routes, human capital was a major African export. According to historical records of the Gilder Lehrman Institute of American History, “From approximately 1526 to 1867, some 12.5 million slaves were shipped from Africa, and 10.7 million arrived in the Americas,” (Mintz, n.d.).7 The trade of enslaved Africans was commonplace within Africa. Enslaved Africans were groups of war captives, refugees, and stateless peoples who were often traded throughout the continent; but as Western Europe moved The inundation to colonize the Americas, an increased demand for of foreign slave labor drove the supply further. The inundation of currency and foreign currency and mass export of goods during this mass export period of increased trade caused inflation within African of goods during economies. Experts estimate that these gold exports this period of depressed the relative value and purchasing power increased trade of the multiple currencies used in sub-Saharan Africa, caused inflation accelerating the process of currency devaluation.8 As within African the increase in the need for plantation labor mounted economies. with the expansion of settler-colonialism in the West, African nations ramped up efforts to gather war captives, refugees, and stateless peoples and sell them to European traders. The European industrial revolution catalyzed the need for greater control over African resources, such as gold, palm oil, cotton, diamonds, and rubber, and to direct trade along essential African exchange routes. Ultimately, during the Berlin Conference of 1884, European nations partitioned the African continent placing it officially under Western European control. Ethiopia is a notable exception to this as they fought off European

7 Steven Mintz, Historical Context: Facts About the Slave Trade and Slavery (The Gidler Lehrman Institute of American History, n.d.) 8 Toby Green, Africa and the Price Revolution: Currency Imports and Socioeconomic change in west and west-central Africa During the Seventeenth Century (Cambridge: Cambridge University Press, 2016) p. 5


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influence and maintained independence throughout European incursion on the continent.9 Colonization led to the degradation of traditional intra-African trade partnerships as Western powers prioritized sending wealth back to Europe.10 During this period, African kingdoms shifted to a European commodity-based trading system that prioritized single cash crop agriculture and trade networks that sought to meet the demands of the imperial state. This process effectively integrated colonies to European economies through trade controls directing local production. Economic historians describe Africa as a net exporter of its wealth during this period due to imperial trade controls.11 African supply followed imperial demand; with an increased need of gold supply for currency, gold cultivation was ramped up followed by cotton, palm oil, petroleum, diamonds, and other precious metals. This consumer product prioritization was done without consideration of the impact on local economies. As wealth in colonized African states dwindled, the governmental infrastructure of pre-colonial kingdoms on the continent also suffered fracturing.

African Economic Decline and PostColonization Economic Insecurity Where pre-colonial Africa was known for its diverse trade and consumer goods, postcolonization African economies were focused on the production of single cash crops. These structural economic policy changes created a dependency structure whereby the colonized nation-state became increasingly dependent on the imperial state. Government revenue of African nation-states was largely derived from trade; however, while under foreign administration, trade revenue was spent at the discretion of the colonizing power often pursuing infrastructure projects that advanced extraction and sale of resources valuable

9 Liberia is a unique and contested case in regards to the history of its colonization as it served as a point of pseudo repatriation for African Americans in the 1800s under the administration of the American Colonization Society. See Library of Congress 10 Joshua Dwayne Settles, The Impact of Colonialism on African Economic Development (Knoxville: University of Tennessee Chancellor’s Honors Program Projects, 1996) p.7 11 Steven Mintz, Historical Context: Facts About the Slave Trade and Slavery (The Gidler Lehrman Institute of American History, n.d.)


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to the global market with little consideration of local market development.12 Imperial leaders directed infrastructure projects to improve the efficiency of imperial resource management, but there was scant incentive to foster intra-African integration during this time. Africa’s economic stability was at an all-time low during World War II when Western European states’ war-financing needs led to further economic expansion on the continent. This caused an increase in investment in the single cash-crop system resulting in low-cost exports. Historian Emmanuel K. Akyeampong described this process by stating, “Colonial rule and postcolonial economic dynamics homogenized African economies into producers of similar goods, marginalized intra-African trade, and privileged external trade as the main driver of growth in Africa” (Akyeampong, 2015). This cash-crop model is still emulated today and is depicted in the map below.

Orbitt, African Trade and Finance, (Orbitt Capital, 2020) Retrieved From: African-Trade-Finance_Mind-the-technology-gap_Orbitt-paper.pdf

12 Toby Green, Africa and the Price Revolution: Currency Imports and Socioeconomic change in west and west-central Africa During the Seventeenth Century (Cambridge: Cambridge University Press, 2016) p. 5


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The formation of the United Nations (UN) and the passing of the UN Charter of 1945 called for the independence of all people and ushered in an era of national liberation on the continent. During the era of independence from 1950 to 1970, African nations were scantly integrated regionally and had isolated economies. Financial independence was a major priority of African governments across the continent. Now fractured under a foreign nation-state structure with haphazard sovereignty, new African nation-states began to establish national identities, reassess trade and economic models to drive economic growth, and found consolation in Pan-Africanism.

Political Independence and Steps Towards Economic Security Throughout the African era of independence, coalitions of leaders across the continent banded together to form pan-African organizations promoting growth and economic development. According to its website, the Organization of African Unity (OAU) was founded in 1963 to “foster political and economic integration and eradicate imperialism among the 32 signatory member states” (OAU, n.d). The African Development Bank (AfDB) was founded through a multinational agreement in 1963 to drive sustainable economic development among its regional member countries and support poverty reduction. According to AfDB records, “From the very early stages, and often with reference to major market networks.13 In the 1990s, the OAU lost its institutional relevance and stature as the hope for economic and political independence due to the lack of international policy enforcement mechanisms among member states. OAU member states were unable to effectively address these challenges and the organization diminished into a platform for political theatre. The African Union (AU) was officially launched in 2002 to replace the OAU and rectify the challenges the OAU faced. During this period of independence, many African nations’ economies remained closely tied to imperial nations through foreign aid and agreements with international financial institutions. Through the development of pan-African partnerships, African countries took strides towards economic development but could not sever imperial ties completely.

13 African Development Bank Group “Bank Group’s Evolution” (n.d.).


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The World Bank and International Monetary Fund In the 1980s international financial institutions emerged as leaders in crisis management and economic development. Two organizations served as primary lenders to countries that were financially struggling, the World Bank and the International Monetary Fund (IMF) also known as Bretton Woods Institutions. Africa’s engagement with these international financial institutions came with both benefits and risks to economic development on the continent. These institutions have had long history of lending across the globe and overseeing loan programs throughout the African continent to date. The World Bank distributes many of its grants through the International The World Bank Development Association (IDA), an institution distributes many of established in 1960 that “helps the world’s poorest its grants through countries.” The IDA aims to reduce poverty by providing the International zero to low-interest loans (called “credits”) and grants Development for programs that boost economic growth, reduce Association (IDA), inequalities, and improve living conditions (IDA, 2022). an institution The IDA has distributed almost $160 billion since 1960 established in 1960 to 114 countries with low-interest rate loans that can be that “helps the repaid up to 40 years later (World Bank, 2022). The IDA world’s poorest reports that 39 of the 74 countries they support are in countries.” Africa, with 70% of the $60 billion invested since Fiscal Year 2019 allocated to the continent (World Bank, 2021). The International Monetary Fund (IMF) has had a similar relationship with African countries, as they too provide financial assistance to help facilitate development objectives. According to their website, “The IMF provides financing to member countries experiencing actual, potential, or prospective balance of payments problems to help them rebuild their international reserves and restore conditions for strong economic growth while correcting underlying problems” (IMF, 2020). In 1961 the IMF founded its African Division to support the influx of Sub-Saharan member countries joining the organization during the African era of independence (IMF, 2021). With a lending capacity of 1 trillion, the IMF has provided $91 billion in financing


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since the onset of the COVID-19 pandemic, demonstrating that countries increase their dependence on foreign aid during national financial crises. Although engaging in loan programs with the IMF and World Bank has demonstrated some benefits to African economies, these institutions have been criticized for their lending practices. They can undermine national sovereignty and create loan systems that make borrowing countries more dependent on the global trade market. Much of the scrutiny these institutions receive is due to the conditionality frameworks in their loan agreements. Often IMF and World Bank loans require borrowing countries to implement Structural Adjustment Programs (SAPs). The use of SAPs began in the 1980s during a period of state-building when African countries sought financial assistance to enact reforms following decades of colonization. SAPs mandate economic reforms as a condition of countries receiving funding from the IMF and/or World Bank. These reforms were often market-based guidelines requiring that borrowers privatize industries, eliminate price controls, and ease taxation policies. SAPs and the conditional policy changes required by the IMF were to ensure that the borrower could repay the loans they received.14 A conditional framework the IMF often implemented was the elimination of price controls—a policy that would increase the supply of major African exports to meet global demand. This would make the borrowing country’s top exports more competitive globally. The strategy here was to bolster a country’s competitive standing by increasing the supply of essential market goods, the sale of those exports, and consequently the country’s trade revenue. These policies have been critiqued for their impact on local small-scale agricultural industries as the policies would expose farmers to the world economy where lower prices were more competitive, pushing local farmers out of the market unable to keep pace with global economic trends. To keep up with the global market would require “…constant reduction in costs through research and its application as well as constantly declining transaction costs through constantly increasing investment in rural infrastructure. Without these, a nation cannot compete it is no accident that it is African nations that suffer the most from declining commodity prices” (Food and Agriculture Organization of the United Nations, 2003).

14 International Monetary Fund, IMF Conditionality (International Monetary Fund, 2021) Retrieved from: en/About/Factsheets/Sheets/2016/08/02/21/28/IMF-Conditionality


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These requirements often failed to consider cultural norms, lacked local leadership perspective, and led to inflation, hindering the ability of the programs to expand the impact and even cause job loss. SAPs often undermined the utility of funded programs by implementing neocolonial practices that led to minimal growth for the borrower but proved beneficial for the global trade market. As such, these programs were met with scrutiny, with scholars stating that they were “Anchored in neoliberal frameworks that failed to take into account the realities of Africa’s socio-economic inequalities. A host of issues arose with the implementation of SAPs spanning beyond economic consequences. This resulted in major underdevelopment in Africa with massive cuts in health and education” (Daniel, 2016). A 2017 study found that the World Bank’s influence led to African maternal health decline and other health-related downfalls as program requirements encouraged borrowing countries to cut spending and increase exports. The cuts in spending were often in health programs which led to diminished government funding for services and essential care—consequently decreasing access to health facilities (Coburn, 2017). A practical example of the kind of economic policy change required by a SAP was the lending requirements imposed in an IMF agreement with Uganda. Uganda was required to liberalize trade, eliminate price controls, reduce export taxation and strongly encouraged to privatize as a condition of securing IMF funding. The privatization of domestic industries accustomed to communal sharing coupled with the decrease in public funds due to the reduction of export taxation proved risky. Rural farmers benefited, but only a small percentage; health outcomes increased but only for select people; privatization led to


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increased government and corporate gains, but the benefits did not trickle down equitably to citizens as economic growth failed to translate to improved health and education outcomes for most Ugandans. Still, countries like Uganda were inclined to apply structural adjustments and as an incentive to adhere to these adjustments, were later prioritized in subsequent debt relief programs. In 1996, the World Bank and IMF created the Heavily Indebted Poor Country (HIPC) Initiative which provided debt relief for SAP abiding countries that had ‘unsustainable debt’ as well as low enough GDPs and other economic considerations to be considered a “poor country.” Uganda was the first country to receive relief from the program, resulting in a $650 million reduction (Archibong, 2021). The cycle of borrowing and building up a crushing debt burden has proven to be risky, resulting in bailouts due to loan repayment delinquency and struggling economies. Countries that did not qualify for loan forgiveness struggled to repay their loans because prior international financial institution funding yielded minimal to no economic gains. Repayment whilst struggling from recessions and other strife proved difficult, and even the IMF recognized the dilemma that repayment presented as it required financing through domestic saving, external borrowing, or divestment from important government programs (Ghosh, 2021). Still, countries sacrificed to make payment timelines and maintain good standing with these financial institutions. The pressure for timely repayment was demonstrated in Zimbabwe when former president Robert Mugabe abruptly repaid over $130 million to the IMF to avoid expulsion from 2005-2006. The immediate use of the funds for a lofty repayment depleted the country of essential resources such as food, petrol, and other goods to facilitate trade. Throughout the term of the loan, the IMF also The immediate use denied loans for economic development projects but funded defense requests which impacted potential of the funds for a opportunities for financial gains in the country (Bond, lofty repayment 2005). Though IMF loans were once celebrated, leaders depleted the eventually developed angst. Mugabe later said, “We country of essential have never been friends of the IMF and we shall never resources such as be friends of the IMF. The IMF is never of real assistance food, petrol, and to developing countries. It is wielded by the big powers. other goods to It is the big powers which dictate what it should do” facilitate trade.


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(NBC, 2005). Though Zimbabwean leaders expressed animosity toward the organization, the IMF continues to play a powerful role on the continent due to the relentless need for financing. In 2016, Mugabe reportedly petitioned support from the IMF to address a severe drought (Reuters, 2016) and made additional repayments to speed reconciliation. Zimbabwe still did not receive any funding (IMF, 2022). Today, neither the IMF nor the World Bank lends to Zimbabwe due to arrears and external debt (outside of highly specialized situations) (IMF, 2021& World, Bank,2022). Leaders in Zimbabwe and other African countries continue to weigh the cost of incurring long-term debt and facing the risk of increased foreign control in domestic matters versus solving immediate needs and financing development projects.

Risk of Foreign Investment: China Coupled with the risks posed by financial institutions, African countries also face the risks of foreign investment specifically from China and the United States. China is Africa’s biggest bilateral trading partner and lender with trade-in 50 African countries. Between 2016 and 2020, China invested over $70 billion in FDI, creating almost 170,000 jobs (Ernst and Young, 2021). African countries benefit from Chinese trade as it correlates with increased economic integration with other countries across the globe, diversified trading options, and provides the infrastructure to increase productivity (Stein, 2021). Additionally, key Chinese investments included the Belt and Road Initiative15 in 2013 which increased funding and helped provide paths for other economic vehicles through the increased development of critical infrastructure (Dynamic, 2021). The Belt and Road Initiative, a cross-continental infrastructure project, connects over 30 countries and eases the movement of trade products to China by building railways, energy pipelines, and streamlined border crossings. This Initiative demonstrates the impact of Chinese investments and how it shapes African trade infrastructures.

15 A Chinese initiative to build infrastructure across the world in which Africa received over $60 billion (China Africa Research Initiative and Boston University Global Development Policy Center, 2021)


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Though Chinese investments have been lauded there are also negative consequences, particularly involving China’s motivations to help foster development in Africa. Scholar Stein notes that “One can identify three more or less explicitly stated Chinese goals when it comes to economic relations with Africa: access to the continent’s natural resources; export markets for Chinese manufactured goods; and sufficient economic and political stability for China to safeguard its citizens and pursue its economic and commercial interests” (Stein, 2021). These motivations are not always mutually beneficial, and the short-term economic gains African trade partners experience can have negative consequences in the long term. For example, in the short-term African countries enjoy the influx in capital provided by Chinese lenders that help to propel infrastructure projects. In the long-term, the compounded debt burden from these transactions can lead to external political influence on domestic issues, contribute to labor shortages due to competition with Chinese migrant workers, and the strain of high repayment costs. In fact, African debt to China has risen so high, that even the IMF and World Bank asked China to forgive it (Dynamic, 2021). Chinese influence also extends to African trade priorities. Chinese imports amounted to $113 billion, while African exports to China were only $78 billion in 2019. In the last decade, China has exported more than they imported to each country in Africa, even when comparing the percentage of trade with other countries (Stein, 2021). This trade imbalance leads to increased imports from China and diminished economic gain for African countries. Outsized influence due to lending and the opportunity of increased trade can lead countries to ignore the imbalance of imports to exports.

Risk of Foreign Investment: United States Similarly, the United States’ investments have both positive and negative impacts. The United States Department of State asserted, “African businesses and American investors are natural partners. Africa offers incredible growth, innovation, and opportunity; the U.S. offers the largest capital markets in the world and a commitment to the highest standards of quality and transparency” (U.S. Department of State, 2020). Between 2016 and 2020, the United States invested $23.7 billion in Africa, creating 54,000 jobs (Ernst and Young, 2021). The United States participates in many large development projects in Africa, including the African Growth and Opportunity Act (AGOA) first passed in 2000, the Doing Business in Africa Campaign, Power Africa, Trade Africa, and now the Prosper Africa Initiative. In the private sector, Africa is a key trading partner for oil and major United States businesses such as Western Union, Anheuser-Busch, Microsoft, and Coca-Cola (Devermont, 2021).


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Though private trading and diplomatic partnerships seeking to propel development goals persist, American public investment has stagnated with questions about the productivity of the investments and antiquated opinions of Africa. Government leaders ponder the relevance and efficacy of their investments; in consequence, U.S. trade in Sub-Saharan Africa equates to less than 1% of the total U.S. traded goods (Harris, 2021). The U.S.-Africa relationship exemplifies the complexity of dependence on external investment and trade. It demonstrates the difficulty in severing political influence from economic partnerships, especially in nascent governments. As Africa seeks to minimize influence counter to their democratization efforts, the United States’ investment strengthens democratic infrastructure and more closely aligns with the political frameworks that many African nations are working to build. This lack of investment hinders Africa because the United States has the preferred model of future development in the country as Africans believe in the American example of democracy more than the Chinese (Afrobarometer, 2021). The lack of current U.S. investment leaves Africa susceptible to more predatory investments that can compromise state sovereignty.

African Continental Free Trade Area The complicated politics of borrowing coupled with the limitations of investments and trade from other entities highlight the importance of intra-African trade and cooperative


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economic strategies. To improve measures for intra-African trade, on March 21, 2018, African leaders established the African Continental Free Trade Area (AfCFTA). Trade under this agreement began on January 1, 2021, as a project of Africa’s development framework Agenda 2063, a strategy to increase economic growth and development. AfCFTA aims to increase intra-African trade as well as trade across the globe through improving conditions. To accelerate growth and liberalize trade for African economies, signers agreed to remove intra-African trade tariffs on 90% of goods (Asiedu, 2018). Tariff relief would help intra-African trade, significantly improving it by over 52% (United Nations Economic Commission for Africa, 2018). Though tariff relief is a key component, AfCFTA has a comprehensive list of plans intended to improve trade. The objectives of AfCFTA are as follows: 1.

Create a single market for goods, services, facilitated by movement of persons in order to deepen the economic integration of the African continent and in accordance with the Pan African Vision of ‘An integrated, prosperous and peaceful Africa’ enshrined in Agenda 2063;

2. Create a liberalized market for goods and services through successive rounds of negotiations; 3. Contribute to the movement of capital and natural resources and facilitate investments building on the initiatives and developments being undertaken by the State Parties and RECs; 4. Lay the foundation for the establishment of a Continental Customs Union at a later stage; 5. Promote and attain sustainable and inclusive socioeconomic development, gender equality and structural transformation of the State Parties; 6. Enhance the competitiveness of the economies of State Parties within the continent and the global market; 7. Promote industrial development through diversification and regional value chain development, agricultural development and food security; 8. Resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes (African Union, n.d.).


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The AfCFTA is projected to produce meaningful long-term economic gains for Africa. Researchers assert that “It will increase the need for connectivity, providing new opportunities to invest in infrastructure and sectors ranging from transportation and energy to information and communications technology (ICT) and water supplies. By 2030, Africa may emerge as a $2.5 trillion potential market for household consumption, $4.2 million for business consumption, and have $6.7 trillion in consumer spending due to the 1.7 billion people who will live there (Signe, 2018). By 2040, it could increase trade by 25% (or $70 billion) compared to the market without AfCFTA. These gains are due to the unique way that AfCFTA is crafted, which exceeds traditional free trade areas by including services, investments, e-commerce, intellectual property rights, and competition (Songwe, 2019). With these improvements, the Gross Domestic Product (GDP) can skyrocket. If AfCFTA is successful, it would create a single African market with $3 trillion in GDP, the largest free trade area on the globe. IMF projections shown below illustrate that the anticipated GDP growth with AfCFTA more than quadruple that of the European Union in 2030.

(Bisca, et al 2021)

Another intra-African trade program, the Boosting Intra-African Trade program (BIAT), accompanies AfCFTA in efforts to streamline pan-African trade procedures. Created in 2011, African leaders devised the BIAT to expedite pan-African free trade (African Union, n.d.). Though the BIAT predates AfCFTA, it is far less comprehensive. Its goals were to bolster trade by addressing trade policy, finance, information, and facilitation, as well as


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product capacity and factor market integration16 (Songwe, 2019). African leaders were able to evaluate the successes and limitations of the BIAT and create a more robust framework for intra-African trade established in the AfCFTA.

Intra-African Trade: Addressing Barriers and Forging a Path Forward Intra-African trade, the key objective of AfCFTA, is critical in addressing the dichotomy of exceptional African resource wealth and extreme poverty rates. In pre-colonial times, African countries fulfilled their needs for vital resources by trading with their neighboring African kingdoms. Today African countries produce similar exports utilizing the same single-crop model introduced during colonization to benefit the global market. Despite the wealth of resources on the continent, when intra-African trade is weak, African countries rely on resources integral to national security from Japan, the United States, China, and Europe which present an undertow of used and charitable resources into a land built upon natural wealth. Extra-African trade infuses the global market with some of the world’s most critical raw materials such as Coltan, oil, gas, textiles, precious stones, metals, jewels, and other minerals. Without African goods, countries across the world would experience immense daily disruption, shortages, and resource lapse; the absence of these goods would disrupt global supply chains as Africa contains 90% of the world’s chromium and platinum, 40% of the gold, 30% of the mineral reserves, 12% of the oil, and 8% of the gas (United Nations Environment Programme, n.d). Despite the richness of resources, 67% (478 million people) of people who live in extreme poverty at $1.90 or less per day live in Africa (World Bank, 2021). Researchers describe this contrast as the “resource curse.” The resource curse describes the paradox of how resource-rich countries do not benefit from the resources in their countries and the failure of governments in those countries to respond to public welfare needs. The resources curse has a formula that is true for many African countries and informs the cause of great poverty in certain African countries. Coupled with the history of exploitation and longstanding ominous lending and granting from extra-African sources, the various causes of the resource curse call for greater intraAfrican trade. Countries rich in oil, mineral, and gas are distinct because the resources are



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non-renewable, volatile, and have large upfront costs. The upfront costs are dangerous for African community members. The process of extraction can lead to harmful conditions for the surrounding community. Governments grapple with the health interests of the people due to the dust, explosion risks, and other causes of disease compared to the benefit of cash infusion into the economy to pay for public goods that may address these health concerns. This is largely because there is less scrutiny of government spending when the taxes are largely generated from resources rather than from citizens. The lack of accountability makes it easier for corruption because income from oil projects is outside of regular budgets enabling government leaders to seize and distribute the money clandestinely. Limited accountability also leaves countries susceptible to poor planning. The ability to trade externally is volatile with natural resources; therefore, concrete plans are required to temper social spending amidst volatile markets. The diagram below demonstrates this divide.

The diagram narrates how governments without ample citizen input could fail to meet the need for public goods. Additionally, the supply limits of natural resources breed conflicts among countries. Oil-producing companies are twice as likely to have civil wars as nonoil-producing countries (Natural Resource Governance Institute, 2015). Consequently, war and conflict beget competition between groups potentially hindering intra-African trade that leaves African people to prioritize extra-African trade instead of depending on African allies. Stephen Karingi, the Director of Regional Integration and Trade at the United Nations Economic Commission for Africa notes, “Peace and security ‘create environments conducive to the pursuit of regional integration and the attainment of broader continental development objectives” (Economic Commission for Africa, 2021).


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Investing in collective economic strategies and economic integration through intraAfrican trade can help African countries shield themselves from forced privatization and government influence. Abandoning economic policies of the colonial past, neocolonial methods of wealth building and foreign government influence helps burgeoning democracies create safer countries with fair and legal trading systems. Mutual cooperation between African countries enables trade in addition to resource and knowledge sharing. Economic growth and democratization are symbiotic processes. Scholars find that democratic political institutions are more likely to participate in free trade than autocracies as democratization paves avenues for freer trade (Durmaz and Kugochi, 2018). Democratization promotes local leadership and makes it more likely that trade policies integrate local values and norms. Studies show that even marketbased reforms could improve economic growth if implemented with state participation (Archibong, Coulibaly & Okonjo-Iweala, 2021). Additionally, local influence promotes governance that is inclusive of the needs of African people and democratization to secure fairly elected leaders. Unbound from foreign economic and ideological mandates, country leaders are better positioned to make decisions in the interest of the citizens. Intra-African trade integrates cooperation across multiple sectors promoting the overall public good. With The increased AfCFTA, the Human Development Index is projected supply and to grow 30% between 2018 and 2063. Primary and demand within secondary cities are projected to grow by at least solely African 33% with some cities expected to grow 18-fold, networks facilitated further attracting resources to the city, and providing through intra-African opportunities in health and education that create trade would also a cycle of further intra-African trade. The increased open new markets supply and demand within solely African networks such as e-commerce. facilitated through intra-African trade would also open new markets such as e-commerce. As a consequence of demand produced through e-commerce, electricity access is projected to increase (Bisca, et al, 2021). This would be a pivotal accomplishment in African development, demonstrating the strength of intraAfrican network-building, as 600 million people currently do not have electricity, and data projections suggest this will only decrease by 70 million in 2030. (IEA, Irena, UNSD, World Bank, WHO, 2020). Though intra-African trade is key to sustainable development and financial prosperity, data reporting on these trends can be misleading. The misconceptions regarding the frequency and success of intra-African trade stem from data from countries with large


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economies like Egypt, South Africa, and Nigeria, who frequently trade externally. Another factor contributing to this data misrepresentation is that several countries export oil which leads to higher extra-African trade rates but only for select oil-rich countries. Countries in northern Africa also skew perceptions of extra-African trade because they are geographically more prone to extra-African trade than other countries due to their proximity to Europe. Current data reveals that intra-African trade has always occurred, especially in landlocked countries which are dependent upon intra-African trade for goods. Despite its prevalence, intra-African trade is underreported by an estimated 11-40% (Mold, 2021). Though a sizable portion of intra-African trade goes unreported, the data on existing informal trade practices is evidence of the current demand. The establishment of AfCFTA increases pan-African trade and formalizes exports to provide more data on supply and demand trends that inform African businesses working to meet consumer needs. The Brookings Institution table below illustrates the large reporting disparities.

As trade among African countries is more recognized and expands, it can further address issues produced from external trade by combating job and product competition. United Nations Economic Commission for Africa (UNECA) data demonstrates that intra-African trade results in more manufactured and processed goods, knowledge transfer, and improved quality of products (Songwe, 2019). The number of available jobs for Africans has dropped as countries that were eager to trade lowered their taxes to incentivize purchases and allowed migrant workers to participate in African labor market as a trade concession. Their intention was to lower the costs in the short term to produce long-


CPAR | The Black Dollar: Cooperative Economics

term job growth with increased demand from consumers (Natural Resource Governance Institute, 2015). This does not always materialize and trade with extra-African countries sometimes increases competition for goods and labor. It can even lead to job loss with competing external goods beating out African goods and eliminating suppliers and consequently, the need for the jobs at the supplier (Stein & Uddhammar, 2021). Job loss deeply impacts the continent as more than 20 million Sub-Saharan African youth enter the workforce every year (Thurlow and Mueller, 2020), causing a need for at least 1215 million jobs created annually to employ them (Coulibaly, Ghandi & Mbaye, 2019). Job demand increases when considering that life expectancy is projected to grow by 13 years in 2063 (Bisca 2021). Increased intra-African trade helps to create more jobs in Africa for those seeking to continue their education, feed their families, and craft their versions of success. Studies show that AfCFTA increases the value of intra-African exports improving African business sustainability and further promoting job production (Songwe, 2019).

Conclusion Africa is currently at a critical juncture in development. While some countries forge ahead in building successful economies, many countries on the continent continue to battle endemic poverty and rely on international partners to uplift industry. Foreign direct investment (FDI) from the international community is the primary resource for development initiatives on the continent; however, these loans can cause a mounting debt burden that actively degrades state sovereignty and sustainable development goals reminiscent of the continent’s colonial past. Surveying trade patterns and the history of the economic integration of pre-colonized Africa reveals the value of fostering intraAfrican collaborative economic methods of building wealth. African leaders should identify and mitigate the economic risks of dependence on foreign investment reminiscent of its colonial past. These risks compromise national security, increase foreign debt burden and prove to be unsustainable in reaching development aims alone. Countries should seek to restrain FDI where possible and minimize high-risk loans by fostering intra-African trade, diversifying exports, and developing increased economic integration within the continent. Increased economic cooperation within the continent is key to a strong and sustainable devolvement future.


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