TRADE AND INVESTMENT
Will free trade agreements save intra-regional trade? With so many regional integration groups on the continent, Peter Draper tackles the question of why the continent is lagging behind on intraAfrican exports, which could potentially be a huge money spinner.
loser economic integration is frequently advocated for the African continent, and enthusiastically endorsed by politicians and business people alike. There is no shortage of corresponding integration schemes, generally dubbed ‘Regional Economic Communities’ (RECs). There are 14 in all. Many countries are members of two RECs and some, like Swaziland, are even members of three such groups. If enthusiasm was a guide, all should be well on the regional economic integration front in Africa. But it isn’t. Compared to other regions of the world, intra-Africa exports, at approximately 18 percent of total exports, lag considerably. By contrast, intra-European Union exports are around two-thirds of total exports, whereas east Asian and North American levels hover around the 50% mark. Why is this the case? Should we be concerned about it? And will Continental Free Trade Agreements (CFTAs) fix the ‘problem’?
The main reason intraAfrican trade levels are low is because African economies are structurally linked into the global economy as providers of raw materials. The short answer is, because African economies typically do not produce much beyond commodities, those commodities are typically exported out of the continent to the developed world, China and a few other dynamic emerging economies such as South Korea. Contrast this pattern of trade with that centred on China; the ‘workshop of the world’. This is where final assembly of mostly labour-intensive, low-wage, manufactured goods takes place, typically for export to third markets, and particularly, developed www.nepadbusinessfoundation.org
countries. At the top end of manufacturing value chains, developed countries such as Japan, Germany and the US, dominate, with their firms being the ‘bosses’ of value chain governance across the spectrum of goods production. Those value chains are spread out across the world, incorporating China and select production centres, with co-ordination taking place at corporate headquarters.
In this broad picture, African economies do feature, but mostly at the origin of many value chains. In other words, they supply the raw materials – agriculture and minerals – which are then transformed into intermediate products in more technologically advanced economies. They are subsequently shipped around the world to feed the production of parts and components, for final assembly in