African governments should give more support to entrepreneurs to help boost regional trade flows, to allow businesses to benefit from growing consumer demand and insulate the continent from global financial crises, a U.N. study said.
In a break with past recommendations on African trade, the United Nations Conference on Trade and Development (UNCTAD) said boosting regional trade would require solutions that do more than simply remove trade barriers.
While trade with the rest of the world has grown quickly, inter-Africa trade – at $130.1 billion in 2011, up from $60 billion in the 1990s – has halved to represent just 11 percent of the total, Reuters reports.
By comparison, half of Asia’s trade is with its neighbours while intra-European trade accounts for 70 percent of the total.
The UNCTAD study showed that Africa’s oil-exporting countries such as Libya, Angola and the Republic of Congo were especially dependent on trade with non-African markets, exporting less than 5 percent of their merchandise to the rest of the continent.
But the group said expanding regional trade would help cushion the continent from outside risks and foster growth.
A World Bank report showed that consumer spending accounted for more than 60 percent of Sub-Saharan Africa’s buoyant economic growth. This is helping to account for high growth rates estimated at between 5-6 percent for Sub-Saharan Africa.
“The report recommends to try to build capacity through entrepreneurship development. There needs to be a mechanism between the state and the private sector,” UNCTAD secretary general Supachai Panitchpakdi told reporters.
This could help address the problem of the so-called “missing middle” whereby African companies rarely graduate from small businesses to mid-size or large firms.
Thin regional trade also makes Africa vulnerable to external financial crises and overly reliant on expensive imports of items such as food even though UNCTAD data show it is has 27 percent of the world’s arable land.
High custom fees and transport restrictions mean that it is often cheaper for African countries to import raw materials such as cotton from Asia, even though many are available from neighbours.
The UNCTAD report said governments should help improve access to finance, for example by establishing credit bureaux.
“We see an incredibly high cost of trading,” said Frank Matsaert, chief executive of Trade Mark East Africa, a not-for-profit organisation helping to coordinate regional integration.
“The key question is how to address those really big, high cost bottlenecks. Let’s face it, consumers pay for those inefficiencies.”
One factor hampering integration is a proliferation of regional bodies with overlapping memberships.
Africa has eight regional economic communities recognised by the African Union, UNCTAD said. Most countries are members of several, with a mere three African governments restricting themselves to joining only one.
“My impression is that Africa wanted to buy the carpets before building the mosque,” said Hakim Benn Hammouda, special adviser to the president of the African Development Bank, at a discussion on African trade in Geneva this week.