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Trade Barriers Hindering African Growth

by Lorys Charalambous,, Cyprus

10 February 2012

As African leaders pursue negotiations towards a continental free trade area by 2017, a new report released by the World Bank has noted that African nations are losing out on billions of dollars in potential trade earnings every year because of restrictive barriers to regional trade.

The World Bank report says that 'high trade barriers' with neighbouring countries means that trade between the African continent and the rest of the world is freer than continental trade.

The report - De-Fragmenting Africa: Deepening Regional Trade Integration - warns that the economic slowdown in Europe could shave up to 1.3 percentage points of Africa's growth during 2012.

The authors write, “while uncertainty surrounds the global economy and stagnation is likely to continue in traditional markets in Europe and North America, enormous opportunities for cross-border trade within Africa in food products, basic manufactures and services remain unexploited.”

The report says this situation deprives the continent of new sources of economic growth, new jobs, and opportunities to further reduce poverty. The cross-border production networks that have spurred economic dynamism in other regions, especially East Asia, have yet to materialize in Africa, the World Bank says.

“It is clear that Africa is not reaching its potential for regional trade, despite the fact that its benefits are enormous: they create larger markets, help countries diversify their economies, reduce costs, improve productivity and help reduce poverty,” says Obiageli Ezekwesili, the World Bank’s Vice President for Africa, and a former Nigerian Minister of Extractive Industries. “Yet trade and non-trade barriers remain significant and fall most heavily and disproportionately on poor traders, most of whom are women. African leaders must now back aspiration with action and work together to align the policies, institutions and investments needed to unblock these barriers and to create a dynamic regional market on a scale worthy of Africa’s one billion people and its roughly USD2 trillion economy."

The report says that until the onset of the financial crisis, most sub-Saharan African (SSA) countries grew rapidly and often at much higher rates than the world average. Economic growth in these countries was robust and driven by the boom in commodity prices, which led to very high growth in export values, especially for minerals, to new fast-growing markets such as India and China.

While exports have grown strongly over the last decade, and the region’s trade has recovered well from the global crisis, the impact on unemployment and poverty has been disappointing in many countries, the report notes. Unemployment remains around 24% in South Africa. In Tanzania, extreme income-poverty appears to have remained broadly constant at around 35% of the population. This shows that export growth has typically been fuelled by a small number of mineral and primary products with limited impacts on the wider economy and that formal sectors remain small in many countries.

As a result, the report suggests that Africa will have to diversify its exports from depending solely on precious metals and other commodities and encourage more people to trade goods and professional services in accounting, law, education, and healthcare, among others. The region’s large number of young people also calls for significant numbers of new jobs, intensive trade, and growth.

“Imagine the benefits of allowing African doctors, nurses, teacher, engineers and lawyers to practice anywhere in the continent, but responsibility for making this happen lies with countries first and foremost,” says Marcelo Giugale, the World Bank’s Africa Director for Poverty Reduction and Economic Management. “The final prize is clear: helping Africans trade goods and services with each other. Few contributions carry more development power than that.”

Changes are needed in three areas, the report says:

  • Improving cross-border trade by simplifying border procedures, limiting the number of agencies at the border and increasing the professionalism of officials, supporting traders' associations, improving the flow of information on market opportunities, and assisting in the spread of new technologies such as cross-border mobile banking that improve access to finance;
  • Removing a range of non-tariff barriers to trade, such as restrictive rules of origin, import and export bans, and onerous and costly import and export licensing procedures; and,
  • Reforming regulations and immigration rules that limit the substantial potential for cross-border trade and investment in services.

In one notable example of trade barriers, report co-editors Paul Brenton and Gozde Isik of the World Bank describe how the South African supermarket chain Shoprite spends USD20,000 a week on import permits to distribute meat, milk, and plant-based goods to its stores in Zambia alone. For all countries it operates in, approximately 100 (single entry) import permits are applied for every week; this can rise up to 300 per week in peak periods. As a result of these and other requirements, there can be up to 1,600 documents accompanying each truck Shoprite sends with a load that crosses a border in the region.

As the co-editors write, “lack of coordination across government ministries and regulatory authorities also causes significant delays, particularly in authorizing trade for new products. Another South African retailer took three years to get permission to export processed beef and pork from South Africa to Zambia.”

TAGS: individuals | South Africa | business | Mauritius | Niger | Nigeria | export duty | law | accounting | banking | individuals in business | Algeria | Angola | food | licensing | unemployment | trade disputes | Botswana | Kenya | Zambia | import duty | retail | trade | Tanzania | services | Africa

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