AnalysisJust InOpinion

Africa Must Trade As A Bloc: Size Does Matter In Economics

In light of the economic weakness, Africa exhibits on the global arena, and with all the mediocre economic numbers individual African countries produce annually, it bodes well for the continent to increase its negotiations and its trade with the world if it does so as a bloc than continue trading as individual countries. Indeed consensus among policymakers and political leaders is that it will not harm African countries to develop through regional integration and trading blocs to achieve sustained development and increase their negotiation clout, and therefore participation, in the global economy.

2019 statistics show Africas population stood at 1.3 Billion with a combined nominal GDP of USD2.58 trillion and a healthy 3.7% growth rate. This stands it firmly abreast of fellow rising economies like India with the exact same population count and a GDP of USD3.2 trillion and Brazil with its nominal GDP of USD2 trillion.

However, Africas poverty rates for its individual countries are steep and the combined GDP does not seem to positively influence constituent country performance. All the worlds 10 poorest nations are domiciled in the continent. For instance, Niger has a whole national GDP of a measly USD9 billion, and a meagre per capita GDP of USD414 while India, which has a similar population to Africa as a whole and with a comparable GDP as well, sees its people 5 times better off as they have a per capita GDP above USD2000! This African population poverty is despite its total merchandise trade with the world of almost a trillion USD, according to the Africa Import-Export Bank.

It goes without saying that development flows to Niger would be significantly greater if the nations trades were under the auspices of a trading bloc than is currently obtaining where each country goes alone in a dog eat dog global arena. The same averment does apply to vary extents even to the so-called continent giants like Egypt, Nigeria and South Africa. Size does matter in economics.

This is not to say there are no currently existing trading blocs in Africa. The main blocs are the Economic Organisation of West African States (ECOWAS), Common Market for Eastern and Southern Africa (COMESA), Southern African Development Community (SADC), and Community of Sahel-Saharan States (CEN-SAD).

ECOWAS is composed of western African nations while COMESA encompasses central and eastern African states. SADC brings together southern African countries while CEN-SAD is composed of northern, central, and western African states.

This image has an empty alt attribute; its file name is SADC-750x500-1.jpg

Their main thrust though is to realise increased regional integration through customs and monetary unions, free trade areas, and common regulatory and legal frameworks. Its noteworthy to highlight that their focus is thus on internal intra-trade enhancement through the removal of obstacles more than it is about improving African trade with the world.

This, though noble and quite helpful, is not exactly what Africa may necessarily need at present. We may harp on about the need to migrate from primary goods producer and increase beneficiation by value addition so we export more valuable products, improve job creation and the like. But it goes without saying that we still are a minerals and other raw products exporter so we need a (single) bloc that facilitates that to the world and representing a solid 1 trillion USD worth voice for better deals on a global market. This must be the immediate plan to coagulate the mini country trades into a formidable trade monolith and speak with might to already powerful industrialised nations.

Intra-trade would then be looked at as a medium-term plan for when Africa industrialises to a point where Rwanda will need machinery produced in Zambia after it adds value to its copper and Kenya imports completed jewellery from the Democratic Republic of Congo with their world biggest known reserves of jewellery grade diamonds.

In any case, a myriad of social, economic, and political challenges also weaken current African trading blocs and their ability to promote that integration and intra-trade among each other. The share of intra-African exports among constituent countries as a percentage of total African exports was still a minuscule 17% as at 2017, which remains low compared to levels in Europe (69%), Asia (59%), and North America (31%).

This is an important reason to expect that trade will be a key driver of growth in Africa. The long and short of it is that more than 80cents per dollar worth of merchandise exported by any African country is destined outside Africa and this ipso facto necessitates there be a bloc occupied with increasing (international) integration through customs and monetary unions.

free trade areas, and common regulatory and legal frameworks for international trade facilitation as much as these current economic blocs do for intra-trade. Size has benefits, economics fundis speak of it as economies of scale. Addressing these hindrances would strengthen the continents erstwhile weak piecemeal trade agreements with the world and enhance their positive impact on African trade and economic growth.

This single trading block I dream of will not only present a unitary voice to the world for all of Africas trade but will establish free trade areas with international markets for the free flow of goods out of Africa and for capital back into the continent and perhaps even a common monetary union. This is not as farfetched as it may seem. I know the need to align economic fundamentals for participating nations (and likely political benchmarks as well) but all these are not insurmountable obstacles. The Southern African Customs Union (SACU) is a great reference point. All SACU members (Botswana, Lesotho, Namibia, South Africa and Swaziland) except Botswana belong to a monetary union.

That African countries are performing poorly, regardless of their strong commitment to regional trade and economic growth, is testament to energies being exerted towards regional integration with individual countries left to fend for themselves where international trade is concerned. Yet 83% of their trades are with international partners not with each other. Many African trading blocs are struggling with high and increasing poverty levels among their member countries. This is despite being in trading blocs aimed at improving economies and lifting the people from poverty.

This image has an empty alt attribute; its file name is ecowas-1024x576.jpg

Granted, the reasons for GDP differences among member countries of each trading bloc vary for reasons as diverse as factor (resource) endowment, different geographical land sizes, variations in population sizes, connections to international, trading routes (some countries are landlocked, whereas others are not), differences in the enabling business environment and corresponding government policies. But these can be bridged if a big brother bloc approach is used to engage the world. Even those nations who take it as having comparative advantages now will benefit as a negotiating power is consolidated in one union as juxtaposed with when they approach the market as single divided (and therefore selfish) nations.

As alluded to expansively in this piece, Africa must trade as a bloc to increase its rewards and minimise its risks from international trade, which constitutes four-fifths of its overall trade.

Use of an integrated bloc representing all of Africa in trade and investment could bolster Africas voice on the globe representing a trillion worth of merchandise, some of which are goods only abundantly found in Africa the whole world over, like rare earth minerals. This could provide a major avenue for the continent to achieve sustainable development and enhance its economic competitiveness in the globe.

The current trading blocs that have sprouted were formed mainly with intra-trade goals in mind and thus contrary to expectations, are not helping much a continent not industrially developed enough to competitively produce goods for internal trade, and thus have had minimum impact thus far, if any. A big bloc to engage the world is sorely needed. Size does matter in economics.

ADMIRE MAPARADZA DUBE is a Financial Analyst currently engaged in the United  Kingdom. He has over 17 years experience in this sector covering FMCGS, Agribusiness, Banks and a Tax Authority in four countries spread over three continents. He is a CFA (CHARTERED FINANCIAL ANALYST) Charter holder, Banking degree, MSc Development Finance among other certificates and is a PhD student with London South Bank University (LSBU). He writes analysis pieces on financial matters and the subsequent social impact.

Show More

Related Articles

Back to top button