Intraregional trade flows are key to Africa’s economic rebound

Intraregional trade flows are key to Africa’s economic rebound

This time last year I wrote for the World Economic Forum that Africa was missing out on the benefits of world trade despite its significant natural resources, young and growing workforce, and considerable need for improved local prosperity.

At the time, the region’s GDP growth rate was expected to rise to 4.1% in 2020. It is no surprise that this trajectory has been jeopardized by the pandemic, with growth now expected to contract to under 3% according to the IMF.

COVID threatens years of economic development across Africa. And the region risks falling behind from the post-COVID trade economy as more established regions around the world rapidly reconfigure their trade positions, from the RCEP to the CPTPP.

The pandemic worsens an issue that has limited Africa from realising its full economic potential for decades: its lack of intraregional trade.

Its low intraregional trade makes it an outlier compared to the rest of the world where export levels are significantly lower and intraregional trade drives growth. Less than 20% of Africa’s trade comes from within its own borders, whereas that figure is over 50% in the U.S. and over 60% in Europe.

As the African Union’s Albert Muchanga warned earlier this year, the collapse in foreign direct investment to African economies during the pandemic has bolstered the need for intra-African trade.

Africa must give itself the leg up it needs.

The signing of the African Continental Free Trade Area (AfCFTA) at the beginning of this month is a critical step in that direction. This landmark trade agreement will enable Africa to act fast in integrating its logistics operations and focus on generating new sources of prosperity from its own domestic trade flows.

The mobilisation required will be immense; so too will be the rewards. In the shorter term, the African Export-Impact Bank expects the trade pact to realise more than $84 billion in untapped intra-African exports. By the time the deal is fully operational in 2030, Africa could be the world’s biggest free trade zone with a population of more than 1 billion (60% of which are an active workforce) and a combined GDP of $2.5 trillion. Crucially, more than 50% of its trade would come from intra-continental flows, more than double what it is now.

By lowering or eliminating cross-border tariffs on the majority of goods, encouraging the movement of capital and people, and investing in a continent-wide customs union, Africa is paving the way for a formidable trading position.

However, the necessary ambitiousness of the AfCFTA will be for nothing if the region doesn’t have the sufficient infrastructure to facilitate it. On average, poor transport infrastructure adds 30-40% to the cost of goods traded among African countries, with roads, rail-networks, and inland storage facilities operating on outdated, inefficient practices.

The damaging effect of poor infrastructure is amplified considering Africa comprises 16 landlocked countries. Without roads, railways, ports, free trade zones and all the other moving parts of modern logistics in place, there simply will not be sufficient investment to create the local industries and jobs that Africa desperately needs. What’s more, the lowering of tariffs will eliminate a key source of governments’ fiscal flows.

The continent is in critical need of continued investment and partnership: financial, technological, and infrastructural. I have made clear that DP World will continue to invest and partner with governments and business communities across Africa.

Just last month, we signed a Memorandum of Understanding (MoU) with the Rwanda Development Board for Rwanda to be the first country in which we will launch our new global e-commerce platform,

Businesses using will benefit from broader DP World services and investment that will help enhance trade within the continent and between Rwanda and the UAE. Under the partnership, Rwandan exports of coffee, tea, and horticulture will be promoted on, while we continue to improve Rwanda’s supply chain logistics, from rural access to digital tools.

Elsewhere, it has been great to see DP World’s Komatipoort inland container depot in South Africa become the first dry port in the region. Offering the full spectrum of intermodal and warehouse services, the Komatipoort facility has helped make the hinterland’s supply chain faster and more reliable.

I continue to be impressed by the resilience and innovation of the region, from the government leaders I have met with to the workers on-the-round at our ports and terminals. In 2021, I look forward to even stronger partnerships across the region and am optimistic to help it leverage the new opportunities the AfCFTA are set to unlock, working together to build an Africa that works for itself, and not just the world.