One of the major objectives of the African Union’s Agenda 2063 is to reduce internal trade barriers and improve intra-African trade. According to the World Bank, intra-Africa trade accounted for a mere 11% of the continent’s total trade between 2007 and 2011 and only contributed $170 million in 2015 despite the potentials to bring trillions of dollars for the continent[1]. Several factors are responsible for this, especially the lack of a robust legal framework regulating intra-African trade and the infrastructure deficit across Africa.
The position of this policy document first recognizes that any significant increase in intra African trade demands several interventions. It suggests that that infrastructural development is a key component of economic development, particularly with regards to encouraging the production and movement of goods and services. In line with understanding that infrastructure development can be a driver for progress across the African continent and a critical enabler for productivity and sustainable economic growth, investment in infrastructure currently accounts for over half of the recent improvement in economic growth in Africa[2].
Nonetheless, achieving sustainable development in Africa is still dependent on significant investment in critical infrastructure in certain areas such as electricity, transportation, and information communication technology to name a few. This is particularly because among other things, inadequate infrastructure increases trade cost for the continent[3]. Trade costs is the cost of transaction and associated with the exchange of goods over and above the marginal cost of production. It is essentially the total cost incurred in getting a good to a final user other than the marginal cost of producing the good itself. On average African countries have significantly larger trade costs than the rest of the world.[4] Examples of such costs include transportation costs, policy barriers (tariffs and non-tariff barriers), communication costs, and local distribution costs.
Currently, most African countries are building state capacity and developing adequate structures to meet several important development indices. Furthermore, some of these governments do not have full knowledge of all prevailing distortions with respect to achieving economic development. In my view, this makes full implementation of large-scale legal and institutional reforms impracticable and leads me to posit that the next best option considering existing constraints is to explore infrastructural development as a sustainable and long-term growth strategy.
Furthermore, considering the reality that countries do not respond to institutional reforms and innovations in the same manner, I argue that infrastructural development as a key factor of production is a safe and reliable approach. The quality of infrastructure impacts on other developmental indices such as the Total Factor Productivity of African manufacturing firms. With the right level of support, African governments and other developmental partners can provide more opportunities on the continent[5].
Some conversations around the implementation of the African Continental Free Trade Area agreement (Afcfta), have been expressed concerns regarding the agreement, especially its potential impact on their growing economies[6]. This concern is valid due to the differences in stages of industrial and economic development among African countries and the unintended consequences of a policy innovation. A collaborative infrastructural investment will likely address these concerns. It will ensure that African countries can focus on their comparative advantage, strengthen their capacities, and equip them to leverage the new market dynamics which the agreement has opened to their benefit. While there are other identified constraints to intracontinental trade in Africa, infrastructural development presents an opportunity for the continent to establish small crucial wins for its people.
Why is trade and particularly intracontinental trade important to Africa?
While there is no one size fits all approach to attaining economic development, trade is one of the tested methods of increasing the income of countries, combating poverty, and achieving shared prosperity[7].
According to the IMF, Asia’s 2007 export boom was supported by intraregional trade[8]. Having been identified as a catalyst for growth in developing countries, Trade improves consumers choices by offering a wide variety of goods and services. It also helps maintain stable demand and supply allowing efficient exchanges that stimulate economic growth and development in countries[9]. Furthermore, trade provides countries with access to natural resources they need to engage in domestic production as may be required.
The continent’s economic development has been a conversation prioritized by various governments, multilateral, and regional organizations. With 75% of Africa’s population under the age of 25, increased intracontinental trade can help create jobs to address unemployment among the continent’s youthful population accounting for 60% of unemployed Africans. This is important because Africa needs to urgently address means of engaging its teeming population to address concerns about the implications of unemployment to political stability and social cohesion[10].
Despite the abundance of natural resources, Africa contributes only a little over 2% to the total world trade[11]. I opine that to build the expertise required to adequately engage in the global trading stage, African countries must first build regional competitiveness. Intracontinental trade provides a platform to equip countries with the capacities needed to build global competitiveness.
Intracontinental trade is also crucial to strengthening the economic framework of the continent. It has been identified that Africa was adversely affected by the recession in 2008 and its aftermath, with the share of exports from Africa to the rest of the world ranging from 80 to 90 per cent in 2000–2017[12], This shows a high dependence of the region on trade with the rest of the world. Regional trade can help reduce the vulnerability of the continent to external forces[13].
Factors impacting on Africa’s infrastructural development.
Numerous explanations have been given to explain Africa’s infrastructural challenges. I have identified as my root cause analysis, the fact that infrastructural development is capital intensive. Despite the laudable efforts of African governments and various intraregional bodies, African countries do not have the resources to follow through on the successful execution of needed infrastructural investments[14]. Currently, the African Development bank says that Africa’s infrastructure development requires investment in the region of $130billion-$170billion annually but regularly falls short of a figure between $68 billion and $108 billion yearly[15].
My recommended approach would not be for Africa to abandon other pressing societal needs and focus all its resources on infrastructural development, but for it to explore alternative funding means. Another challenge rises at this point, and I shall briefly address same in this portion of the paper.
Ordinarily countries around the world including African countries borrow and should be able to borrow, since governments have the economic monopoly of taxation and access to a nation’s resources. However, it has been observed that investors have an exaggerated perception of the actual risk levels in Africa thereby leading to governments paying a premium in borrowing costs[16]. This negative investor perception is usually based on hearsay rather than facts and translate to a loss of revenue which could have been invested in developmental projects[17]. According to Moody Analytics, Africa has one of the lowest levels of default rates on infrastructural debts in the world at the rate of 5.3% between 1990-2016. The average across all global regions was 5.4 per cent, meaning that African projects were statistically less likely to default than the average global project. Only Western Europe and the Middle East had a lower default rate. [18]
In my opinion, this belief has its roots in an ignorant measurement of all 54 African countries by the same yardstick, which assumes that they are all at equal developmental stages and share the same levels of risks. As an African, I find this idea inequitable and believe that it does not serve the continent’s best interests. The fallacy of this view, further promoted by investor silence, can be seen when we critically examine what this means. It means that some investors in making their decisions are comparing risk levels in South Africa to that of South Sudan. Apart from the fact that both countries are not in the same subregion, both have different political and economic dynamics.
Another essential point to note is that existing infrastructural framework related to trade does not encourage intracontinental trade. Based on the colonial architecture that views the continent as a place to extract raw materials, infrastructure was not developed to foster movement within the continent but to promote swift passage of human and natural resources out of Africa to the developed countries. This caused a productive structure that consists, in most cases, of coastal cities connected inland by railways designed to carry raw materials to main ports[19] and impacted the nuances around the inability of the current supply of infrastructure to meet the ever-increasing demand.
I must point out that the challenges around state capacity, corruption, and business frameworks that exists in some parts of the continent are not peculiar to the continent. As we have identified, economies can grow despite these challenges and corporate structures are usually established in response to the economic development, not as a prerequisite.
Areas which require Infrastructural investment
While this paper agrees that the continent has numerous infrastructural needs, my focus shall be on exploring three key areas where I recommend the need for urgent investment. I have selected these three based on reliance on data and my experience as a Nigerian lawyer supporting emerging businesses in their expansion strategies across West Africa.
The first significant sector is investment in generation of electricity. Currently, a significant percentage of the African population lack access to electricity and nearly 600 million people in sub-Saharan Africa lack access to grid electricity[20]. This number accounts for over two-thirds of the global population without power. The situation is further exacerbated by the fact that the population growth recorded is not commensurate with the level of investment in power generation. Stable electricity can help boost the volume of production engaged upon by entrepreneurs on the continent and promote the needed industrialization process[21].
Another area where investment is required is transportation. Transportation is essential for the movement of raw materials and the delivery of produced goods and services. Inadequate infrastructure increases the logistics and transaction costs while limiting the ability of rural markets to connect with customers. Currently, only a quarter of Africa’s road network is paved, and poor road, rail, and port facilities add 30% to 40% to the costs of goods traded among African countries, thus adversely affecting the private sector development and the flow of foreign direct investment (FDI)[22]. Within the African context, transportation plays a key role in agriculture because agriculture and production of raw materials is an integral part of its economy. Since agriculture accounts for about 23% of the GDP of Sub-Saharan Africa, infrastructural investments need to be made to ensure ease of movement of the raw materials and prevent avoidable waste. According to the Food and Agriculture Organization, wastage of perishable produce costs Africa billions of dollars yearly and food lost could feed 300 million people with post-harvest losses of food cereals estimated to be at 25 per cent of the total crop harvested[23]. Apart from the fact that this suggests investment in food preservation and processing infrastructure, adequate transportation mechanisms can help move the food faster to other areas with the requisite tools for preserving and processing the food items.
It is important to state that the movement is not only important for the delivery of the goods to the consumers but also to ensure smooth logistical operations with respect to maximizing the entire production value chain of these items. While considering that some African countries are landlocked, adequate transport provision will serve to further promote connectivity within the region.
In the era of much discussed digital revolution, Africa may be left behind if it does not invest in internet penetration and telecommunications. With an internet penetration rate of 39.3%, the continent has one of the lowest internet penetration rates in the world when we consider that the global average penetration rate was almost 60% in 2020[24]. Challenges exist around the presence of requisite infrastructure to roll out and maintain broadband networks thereby leading to poor and expensive internet connectivity across the continent[25]. This impacts the ability of the continent to maximize the economic potentials of digitalization.
Recommendations
Having identified the massive nature of the necessary infrastructural investments Africa needs to boost intraregional trade and promote shared prosperity, and the budget constraints that most African countries face, efforts to address the gaps and promote the investment climate require collaborative central planning mechanisms with African governments taking the lead[26].
In this regard, due acknowledgement must be given to various African governments, regional bodies, and multilateral agencies whose work continue to address the issues. Notable among these initiatives is the Programme for Infrastructure Development in Africa (PIDA), a 30-year strategy designed by New Partnership for Africa's Development (NEPAD), the African Union and African Development Bank (AfDB), with a key aim of promoting transboundary projects. An example of such project is the ongoing construction of a 4,500-kilometre highway from Algiers in Algeria to Lagos in Nigeria. The continent has also worked to promote the PIDA framework for private investors to obtain technical support of governments on their infrastructural initiatives[27].
In order not to overburden the civil service, African governments can delegate to the private sector certain aspects of the massive infrastructure deals and focus on providing the support to make sure they scale through. This has been done with the Azura Edo power deal for Nigeria which now contributes up to 10% to the power sector[28]. Privatization of certain parts of some infrastructural developments may also be considered to making projects bankable.
It is also important to also address various realities that impact on investor confidence on the continent particularly with regards to political stability and stability of governmental policies. African governments need to ensure adequate engagement of certain stakeholders such as the small and medium scaled enterprises, encourage geographical inclusion of marginalized rural areas and border communities, and promote inclusion of youth and women in the decision-making processes[29] while taking measures to prevent wastage of investor funds.
Since African women engage in trade either as informal cross border traders, women who participate in the production of traded goods and services, or as women entrepreneurs who own exporting companies, mechanisms to adequately engage them in the infrastructural development strategy across the entire value chain must be explored[30].
I identify the role that some African countries' geography and climate conditions play in their infrastructural limitations. Therefore, interventions must consider the local contexts and peculiarities of various regions and invest in infrastructure that can adapt to the existing realities on geography and climate resilience.
International institutions can continue to support iterative strategies to help Africa be better positioned to take advantages of the benefits of intracontinental trade.
References
Africa Forward Podcast (2021) Financing Africa’s Future: https://foreignpolicy.com/podcasts/africa-forward/
Africa Union (2018) Agreement Establishing the African Continental Free Trade Area
African Development Bank (2020), accessed via https://www.afdb.org/en/knowledge/publications/tracking-africa%E2%80%99s-progress-in-figures/infrastructure-development
African Economic outlook (2018) accessed via https://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/2018AEO/African_Economic_Outlook_2018_-_EN_Chapter3.pdf
David Luke (2020) Why trade matters for African development, accessed via https://blogs.lse.ac.uk/businessreview/2020/08/25/why-trade-matters-for-african-development/
Economic Development in Africa (2019), Made in Africa Rules of origin for enhanced intra-African trade UNCTAD.
Escribano, Alvaro; Guasch, J. Luis; Pena, Jorge.2010. Assessing the impact of infrastructure quality on firm productivity in Africa: cross-country comparisons based on investment climate surveys from 1999 to 2005, Policy Research working paper; no. WPS 5191 Washington, D.C: World Bank Group, accessed via https://documents.worldbank.org/en/publication/documents
Foreign Policy Podcast (2021) Financing Africa’s Future. Accessed via https://foreignpolicy.com/podcasts/africa-forward/financing-africas-future/
IMF (2007) Regional Economic Outlook: Asia and Pacific, accessed via https://www.imf.org/en/Publications/REO/APAC/Issues/2017/01/07/Regional-Economic-Outlook-Asia-and-Pacific9
Kannan Lakmeeharan, Qaizer Manji, Ronald Nyairo, and Harald Poeltner (2020): Solving Africa’s infrastructure paradox. Accessed via https://www.mckinsey.com/business-functions/operations/our-insights/solving-africas-infrastructure-paradox#
Kennedy K. Mbekeani (2007) The Role of Infrastructure in Determining Export Competitiveness: Framework Paper.
Longo, Roberto & Sekkat, Khalid. (2001). Obstacles to Expanding Intra-African Trade. OECD, Development Centre, OECD Development Centre Working Papers.
Moody’s Analytics 2020: Examining Infrastructure as an Asset class. Accessed via https://www.moodys.com/research/Moodys-Default-and-recovery-rates-for-project-finance-bank-loans--PR_380331
Moussa P. Blimpo and Malcolm Cosgrove-Davies (2019), Electricity Access in Sub-Saharan Africa Uptake, Reliability, and Complementary Factors for Economic Impact.
Nahanga Verter (2017) International Trade: The Position of Africa in Global Merchandise Trade, accessed via https://www.intechopen.com/books/emerging-issues-in-economics-and-development/international-trade-the-position-of-africa-in-global-merchandise-trade
Paul Brenton, Elisa Gamberoni and Catherine Sear (2012) Women and Trade in Africa: Realizing the Potential, World Bank Document
Rilwan Akeyewale (2018) https://www.weforum.org/agenda/2018/10/africa-continental-free-trade-afcfta-sme-business/.
UN Environment Program: Worldwide Food Waste, accessed via https://www.unep.org/thinkeatsave/get-informed/worldwide-food-waste
UNCTAD. (2015). Building the African Continental Free Trade Area: Some Suggestions on The Way Forward
World Bank (2018) Stronger Open Trade Policies Enable Economic Growth for All, accessed via https://www.worldbank.org/en/results/2018/04/03/stronger-open-trade-policies-enables-economic-growth-for-all
Footnotes
[1] Africa’s greatest economic opportunity: Trading within itself, accessed via, https://www.weforum.org/agenda/2018/01/why-africas-best-trading-partner-is itself/#:~:text=World%20Bank%20statistics%20put%20intra,stands%20at%20trillions%20of%20dollars. [2] African Development Bank (2020), accessed via https://www.afdb.org/en/knowledge/publications/tracking-africa%E2%80%99s-progress-in-figures/infrastructure-development [3] Kennedy K. Mbekeani (2007) The Role of Infrastructure in Determining Export Competitiveness: Framework Paper, Page 5 [4] Ibid [5] Escribano, Alvaro; Guasch, J. Luis; Pena, Jorge.2010. Assessing the impact of infrastructure quality on firm productivity in Africa : cross-country comparisons based on investment climate surveys from 1999 to 2005, accessed via https://documents.worldbank.org/en/publication/documents-reports/documentdetail/792371467990385370/assessing-the-impact-of-infrastructure-quality-on-firm-productivity-in-africa-cross-country-comparisons-based-on-investment-climate-surveys-from-1999-to-2005 [6] Rilwan Akeyewale (2018) https://www.weforum.org/agenda/2018/10/africa-continental-free-trade-afcfta-sme-business/ , Powerhouses such as Nigeria and South Africa had in 2018 expressed some concerns in this regard. In fact the Nigerian Labor Congress refused to give its support to the agreement due to what it termed as "renewed, extremely dangerous and radioactive neo-liberal policy initiative". [7] World Bank (2018) Stronger Open Trade Policies Enable Economic Growth for All, accessed via https://www.worldbank.org/en/results/2018/04/03/stronger-open-trade-policies-enables-economic-growth-for-all [8] IMF (2007) Regional Economic Outlook: Asia and Pacific, accessed via https://www.imf.org/en/Publications/REO/APAC/Issues/2017/01/07/Regional-Economic-Outlook-Asia-and-Pacific9 [9] Nahanga Verter (2017) International Trade: The Position of Africa in Global Merchandise Trade, accessed via https://www.intechopen.com/books/emerging-issues-in-economics-and-development/international-trade-the-position-of-africa-in-global-merchandise-trade [10] David Luke (2020) Why trade matters for African development, accessed via https://blogs.lse.ac.uk/businessreview/2020/08/25/why-trade-matters-for-african-development/ [11] UNCTAD: https://unctadstat.unctad.org/wds/TableViewer/tableView.aspx?ReportId=87010 [12] Ibid [13] Economic Development in Africa (2019), Made in Africa Rules of origin for enhanced intra-African trade UNCTAD, Pg 35 [14] African Economic outlook (2018) Chapter 3, accessed via https://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/2018AEO/African_Economic_Outlook_2018_-_EN_Chapter3.pdf [15] Ibid [16] Micheal. Olabisi, Howard. Stein / Journal of African Trade 2 (2015) 87–109 , accessed via https://www.sciencedirect.com/science/article/pii/S2214851515000079 [17] Foreign Policy Podcast (2021) Financing Africa’s Future. Accessed via https://foreignpolicy.com/podcasts/africa-forward/financing-africas-future/ [18] Moody’s Analytics 2020: Examining Infrastructure as an Asset class. Accessed via https://www.moodys.com/research/Moodys-Default-and-recovery-rates-for-project-finance-bank-loans--PR_380331 [19] Kennedy K. Mbekeani (2007) The Role of Infrastructure in Determining Export Competitiveness: Framework Paper [20] Kannan Lakmeeharan, Qaizer Manji, Ronald Nyairo, and Harald Poeltner (2020): Solving Africa’s infrastructure paradox. Accessed via https://www.mckinsey.com/business-functions/operations/our-insights/solving-africas-infrastructure-paradox# [21] Energy continues to be a major challenge for leading countries in Sub Saharan Africa such as Nigeria and Less than 2% of the rural populations of Malawi, Ethiopia, Niger, and Chad have access to electrical power. [22] Kennedy K. Mbekeani (2007) The Role of Infrastructure in Determining Export Competitiveness: Framework Paper, Page 7 [23] UN Environment Program: Worldwide Food Waste, accessed via https://www.unep.org/thinkeatsave/get-informed/worldwide-food-waste [24] https://www.statista.com/statistics/1176654/internet-penetration-rate-africa-compared-to-global-average/#:~:text=In%202020%2C%20the%20internet%20penetration,rate%20was%20nearly%2060%20percent. [25] Based on my experience and that of other young Africans residing in areas with low internet connectivity, losses were recorded by us during the Covid 19 pandemic in several areas. While the rest of the world switched to remote work and learning, we found it difficult to. [26] It is important to mention China’s role in providing loans to African countries and its dynamics, even though it has raised concerns beyond the scope of this paper. [27] Ibrahim Mayaki: Why infrastructural development in Africa matters, accessed via https://www.un.org/africarenewal/web-features/why-infrastructure-development-africa-matters [28]The pacemaker: Nigerian power plant sets new benchmarks for building in emerging markets, accessed via https://www.siemens-energy.com/global/en/news/magazine/2019/power-plant-azura-edo.html [29] Tunisia provides an interesting case in point, despite the presence of a highly developed infrastructure, failure to include the youths in the political process led to a breakdown of the polity. [30] Paul Brenton, Elisa Gamberoni and Catherine Sear (2012) Women and Trade in Africa: Realizing the Potential, World Bank Document
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