Intra-African Trade, Inner Core Of Afreximbank’s Vision And Strategy, Says Prof. Benedict O. Oramah
Intra-African Trade constitutes the inner core of our vision and strategy at Afreximbank. That is why we are actively promoting continental awareness and conscious awakening on the ideological, philosophical and economic imperatives of that development pathway.
Africa’s Economic Miracle May Be In Sight: Economic miracles occur once every few decades. During the 1970s to the 1980s, Hong Kong, South Korea, Singapore and Taiwan emerged on the world scene with a force that surprised even the most optimistic. The Asian Tigers, as they came to be known, moved from poverty to relative prosperity on a platform of export-led growth powered by rapid industrialisation hinged on light manufacturing and foreign direct investments, especially by Trans National Corporations (TNCs). These countries soon reached full employment, such that by the late 1980s and 1990s, tight labour markets raised wages rendering most of their labour-intensive manufactures uncompetitive in global markets.
China, with its large population and attendant low-wage labour force soon stepped in, drawing on the same playbook, but boosted by WTO-induced globalisation in the 1990s to achieve the most phenomenal economic miracle ever, with about 800 million people pulled out of poverty in less than two
decades. All of a sudden, a country which not so long ago could barely feed its people became a global economic powerhouse and the world’s factory. Since the 2000s, no nation or group of countries have achieved such phenomenal and rapid transformation as the South-East Asians did. There is a rising sentiment that it is time for another miracle and all eyes are on Africa.
This view has been expressed by many development experts and policy makers.
Between 2012 – 2014,Takamune Okihara, Chair of Mitsubishi UFJ Bank, told me at least on two occasions that Europe has had their time, so has America and Asia. It was therefore time for Africa. Even the great singer Beyonce, in her transcendental journey of musical reflection, also agrees.
But beyond those wishful expectations, all the ingredients are there for Africa to bolt away from decades of poverty. Demographics and natural resource endowments are two important elements that can potentially transform the economic fortunes of Africa. We just need to unlock their potentials.
Let’s for a moment explore the Power of Population and Demographics. In 1798, Reverend Thomas Robert Malthus wrote, in what became known as the Malthusian Specter or Malthusian Catastrophe, and I quote: “Famine seems to be the last, the most dreadful resource of nature. The power of population is so superior to the power of the earth to produce subsistence for man, that premature death must in some shape or other visit the human race.”
In essence, Reverend Malthus argued that uncontrolled population growth rate, would be catastrophic to man. He therefore proposed measures to curtail the growth of population. Recent evidence, however, suggests that Reverend Malthus might not have been entirely right. We know that high population can be a time-bomb just as it can also be an asset. It is the quality of the people that matter. Abundant highly skilled low wage labour powered the transformation of the Asian Tigers and China. We now know that quality large population is an asset because it creates a large labour pool and sizeable markets that can drive the growth of consumption and investments.
Africa is in the top league of the highly populated continents, with population of more than 1.3 billion people or 16 percent of world population. This is estimated to double by 2050 to account for 25 percent of world population. The unique feature of this population is that more than 77 percent is expected to be less than 40 years by 2035, with 45 percent between 15 and 40. Another interesting feature of this demographic distribution is that it is similar to those of the Asian Tigers, China and Japan at the time of their respective economic take off.
Today, there is so much talk about the youth bulge. Some are predicting Armageddon because of the rising youth population. I beg to differ because I know that in terms of population density Africa ranks third behind Asia and Europe
at 87 people per square mile.I am convinced that Africa’s rich youthful population can be an asset. The conventional wisdom is that Africa’s greatest asset are its natural resources. I say No, and argue that it is its people! However, just like any asset, the utility of our people will be dependent on their quality. We must create the conditions, the learnings that will convert our youth into men and women of action.
Eric Hoffer, the great American philosopher, once wrote and I quote: “In a time of drastic change, it is the learners who inherit the future. The learned find themselves equipped to live a world which no longer exist”
Endowment Of Arable Land And Natural Resources: But besides its people, Africa is also highly endowed with natural resources. With a massive land area of over 30 million square km (20 percent of the world’s land area), it is home to 60 percent of uncultivated world arable land today and abundance of unpolluted surface and underground water. In addition to the vast arable land, the continent boasts of enormous amounts of mineral and agricultural resources, namely:
90 percent of global cobalt deposits, a critical mineral in a world that will increasingly be battery driven; 75 percent of world cocoa; 64 percent of the world’s manganese; 60 percent of global coffee; and 50 percent of the world’s gold; 50 percent of its phosphates; 50 percent of palm oil; 40 percent of the world’s platinum; 30 percent of the uranium; 8.7 percent of global oil production; and 7.1 percent of global proven gas reserves.
Africa’s Development Tragedy As justification For Greater Regional Integration: One may ask:
i) Why a continent with so much endowments of human and natural resources continues to find itself at the lowest rungs of the development ladder?
ii) Why has the continent that appeared to have repeatedly won Nature’s or God’s lottery in terms of distribution of mineral deposits failed to cash-in?
iii) Why is there poverty in the midst of so much abundance in Africa?
iv) Why has a continent that boasted so many powerful Kingdoms in history, the Pharaohs in Egypt, the Old Mali Empire, the Benin Empire, the Kingdom of Menomatapa, fallen so far behind today?
To understand how Africa found itself in this unacceptable situation, I invite you to a brief historical excursion, starting with the pre-colonial period of the 14th to the 16th century. That time, many kingdoms thrived across Africa by trading amongst themselves as well as with Indians, Chinese, and Arabs and later the Europeans, especially the Portuguese and Spaniards. Historical records show that trading patterns in West Africa were so established that the Portuguese struggled to break into the networks. For instance, the Harvard Historian Prof. Akyeampong wrote that Blue Cloth and beads were exported from Benin Kingdom to the Gold Coast (present day Ghana).
It is this kind of trade that brought prosperity to old Benin Kingdom and Kilwa, off the coast of Tanzania; which made the Europeans to marvel when they first set foot on the shores of Africa. For instance the Portuguese seafarer, Lourenco Pinto, visited the Old Benin Kingdom. His astonishment made him write, and I quote: “Great Benin, where the king resides, is larger than Lisbon; all the streets run straight and as far as the eyes can see. The houses are large, especially that of the king, which is richly decorated and has fine columns. The city is WEALTHY and INDUSTRIOUS. It is so well governed that theft is unknown, and the people live in such security that they have no doors to their houses.”
With the abolition of slavery and advent of industrial revolution in the 1800s, the Metropolitan powers had two main goals, namely to secure a reliable source of raw materials as well as export markets for their manufactures. Colonialism set-in, founded on a strategy so well laid out in the writings of a former colonial Administrator, Mr Albert Sarraut (1872-1962). He wrote and I quote: “Economically, a colonial possession means to the home country simply a Privileged market whence IT WILL DRAW THE RAW MATERIALS IT NEEDS, DUMPING ITS OWN MANUFACTURES IN RETURN. Economic policy is reduced to rudimentary procedures of gathering crops and bartering them. Moreover, by strictly imposing on its colonial dependency the exclusive consumption of its manufactured products, THE METROPOLIS PREVENTS ANY EFFORTS TO USE OR MANUFACTURE LOCAL RAW MATERIALS ON THE SPOT, AND
ANY CONTACT WITH THE REST OF THE WORLD. THE COLONY IS FORBIDDEN TO ESTABLISH ANY INDUSTRY, TO IMPROVE ITSELF BY ECONOMIC PROGRESS, TO RISE ABOVE THE STAGE OF PRODUCING RAW MATERIALS, OR TO DO BUSINESS WITH THE NEIGHBOURING TERRITORIES for its own enrichment across the Customs barriers erected by the metropolitan power.”
It is thanks to the flawless execution of that strategy that today Africa is so fragmented such that it is the continent with the highest number of countries (55), with 84,000 kilometres of borders; it is no wonder that today Kenya imports hides and skin from outside Africa at a much higher cost than Burundi, nearby, exports the same item to the world. It is for the same reason that an average Nigerian knows far more about Europe than he or she knows about Cote d’Ivoire.
Colonialism ended some 60 years ago so we cannot continue to blame colonialism for Africa’s malaise. After all, Asia was also colonised but quickly rose to take advantage of the opportunity offered by independence. As we must use the lessons of history to shape our vision for tomorrow, the way forward for Africa must be to reverse-engineer the colonial strategy so aptly captured by Mr. Saurant. A key element of that reverse engineering is that we must trade amongst ourselves as Africans. It is by doing so that we can build industrial capacities and create a favourable environment for investment in regional infrastructure.
We cannot attract private investments into Africa’s infrastructure to bridge the 100 billion US Dollar per annum infrastructure financing gap unless a business case can be made for that. It is booming intra-reginal trade that can help make that case!
INTRA-AFRICAN TRADE IS THEREFORE THE INSTRUMENT FOR BREAKING AWAY FROM AFRICA’S COLONIAL PAST AND ITS LEGACY!!!
I must quickly add that the change the continent needs to achieve will not come easy. Between 50 and 70 years ago, the continent witnessed epic battles for political independence. Those who fought and won the continent its political independence knew that it was only the beginning of a long journey; that the final destination would be economic independence.
In my speech in Moscow in June last year on the occasion of Afreximbank’s
26th Annual General Meeting, I described what that struggle would demand of
us, and I quote : “A revolution is sweeping across the African continent without bloodshed or conflict. It is peaceful and will fundamentally alter our world, shatter old assumptions and reshape our lives. It is easy to under-estimate as it is not accompanied by banners or fanfare. The revolutionaries are of a different breed. Instead of being trained in military camps, the freedom fighters for this new battle are being trained in technical schools and universities; instead of fighting in trenches, this
battle will be fought in factory floors and tech incubation centres; instead of guns, the battle will be fought with ideas, hard work and investments.
“While bravery was required for the political struggle, courage is a necessity for the economic liberation struggle. Tech, and not armed guerrillas; ideas and not bullets will constitute the potent forces for victory in this new struggle. And as with the political struggle, Africa needs partners that can support it to prevail. The partnership we seek is one beyond aid and grant, but onefounded on mutual respect and trust, win-win economic cooperation and pursuit of shared prosperity.”
I am pleased that our leaders have fired the first shot in that struggle. Against all odds, the African Continental Free Trade Agreement was signed in Kigali in March 2018 and by July 2019, it had achieved enough Ratifications to come into force. By July this year, trading will commence. For the first time, Africa has decided to take its destiny in its hands! It is a step that allows us to begin to rebuild the African economy and restore self-esteem to Africans; a step that will forever break down the 84,000 Km of borders that divide the continent into small balkanised units.
A key economic argument in favour of the AfCFTA is that it will help African economies to industrialize and improve Africa’s share of global manufacturing output. Estimates by the United Nations Economic Commission for Africa (UNECA) suggests that the AfCFTA could increase trade amongst African countries by more than 50 percent from current levels, while pushing regional trade levels up from 15 percent to 25 percent of global trade within a decade. In July this year, trading under the AfCFTA is expected to commence. When the time comes, we expect at least 30 countries that have so far ratified the Agreement to open their borders for intra-trade and investment flows.
Policy Proposals To Boost Intra-African Trade Under The AfCFTA: Late last year, I delivered two keynote speeches in Nigeria; one at the State dinner hosted by the Federal Government of Nigeria as part of the 59th Independence Anniversary Celebration, and the second at the Annual meeting of the Manufacturers Association of Nigerian (MAN). At both events, I emphasized that any country confronted with a potential change of massive proportions such as may emanate from theAfCFTA must put in place well-articulated short, medium- and long-term plan.
I proposed that in the short to medium term, Governments should focus on those issues that are likely to sustain enthusiasm for the AfCFTA, namely:
1) Governments’ priority should focus on minimizing the fiscal revenue losses that the AfCFTA may engender. Afreximbank estimates that, at the continental level, AfCFTA-induced fiscal revenue losses could exceed US$4 billion per annum. Some countries use tariffs as a source of revenue while some others use it as an instrument of industrial policy. The Adjustment Facility under the AfCFTA largely targets countries in the former category.
2) Governments should ensure that the private sector is well prepared to take advantage of the market opportunity the AfCFTA will throw open. In this regard, Governments should consider triggering an adjustment process for entities in sectors likely to be negatively impacted by the AfCFTA. Such adjustments may include support for retooling, improved access to credit among others.
3) Availability of Trade Information is critical to tapping into market opportunities across the continent. The AfCFTA creates the legal basis for a potential pan-African market in goods and services but does not create the market. Governments must therefore, as a matter of short- term priority, endeavour to put in place mechanisms that will improve access to appropriate and credible trade information, for the private sector, interested in expanding their businesses to other African markets. It is critical that we recognize that the greatest constraint to expanding intra-African trade is lack of trade information and not necessarily the poor state of infrastructure. This is because the stock of infrastructure today carries about 1 trillion US dollars of total trade, of which intra-African trade amounts to only 160 billion US dollars.
4) Although the AfCFTA offers an opportunity to industrialise and expand export manufacturing, it will be up to Governments and the private sector to seize the opportunity. The goods have to be produced competitively and traded. Access to markets is critical as no meaningful production can occur if goods produced cannot be sold. Governments should therefore consider the establishment, or create the environment for the emergence of private sector-led, Export Trading Companies (ETCs).
In economies where they exist, ETCs market the merchandise produced by SMEs around the globe, providing branding, sourcing market intelligence on behalf of the different manufacturers and serving as anchors for credit granting to the numerous manufacturing entities that they represent. The fact that informal traders account for 40 – 50 percent of Intra-African trade is, in my opinion, an evidence of institutional failure. If formal trading institutions exist, the informal trade will wane.
5) Branding is key and in the context of the AfCFTA it is important to build national brands for manufactures. Professional branding companies will be required but underpinning the branding should be the Promotion of Export Trading Companies to ensure that branded goods are distributed. For Nigeria, the successful Nollywood Industry can provide a platform for promoting Made in Nigeria brands, just as Marlon Brando made the denim Jean a global brand
6) The AfCFTA will also require that goods of high-quality standards be traded within the Free Trade Area. The quality, number and spread of testing, inspection and certification centres will determine the extent to which African countries can actively participate in the emerging continental market. Governments must therefore facilitate the emergence and strengthening of quality infrastructure facilities.
7) Since financing is a critical success factor in exporting and trading generally, it is important that Governments strengthen national industrial/export development finance institutions. The existing capacities in Africa are inadequate as evident in the combined total assets of African Multilateral Development Financial Institutions relative to Africa’s GDP, compared to China’s.
8) Last but not the least, Governments should consider creating an agency for AfCFTA perhaps under the Ministry of Trade and Industry. It is this agency that will be the arrowhead for achieving each country’s strategic objectives for membership of the AfCFTA.
Afreximbank’s Initiatives In Support Of The AfCFTA Implementation: Afreximbank on its own, and in partnership with the African Union and other Pan-African agencies, is actively supporting the implementation of the AfCFTAin many ways. Examples include the following:
a) Afreximbank has committed to disbursing an amount of US$25 billion on a revolving basis in support of Intra-African Trade between 2017 – 2021. The Bank has also launched an Afreximbank Trade Facilitation Facility (AFTRAF), through which it provides trade services/LC confirmation lines to African commercial banks to enable them support intra-African trade operations. Our target is to offer such Letter of Credit confirmation and trade services lines in an amount of Eight (8) billion US dollars to 500 African banks by 2021. Today, we have on-boarded close to 400.
b) Afreximbank has launched the first ever Pan-African Payment and Settlement System (PAPSS), which will enable payment for intra- Africa trade in local currencies thereby reducing the foreign currency content of intra-regional trade. We estimate that this platform will save Africa over 5 billion US Dollars in intra-African Money remittance cost per annum and boost intra-African trade in creative products thereby growing youth employment.
c) In order to support countries likely to suffer fiscal revenue losses due to the removal of tariffs on imports from regional markets, Afreximbank has agreed with the African Union to put in place an AfCFTA Adjustment Facility amounting to up to 3.5 billion US dollars. We believe that it is this facility that will make it possible for many borders to remain open on July 1, 2020 when trading starts.
d) In 2018, Afreximbank launched the Fund for Export Development in Africa (FEDA) designed to provide equity and quasi equity capital in support of entities involved in intra-African trade and investments. This Fund is more patient than the typical Private Equity Fund and is intended to support equity investments in manufacturing, entertainment and creative industry; financial services and similar dynamic sectors.
e) Afreximbank has also launched a Project Preparation Facility (PPF) to make it easier for entrepreneurs to better prepare projects and bring them to bankability
f) In order to improve access to trade information and connectivity among African traders and corporates, the Bank is developing a Trade Information Portal that will aim to bridge the trade information and knowledge gap among African businesses regarding the potential trade and investment opportunities in the continent. In
addition, the Bank has launched a biennial Intra-African Trade Fair, that allows African corporates and Governments to showcase their goods and develop business relationships with other African buyers, investors,, etc. The first of this fair was held in Cairo, Egypt in December 2018.
We encourage Governments and the private sector to actively participate in this fair as it is a great opportunity to expand trade into other African markets. Over 1.000 exhibitors participated in 2018 with an amount of 32 billion US dollars in deals signed. The second edition will hold in Kigali, Rwanda during 1 – 7 September 2020.
g) Afreximbank is supporting the work of the African Union (AU) and African Regional Standards Organization (ARSO) to establish the necessary standards covering various sectors. Afreximbank is implementing an initiative to promote sound quality infrastructure across Africa to be branded Africa Quality Assurance Centres (AQACs). One such centre is currently under development in Ogun State, Nigeria.
h) The Bank in collaboration with the Obafemi Awolowo University
(OAU), Ile-Ife, Nigeria, in the process of creating a Centre for AfCFTA Studies.
The Centre, which will be hosted by the OAU and co-funded by Afreximbank, will coordinate all relevant research projects relating to the AfCFTA by African Universities and Research Institutions. Output of the research projects will hopefully support policy discussions and formulation at the AfCFTA Secretariat.
i) In partnership with Kings College Hospital London and the Federal Government of Nigeria, the Bank is developing the Africa Medical Centre of Excellence as a way of promoting improved quality of health care and medical research. This initiative involves the establishment and installation of world class tertiary care medical facilities for the diagnostics and treatment of complex diseases. The project is being constructed in Abuja. It is expected that when completed, the project will support the emergence of Abuja as a Medical Tourism Centre.
j) Africa has strong prospects to grow its fashion, art and entertainment industries. We are therefore working with African and international creative industry experts to promote the Creative Africa Exchange (CAX), an initiative to formalise and develop the continent’s currently nascent creative industry. We see this initiative as an important instrument for unleashing the power of Africa’s youth.
Conclusion: It is my hope that the AfCFTA will bring the much needed economic transformation that has eluded the continent for several decades. We look forward to mobilising partners, who share in our vision for Africa’s development to work with us in creating the “Africa We Want”.
* Prof. Benedict O. Oramah, President and Chairman of Board of Directors of Cairo, Egypt-based African Export-Import Bank, made this presentation in a keynote speech at the 17th CVL Annual Lecture and International Leadership Symposium in Lagos on February 6, 2020.