South-South Trade – linking Central and Western Africa to the Mekong's Francophone countries

9 January 2014
ITC News

A joint ITC-Organisation Internationale de la Francophonie (OIF) project to promote South-South trade has resulted in a sharp rise in trade between 14 African countries and three Mekong countries, recent trade data show.

Data provided by Viet Nam’s Ministry of Industry and Trade indicate that trade between the eight countries of the West African Economic and Monetary Union (UEMOA) and rapidly growing Viet Nam rose five-fold to US$ 670 million in 2012, compared with US$ 126 million in 2006. Trade between the six countries of the Economic and Monetary Community of Central Africa (CEMAC) and Viet Nam increased more than four-fold to US$ 218 million in 2012, compared to just US$ 49 million in 2006.

Headline numbers may just be the start of a thriving South-South partnership. ITC’s trade flow analysis indicates the potential business partnership between the regions may be closer to US$ 5 billion.

‘The economic operators of Viet Nam and of CEMAC and UEMOA countries participated actively in numerous activities organized by ITC and OIF,’ said Le Duong Quang, Vice-Minister of Industry and Trade. ‘The cooperation between Viet Nam and CEMAC and UEMOA is developing not just in trade, but also in investment.’

Achievements in 2013 include the conclusion of technology transfer agreements in the cashew nut sector from Viet Nam to Burkina Faso, and the establishment of direct cooperation between banks in the two regions, which will significantly reduce transaction time and costs, said Imamo Ben Mohamed Imamo, Senior Programme Officer at ITC.

OIF approached ITC in 2007 to set up a project to expand intra- and interregional trade between CEMAC, UEMOA and the three Francophone countries of the Mekong – Viet Nam, Cambodia and the Lao People’s Democratic Republic. The project began in 2008 and will conclude with an agribusiness forum in Ho Chi Minh City in January 2014.

Based on surveys driven by ITC, stakeholders decided to prioritize agribusiness, textiles and clothing and wood. Cotton is an export product for eight of the 14 African countries that comprise the two regional economic communities, while Viet Nam is one of South-East Asia’s major exporters of wood furniture.

Results were almost immediate. In 2008, the trade mission of Vietnamese importers of cashew nuts to Guinea Bissau resulted in a letter of intent for Viet Nam to import 35,000 tons of raw cashew nuts over three to four years. A rice buyer-seller meeting held in Ho Chi Minh City resulted in US$ 29 million of Vietnamese rice being imported by companies in CEMAC and UEMOA. In 2012, US$ 4.95 million in trade in cashew nuts was generated between Guinea Bissau and Viet Nam. In 2009, US$ 110 million in business deals and medium-term contracts for cotton was generated from Benin, Burkina Faso, Senegal and Toto to Viet Nam. In 2012, US$ 5.5 million in business deals and US$ 16.1 million in short- and medium-term exporter orders were generated for the Republic of Congo, Cameroon and Gabon.

Business links, investment and banking

In Benin the advantages are also clearly evident, particularly given the recent strides Viet Nam has made in cashew processing technology. Vietnamese firms make 80% of the machinery used by factories in Benin.
‘Five years ago, Viet Nam was not a known country for Africans. Since 2008, I see that OIF and ITC have accumulated business links between Viet Nam and Africa. This will pick up and this will be for the long term,’ said Guillaume Razack Ishola Kinninnon, General Manager of SWCM, a food processing and manufacturing company in Benin.

Kinninnon added that one problem often encountered by exporters from both regions has been that letters of credit often had to be confirmed by a European bank – causing delays and increasing costs. As part of ITC’s methodology for promoting South-South trade, it has facilitated the establishment of direct interbank cooperation between the Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank) and banks in Guinea Bissau, the Republic of Congo and Togo. Inter-bank partnership meetings were held in Hanoi, Viet Nam in January 2013 and in Yaoundé, Cameroon in November 2013.

ITC – promoting South-South trade

Estimating trade flows is the first step in ITC’s methodology for promoting South-South trade. An initial evaluation of potential business reveals the main sectors of interest for the different regions. Next, the results are validated by stakeholders during workshops in the respective countries. Supply-demand surveys generate more information about market access conditions and key companies that operate across the value chain.

This process often entails unanticipated business relationships. The initial trade flow analysis had not envisaged Viet Nam’s investments in petrol exploration and production, valued at US$ 10.9 million in Cameroon and US$ 22.8 million in the Republic of Congo. Nor could it have predicted the investment by Viet Nam’s Viettel Group’s US$ 345.6 million investment for a mobile phone licence in Cameroon, ITC’s Imamo said.

The next step typically is a buyer-seller meeting, which serves as a platform to disseminate trade information and enables participating companies to initiate business contacts. For example, the 61 meetings organized during Burkina’s Faso’s November 2013 trade mission to Viet Nam could translate into more than US$ 2.5 million worth of transactions in the coming year, according to initial evaluation forms from participating companies.

The process concludes with providing capacity-building services to exporting companies and trade support institutions. In addition to its work with regional banks, the project also developed a partnership between Vietnamese agronomists and the governments of Burkina Faso and Cameroon to develop a feasibility study to improve the productivity of rice.

‘[We are] wishing that our Viet Nam-ITC cooperation develops even more in the time to come,’ said Tran Quang Huy, Director of the Africa, West Asia and South Asia Market Department of the Ministry of Industry and Trade, Viet Nam.