Unlocking Africa’s trade potential: leaders pinpoint strategies to increase intra-African trade
(Kigali, Rwanda) - Investing in productive capacity, developing skills and establishing links to new markets are crucial if Africa’s small and medium-sized enterprises (SMEs) are to take advantage of emerging trade opportunities, said ITC Executive Director Arancha González at a forum dedicated to trade development in Africa. The event, on the topic of `Facilitating Africa’s Trade´, was organized by the African Development Bank during its annual meeting, to identify the most effective ways to channel assistance to African countries, enabling them to develop export-related skills and infrastructure, increase their competitiveness and boost regional trade.
Policy reforms are necessary but not sufficient to create trade-led growth, Ms. González said, because Africa’s companies must be able to produce goods and services that are competitive outside domestic markets. SMEs, which make up over 98% of the economic fabric of Africa, need assistance in order to innovate, improve the quality of their products and increase sales through investment in packaging and branding, she said. Addressing Africa’s skills gap is particularly crucial, Ms. González added.
`The best friend of a trade minister is not the finance minister or the development minister - it is the education minister,´ she said.
Besides skills development, African entrepreneurs need access to trade finance in order to ensure sufficient supplies, smooth operations and future growth, said Jean-Louis Ekra, President of the African Export Import Bank. Many foreign banks have retreated from Africa following the financial crisis at the end of the previous decade, and local banks have not taken their place in providing the working capital exporting companies require, he said. `We need indigenous companies to enter the value chains of extractive industries in order to retain more value of exports in the continent,` he said.`We need African banks to finance them.´
In order to finance riskier lenders, such as SMEs, banks in Africa need to work together and to offer syndicated loans to spread their risks, Mr. Ekra said.
In recent years, trade facilitation as a means to increase regional economic integration has gained political support in Africa, a key objective of the African Union. Despite the political commitment, however, progress is often slow, said François Kanimba, Rwanda’s Minister of Trade and Industry. The problem is not only one of infrastructure, he said. ‘We do not have a culture of trading between ourselves,’ he said.
Small traders, Mr. Kanimba said, often face barriers and are forced into unofficial channels when exporting. ‘The only way to diversify the economies is to increase trade within the region,’ he said.
The five countries of the East African Community (EAC) have made progress in this direction, decreasing non-tariff barriers and successfully facilitating trade within the region, said Ambassador Richard Sezibera, Secretary General of the EAC. ‘Establishing roadblocks is much easier than removing them,’ he said, adding that EAC countries have removed 20 roadblocks on the Dar es Salaam-Bujumbura transport corridor – but 15 more remain.
Governments also need to make it easier for traders and business people to move between African countries, Mr. Sezibera said. ‘It is not enough to let the goods move. People must move as well,’ he said, welcoming an initiative between Rwanda, Uganda and Kenya to allow their citizens to use their national identity cards to cross internal borders. ‘Informal women traders do not have passports,’ he said.
The multilateral Trade Facilitation Agreement, agreed to by members of the World Trade Organization (WTO) last December, will require all member states to revamp their legal and regulatory frameworks, simplify border and customs procedures and cut red tape. Trade facilitation will allow African companies to reach a larger market and achieve economies of scale, contributing to increased competitiveness in global markets. Trade facilitation will also enable the establishment of cross-border value chains in which companies, including SMEs, in different countries specialize in distinct tasks in the production chain.
African countries need to establish trade facilitation priorities and, with the help of the international community, execute them, said Ambassador Yonov Frederick Agah, Deputy Director-General of the WTO. ‘Trade facilitation is not just about costs, it is also about the opportunity to increase revenues,’ he said.
Read ITC's recentpublication on how SMEs in developing countries can take advantage of the opportunities offered by the Trade Facilitation Agreement.
Building services economies
Without an efficient services sector, exporters cannot be competitive, so the Government of Rwanda has prioritized services development and the improvement of the regulatory environment, said Minister Kanimba.
‘For a small country such as Rwanda, agriculture has only limited potential even if we increase productivity,’ he said. To be able to compete in the services sector, Rwanda needs to become a knowledge-based economy and invest in education, he said.
Regional trade corridors are a key part of facilitating the flow of products, services, information and people over wide geographic areas stretching over several countries, said Johny M. Smith, Chief Executive Officer (CEO) of the Walvis Bay Corridor Group (WBCG), which has developed several trade corridors in Southern Africa. The development of trade corridors requires not only political will, but also funding and expertise, which is sometimes in short supply, hindering the establishment of important linkages between countries, he said.
Ms. González and Ambassador Valentine Rugwabiza, CEO of the Rwanda Development Board, used the occasion of the African Development Bank meeting to announce the joint organization of ITC’s World Export Development Forum (WEDF) in Kigali from 15-17 September. This 14th edition of WEDF marks the first time ITC’s flagship event is taking place in Africa.