Trade

A Brief Overview of African Trade

By Alexander Hammond

As noted by renowned African scholar Professor George B. Ayittey, before colonialism, “free trade routes crisscrossed the continent. Goods and people moved freely along with them.” Taxes and sporadic barriers to trade did exist. Still, by in large in the pre-colonial era across the continent; from Timbuktu to Cairo, Luanda to Zanzibar, and Mombasa to Merida, enterprising African merchants freely travelled great distances to buy and exchange goods. Dozens of large market towns acted as central nodes in a great African trade network. 

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With the colonial era, many barriers prohibiting free trade and movement across the continent were erected – often in the form of arbitrary borders. As such, many of the ancient trade routes withered, although, trade between African states and the rest of the world boomed.

In the decade following the independence of thirty-four separate African states, the Fraser Institute showed that there was no significant growth in economic freedom across the continent. Some nations became marginally freer, some regressed. Rather than unshackle their economy from the colonial-constructed restrictions on trade, many countries pursued a form of ‘African Socialism’ and the opportunity for a widespread independence-induced liberalisation never occurred. 

As Marian Tupy, editor of HumanProgress.org and IATP Advisory Council member, notes, “for much of their post-colonial history, African governments have imposed central control over their economies.” Measures such as expropriation of private land, price and wage controls, state-owned enterprises that prevented competition, and more, were all too common in many African nations. The devastating human and economic costs imposed by these policies have filled the pages of many books. As Ayittey notes, the leader’s love affair with socialism led to nothing but “economic ruin, oppression, and dictatorship.”

To give a single narrative that encompasses the actions of all African states is, of course, impossible. However, following the collapse of the Soviet Union, which had bankrolled many socialist dictators, various forms of African socialism began to lose much of their appeal and the rampant use of the economically destructive policies detailed above began to decline.

The modest increase in economic liberalisation across the region since the late 1990s has corresponded with enormous advances in human and economic wellbeing. In the last 20 years alone, average incomes (adjusted for inflation and purchasing power) have double, life expectancies have risen by ten years, infant mortality rates have halved, and literacy rates have increased by 8%. Despite these improvements, as the world has become richer over the last 50 years the African continent has struggled to keep up. The relative contribution of Africa to global trade fell from 4.3% in 1970 to a measly 2.8% in 2019.

It is clear that much more needs to be done. Africa remains the least economically free continent on earth. A myriad of barriers such as high tariffs, corruption, closed borders, weak and fragmented rules aimed at promoting investment, non-tariff barriers, and a slew of other anti-competitive market distortions limit the free exchange of goods across the continent. As a result, intra-continental trade accounts for just a fraction of that in Europe or Asia. Today, despite accounting for 16.7% of the global population, the continent makes up less than 3% of global trade and GDP.

However, the new African Continental Free Trade Area (AfCFTA) may help to change this. On March 21st, 2018, at the 10th Extraordinary Summit of the A.U. Assembly of Head of State and Government, Paul Kagame, President of Rwanda and the then-Chairman of the A.U., formally introduced the AfCFTA.

Below is a brief overview of what the AfCFTA is, and why freer trade would be great news for the African continent.

What is the AfCFTA?

  • 1. Intro to AfCFTA- On January 1st, 2021, almost three years after it was first introduced at the 10th Extraordinary Summit of the African Union on March 21st, 2018, the African Continental Free Trade Area (AfCFTA) was formally implemented. The agreement is signed by 54 of the 55 African Union member states. Only Eritrea – often dubbed “Africa’s Hermit Kingdom” – remains reluctant to sign the agreement. So far, the combined gross domestic product of its signatories equals a substantial $3.4 trillion.

    The trade area represents the first opportunity in Africa’s history for all states to formally pursue an intra-continental trade relationship based on free trade and continued economic liberalisation. To date, 36 of the 55 African Union (A.U.) nations, including the regional economic powerhouses of Nigeria, South Africa, and Egypt (which together make up a third of the continent’s economy) have ratified the agreement, making it the world’s largest free trade area by the number of participating economies. 

  • 2. Liberalisation – The AfCFTA aims to remove 90% of tariffs on goods traded between member-states within 10 years for less developed countries (LDCs) and within five years for non-LDCs. Within 13 years, 97% of tariffs from all member-states should be removed. The World Bank has predicted that if fully implemented, the AfCFTA will lift 30 million people out of extreme poverty (as defined by the World Bank as living on less than $1.90 per day), 68 million from moderate poverty ($5.50 per day), boost regional income upwards of $450 billion and increase average wages for both men, women, skilled and unskilled workers by about 10%, by 2035. The “countries with the highest initial poverty rates,” the World Bank says, will see the “biggest improvements.” The AfCFTA would also help lessen the economic damage caused by the COVID-19 pandemic.

  • 3. Boosting trade – Once 90% of tariffs are removed, the United Nations Economic Commission on Africa (UNECA) has estimated within two decades, intra-regional trade could increase by more than 52%. Though, the UNECA is quick to point out this figure could more than double if full trade facilitation (cutting tape, bureaucracy, harmonising standards, etc.) occurs, rather than just tariff liberalisation alone. 

    At the moment, intra-African trade accounts for just 15% of the continent’s total exports. By comparison, intra-regional trade accounts for 69% and 59% of total exports in Europe and Asia, respectively. If the AfCFTA is successful in boosting intra-regional trade, this is great news because…

  • The trade deal that could kick-start Africa’s industrial revolution by Alexander C.R. Hammond

    4. Manufacturing – When African states trade with each other, those goods are three times more likely to be higher-value manufactured products than goods exported out of the continent.

    Today, commodities make up at least 70% of the total exports in more than three-quarters of African nations. As commodities are usually more prone to price fluctuation than other types of goods, a strong reliance on them can often result in increased economic volatility and a more unstable business environment. By liberalising barriers and boosting intra-African trade, the AfCFTA will likely boost the member-states manufacturing sector, resulting in a more diversified export market and a more resilient business environment. 

  • 5. Removing colonial barriers – Some of the barriers to trade and border frictions between African states are a legacy of artificially drawn borders drawn up during the colonial era. By removing barriers to trade, economic liberalisation, and the AfCFTA can be seen as undoing an adverse legacy of colonialism.

  • 6. Ideological shift – To a degree, the AfCFTA represents an important ideological shift away from socialist beliefs, which have haunted much of Africa over the last 70 years. In the late 1950s and early 1960s, a plethora of newly independent African states rejected the capitalist model and began to pursue a socialist economic model. Many of the new leaders viewed capitalism and colonialism as synonymous, and as the former was evil and exploitative, their thinking went, so too was the former.

    Julius Nyerere, the first president of Tanzania, declared in 1963, “In rejecting the capitalist attitude of mind which colonialism brought into Africa we must reject also the capitalist methods which go with it.” In 1957, Ghana became the first African nation to achieve independence. Its leader, Kwame Nkrumah, a self-proclaimed Marxist, claimed that only a “socialist transformation would eradicate the colonial structure of Ghana’s economy.” Nkrumah actively encouraged other African states to seek independence so that they too could pursue “the complete ownership of the economy by the state.” Before too long, many African leaders followed Ghana’s example and pursued their own form of “African Socialism.”

  • 7. A Changing AU – In 1963, Nkrumah, Nyerere, and several other socialist leaders created the Organization of African Unity (OAU), the African Union’s predecessor. In forming the OAU, Nkrumah believed that “a united socialist Africa is a necessary condition for the realisation of the African personality.” The organisation’s found members argued that the only way that the continent could develop its economy is through uniting behind socialism and disconnecting from the global economy. By contrast, the African Union, the OAU’s successor, through the AfCFTA has just implemented the world’s largest free trade area, and its leaders are now praising free trade. To read more about the ideological shift that the AfCFTA represents, click here.

  • 8. Conclusion – There’s little doubt that economically harmful socialist policies will continue to haunt some parts of the continent. By no means will the AfCFTA be the silver bullet that solely enriches Africa, but it is an enormous shot to help improve the wellbeing of millions of people. As it has been signed by 54 of the 55 A.U. members, it’s clear that economically liberal ideas are beginning to gain traction across the continent. Free trade has helped lift billions of people out of extreme poverty over the last 200 years. It allows economies to specialise in producing goods and services in their comparative advantage, rather than inefficiently producing everything domestically.

    As African countries begin to embrace free trade, we can expect tens, if not hundreds, of millions of Africans to rise out of poverty in the coming years.

Challenges

Regrettably, the future of African free trade is far from secure. Whether it be insufficient participation among African Union member states, delays in implementing the trade area, long timelines for tariff reductions, increasing calls for economic nationalism post-Coronavirus, and the lack of support for free trade from some governments who have already ratified the agreement, the hurdles to a completely free trading Africa are aplenty. Similarly, anti-free traders (most commonly in the form of powerful trade unions and far-left political parties) have successfully pushed the protectionist narrative in several countries. Without further ratifications, the AfCFTA will likely fail. 

By championing bottom-up African free trade solutions and helping to support those in the best position to make a change, the IATP partners with and provides help and resources to local groups and think tanks to make their voices more effective and louder. We also connect with students, teachers, writers, and thinkers to build a bolder and stronger voice for free trade. The work of IATP will be guided by the core belief that bottom-up free market policies, and especially free trade, is the most effective way to alleviate poverty, amplify individual liberty, and create a more peaceful future. Together, we can help make ambitious African free trade initiatives, such as the AfCFTA, a success.