Accelerating Regional Integration through Intra-African Trade: The Case of the AfCFTA

Research Aim:

• Explore the facets of the AfCFTA and its merits for accelerating intra-African trade

Research Scope:

• The research focused on sub-Saharan Africa

Research Objectives:

• To define regional integration and intra-regional trade
• To conduct a trend analysis of intra-African trade
• To describe the AfCFTA and highlight its benefits
• To highlight the linkage between intra-African trade and regional integration

Research Questions:

• What are regional integration and intra-regional trade?
• What is the current state of affairs in intra-African trade?
• What is the AfCFTA? What are its main facets?
• What are the benefits of being a part of the AfCFTA?
• How should African nations utilize the AfCFTA to boost intra-African trade?

Methodology:

• Literature Review
• Statistical Data Analysis

1. Introduction

In 1776, Adam Smith (2012) introduced arguably his most important piece of literature, coining the practice of modern international trade. In his book, Wealth of Nations, he encouraged the practice of free trade and trade specialization as the way for all countries to become wealthy through mutually beneficial trade.

Fast forward to today, international trade remains vital for economic growth. With growing trade, regions become increasingly integrated and engage more in intra-regional trade. This refers to the exchange of goods and services between countries located in the same geographic region (Yaduma and Khan 2020).

Despite the steady growth in intra-regional trade over the past few centuries, wealth distribution has been disproportionate between different regions. For example, most African countries are not as wealthy as the rest of the world, and their economies rely heavily on international trade rather than domestic production and exchange (Fofack 2018).

Due to the disparities observed in economic integration, there are debates around the impact of intra-regional trade in building wealth and prosperity for nations in Africa.

2. Africa Must Unite

Regional integration is at the heart of Africa’s structural transformation agenda. Following the aftermath of the liberation struggles during the post-colonial period, the Organization of African Unity (OAU) was created in 1963 to unite and encourage cooperation amongst African nations to achieve high standards of living for the people of Africa.

In a clarion call to all African countries, the founding leaders urged African nations to unite or perish (African Union 2022). The establishment of a common market for Africa was proposed. This was in addition to setting up other common systems including a union government, monetary zone, single currency, and African citizenship (African Union 2022).

Despite these efforts, Africa remains the region with the least amount of trade amongst itself. A comparative analysis of global trading blocs reveals that intra-African trade currently stands at 12 percent, while intra-Asian trade stands at 58 percent and intra-European trade at 68 percent, respectively. See Figure 1.

Figure 1: Global Intra-Regional Trade, 2021

A deeper trend analysis of intra-African trade can be seen to extrapolate low intra-regional trade to the respective trading blocs within the continent, namely, the East African Community (EAC), the Common Market of Eastern and Southern Africa (COMESA), the Economic Community of Central African States (ECCAS), the Economic Community of West African States (ECOWAS), the Community of Sahel–Saharan States (CEN-SAD), the Intergovernmental Authority on Development (IGAD), the Arab Maghreb Union (AMU), and the Southern African Development Community (SADC).

In terms of volume, intra-regional trade flows in Africa’s major regional economic blocs have been growing at a steady pace. Figure 2 below presents an illustration of intra-regional trade flows in Africa from 2000–2021. The SADC region was an outlier due to South Africa’s immense share of trade activity in SADC.

Figure 2: Intra-regional Trade Flows in Africa’s Trading Blocs, 2000-2021

The extent of disintegration in African trade is depicted in Figure 3. In 2021, each regional trading bloc in Africa traded upwards of 80% on average with the rest of the world. This is in contrast to 10% on average within the region and 8% on average with the rest of Africa.

Figure 3: Intra-regional, intra-African, and foreign trade in Africa, 2021

3. Why is intra-African Trade Still Low?

The main factors leading to low intra-African trading rates are presented below:

1. Infrastructure: Poor infrastructure, such as inadequate roads, ports, and airports, makes it difficult to transport goods across borders within Africa. This leads to high transportation costs and delays, which discourage trade (Sanfilippo 2022).
2. Trade barriers: Many African countries have high tariffs and other trade barriers, which make it expensive for businesses to import and export goods. These barriers also limit competition and discourage trade (Yaduma and Khan 2020; Frankel et al. 1997).
3. Political instability: Many African countries are prone to political instability, which can disrupt trade and create uncertainty for businesses. Peace and security are necessary prerequisites to stability, international trade, and economic development (Yaduma and Khan 2020).
4. Lack of regional integration: There are multiple regional economic blocs in Africa, but these are often not well-integrated, leading to a lack of cooperation and coordination between countries (Frankel et al. 1997).
5. Limited market access: Many African countries have small domestic markets, which limits the opportunities for businesses to sell their products. This makes it difficult for businesses to achieve economies of scale and makes them less competitive in the global market (Fofack 2018; Yaduma and Khan 2020).

4. The AfCFTA, The Conduit for Intra-African Trade

The dream of a united Africa is slowly becoming a reality through the creation of the African Continental Free Trade Area (AfCFTA). The main goal of the AfCFTA is to create a single market for goods and services with free capital and labor movement. The AfCFTA is expected to raise the competitiveness of African goods and services, and is projected to increase intra-Africa trade from an existing level of about 13% to 25% or more (Asuako 2021).

The main facets of the African Continental Free Trade Area (AfCFTA) are to harmonise borders, customs, and the movement of goods and services, reduce tariffs across the continent and remove non-tariff barriers (Asuako 2021). The continental free trade area will establish a market of 1.3 billion people with a combined GDP of $2.5 trillion and combined consumer and business spending of more than $4 trillion (Fofack 2018).

5. Exploiting the Benefits of the AfCFTA

Firstly, Africa’s regional trading blocs will have to reduce tariffs and remove non-tariff barriers. This will make it easier for all stakeholders in the region to conduct their activities without the usual costs associated with cross-border trade agreements. Each country will also have to work towards creating a conducive business environment (Wei and Frankel 1996; Bouët et al. 2017).

Secondly, intra-African trade is much lower compared to other regions due to the underdeveloped value chains for most of Africa’s exports (Bouët et al. 2017). Value addition solves this problem by focusing on the application of science and technology in the production of traditional and non-traditional exports. Diversification of African exports should also be explored, as moving away from extractives will encourage the production of more consumables being imported into Africa.

To improve the infrastructure and expedite reforms, governments will need to address demand and supply-side constraints. These include political instability, institutional resistance, and heavy costs associated with infrastructure development (Bouët et al. 2017; Sanfilippo 2022). The AfCFTA should strive to make labor and capital mobile between countries.

Finally, the AfCFTA must lead the establishment of international trade courts that will deliberate over contract disputes and the enforcement of trade agreements (Kahkonen and Meagher 2001). This will provide traders and investors with the security to engage in trade without fear of loss and will promote economic development. 

6. Conclusion

This study has provided evidence of the weak regional integration in Africa. The push to deepen economic integration and boost intra-African trade under the AfCFTA is a welcomed move that will likely change the trajectory of Africa’s fortunes. The continent will need to start by addressing the prevailing regressive restrictions impeding trade and regional integration.

The AfCFTA will not only increase trade within Africa but will also protect the interests of the African people by developing a competitive market that puts the interests of Africans first and eases trade restrictions between African countries, thereby accelerating regional integration. Furthermore, the AfCFTA will provide the needed insurance against the costs that arise from global shocks, either through volatility in macroeconomic fundamentals or contractions in global demand (Banda 2020). These shocks raise the cost of doing business, swing commodity prices, and hinder Africa’s regional integration efforts and progress.

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