African business leaders lament on cost on cross-border trade

More than four years ago, African countries gave the ceremonial push to a deal to scrap internal trade barriers — a historic scheme that would create a continent-wide single market worth trillions of dollars. But African business leaders say cross-border trade remains entangled in customs duties, administrative hurdles and varying national regulations. Costs and delays are hampering African corporations fighting to compete with low-cost rivals, they say.

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“Each country has its laws — it’s very complex,” Jeremy Awori, head of Ecobank, a bank that operates in 30 countries, said at a business conference in Abidjan this week. The African Continental Free Trade Area (AfCFTA) was signed in 2019 by 54 out of the African Union (AU)’s 55 states, who together accounted for a GDP last year of $3 trillion. It formally began operations on January 1, 2021, to achieve 90 per cent cuts in tariffs within five to 10 years.

The International Monetary Fund (IMF) says this would unlock a real increase of 10 per cent in per-capita GDP and a 50 per cent rise in intra-African commerce. To give one example of the potential gains, an AU study in 2014 found that sending a vehicle from Japan to Ivory Coast was three times cheaper than sending the same vehicle from Ivory Coast to Ethiopia. But AfCFTA faces an uphill task.

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Its secretary-general, South African trade expert Wamkele Mene, told the Africa CEO Forum that “fragmentation” in the continent’s market had worsened in the past decades. “Every African activity has been negatively impacted by this fragmentation,” he said. He gave the example of a company that had subsidiaries in Rwanda and the neighbouring eastern Democratic Republic of Congo. The subsidiaries are separated by just 20 kilometres (12 miles) but have to use a bank in New York for transferring money.

COSTLY BARRIERS TO AFRICANS

Customs duties, which for many countries account for a huge chunk of government income, can sometimes exceed 50 per cent. Non-tariff barriers such as lengthy waits at borders or filling out forms are other major, but hidden, costs for corporations. The problems are having an impact on African companies competing with developing-country counterparts facing lower or even zero hurdles.

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Around 350 African companies today have a turnover of more than a billion dollars, a fall of six per cent since 2015, compared to 210 in Latin America and 170 in India, tallies that have risen by almost a third over the same period. “By 2050, 40 per cent of the (world’s) population will be African. We have to help our future champions find their place in global value chains,” said Ivorian Prime Minister Patrick Achi.

“Infra-African trade has to develop — it only accounts for 20 per cent of trade volume today. The single market is a very important tool,” said Olivier de Noray, director for ports and terminals in freight and transportation company Africa Global Logistics. The Covid pandemic highlighted Africa’s dependence on Western-made vaccines and Asian-made protective gear. It was followed by the Ukraine war, which demonstrated Africa’s need to import Russian and Ukrainian grain. “If we don’t learn from poly-crises like this, shame on us,” said Awori. “We could be self-sufficient in food, in fertilisers, and not to worry about where we are getting our wheat from.”