Most people seem to think that intra-African trade could be substantially larger than it currently is. This would explain the recent statement of the heads of the African Union to “boost” intra-African trade substantially and to create an Africa-wide Free Trade Area by 2017.
Optimism about Africa’s future is no longer scarce. The continent’s growth has been exemplary in recent years. Yet it is just as easy to find signs of distrust in the global economy.
Multilateral agencies insist that international integration offers opportunities for accelerating economic growth. Official parlance has become tame since the heyday of structural reforms in the early 1990s, but they have found subtle ways to argue that trade is good. The World Bank recently launched “Defragmenting Africa,” providing an exhaustive and exhausting list of policies to increase international trade within the continent.
Unsurprisingly the prescriptions can be costly. Removing import taxes might improve economic efficiency and enhance consumer welfare, but revenues can fall in countries with limited public resources. Although Africa harbors some of the highest trade taxes in the world (World Development Report 2009), the point is that there are tradeoffs. The same applies to policies that entail investments in infrastructure for “trade facilitation.”
What would Africa get in return?
African Head of States and Governments will convene in Addis Ababa, Ethiopia later this month to launch a continent-wide free trade agreement (CFTA). The summit will focus on solutions to the numerous impediments that hinder intra-African trade: inefficient transit regimes and border crossings procedures for goods, services and people; poor implementation of regional integration commitments.
Once again, commodity prices are on the rise.
Unlike in 2008, when oil importers and exporters experienced symmetric shocks (one negative, the other positive), this time it appears as if both oil exporters and some oil importers in Africa are experiencing positive shocks.
The reason is probably that, along with oil prices, other minerals such as gold and copper, cotton, and cocoa prices are also up—so even an oil importer may have on net a favorable terms of trade shock. In addition, although some world food prices are rising, most food is domestically produced and not traded, so the negative effect of that may also be muted. Of course, the situation may change if oil prices rise even further.
The following summary table, taken from the complete data set prepared by my colleague Cristina Savescu, gives the ten countries with the biggest positive and negative terms of trade shocks between December 2009 and December 2010, as a share of 2009 GDP.
Terms of trade change December 2009-December 2010 as a percent of 2009 GDP:
Consider the following description of a trucker’s journey in Cameroon: “The plan was to carry 1,600 crates of Guinness and other drinks from the factory in Douala where they were brewed to Bertoua. According to a rather optimistic schedule, it should have taken 20 hours, including an overnight rest. It took four days. When the truck arrived, it was carrying only two-thirds of its original load.”
And this is how a Tanzanian exporter explains why few firms stay in the exporting business: “They discover that it is a miserable experience. Having gone to the effort of getting an export order they then spend weeks pounding through bureaucracy, endlessly waiting in dirty government corridors trying to find a morose civil servant prepared to do his job.”
How do these costs affect Africa’s trade?