04:01 GMT 30th January 2012
The cumulative exports of individual African countries into the rest of Africa have increased by an average rate of 11 .5 per cent each year since 1990. More recently, exports from one African nation to another increased from $11. 7bn in 2000 to a cyclical peak of $45bn in 2008. IntraAfrican exports amounted to $40bn in 2010, but should surpass the previous peak in 2011.
Southern and West Africa are each the origin for one-third of Africa's internally traded goods - a share that has remained broadly consistent since 1980. North Africa, while accounting for around half that amount, has also kept its share constant. In contrast, East Africa has seen its relative share fall from 20 per cent in the early 1980s to 14 per cent in recent years. East Africa's relative decline has come as Central Africa, where exports into the rest of Africa have grown the most rapidly, has increased its share from merely 3 per cent in 1980 to close to 10 per cent in 2010.
Respective regional heavyweights lead the production of goods for export into Africa by Africa: Egypt in the north, Nigeria in the west, Kenya in the east, Angola in central Africa, and South Africa in the south. Angola, Egypt and Nigeria each produce at least 38 per cent of their respective region's internal exports.
South Africa has the most hegemonic influence, accounting for 80 per cent of Southern Africa's internal exports. In fact, South Africa is the only African country to export more than $1 Obn worth of goods into the rest of Africa. The most balanced region is East Africa, where Kenya accounted for $1.6bn of near $6bn exports in 2010.
West and Southern Africa accounted for the majority of the continent's internal exports, and Central Africa had experienced an increase in its relative share over the past two decades. In terms of imports, the regional balance is somewhat more even: Southern (25 per cent), East (25 per cent) and West (23 per cent) Africa accounts for the majority of African demand for African goods. Once again, East Africa is the most dependent on African supply: in 2010 onefifth of East Africa's imports originated from inside Africa, whilst 15 per cent of West African, 12 per cent of Southern African and 10 per cent of Central African imports come from inside Africa. The least inwardly orientated region, as in the case of exports, is North Africa.
Though in absolute terms mineral fuels dominate African exports, in terms of internal African trade, they account for only 40 per cent oftotal annual intra-African trade. Latest figures show that just five countries import around 80 per cent of Africa's internal mineral fuel exports: Nigeria (40 per cent), Algeria (15 per cent), Cote d'Ivoire (1 0 per cent), South Africa (9 per cent) and Egypt (5 per cent). However, the role of mineral fuel in intra-African trade is smaller than in Africa's total exports.
The evidence suggests that crude exports primarily heading to advanced nations and some emerging markets offshore, dominate Africa's absolute trade, undermining the level of regional integration. Nevertheless, the internal trade of machinery and mechanical appliances, transport equipment, chemical products and prepared foodstuffs were close to $4bn in 2010.
More importantly, with the exception of mineral fuels, pearls and precious metals, hides and skins, and textiles, the representation of African exports within each product group is relatively higher.
Noticeably more African nations imported more than $1 bn from other African nations in 2010 compared to those that exported that amount. Africa offers a more level playing field than other markets, making it easier for African exporters to find a market for their goods, but it is comparatively harder to produce the goods as, simply put, the producers are few while the buyers are many.
As expected, given the dearth of African manufacturing and the demand for manufactured goods across the continent, African production makes up a small share of African total imports. Explicitly, across the entire spectrum of goods, Africa looks to external sources of production, using revenues generated from commodity exports to import the goods required to feed, shelter and develop it.
Such a situation could only be gradually reversed if Africa starts prioritising economic diversification and regional markets. At the heart of this diversification is the need to shift to industrial production and to diversify Africa's export base.
Moreover, deepening domestic manufacturing capabilities will significantly enhance regional integration, providing a boon to intra-African trade flows and increasing the continent's economic resilience.
Estimates indicate that taking actions to compensate for the disadvantages posed by geographic isolation and fragmentation, as well as natural resource dependence, may facilitate closing up to one-third of Africa's economic gap with other developing countries.
In practice, however, significant obstacles remain to accessing Africa's markets. First, an agreement for the removal of nontariff barriers is still missing. In addition, the mechanisms are not in place to successfully monitor implementation. Customs procedures are far from harmonised. Then, an overwhelming stress point for both foreignand locally-owned businesses and governments pertains to human capital bottlenecks. Along the entire supply chain and within a cross-section of institutions, African economies face shortages of skills.
Many of these skills are critical precursors to creating more diversified economies. Remedying this will take time.
Most profoundly, structural weaknesses, notably inadequate transport infrastructure, also hamper intraregional trade. Due to its poor infrastructure, Africa also has the highest transport costs in the world (almost double the world average).
Landlocked countries face even greater constraints, with transport costs up to 50% higher than those of coastal countries. Furthermore, a poor road infrastructure has the ability to depress business productivity by up to 40 per cent.
Africa needs to invest around $100bn a year to upgrade, maintain and expand roads, railways, ports and other core infrastructure to create channels vital to enhance connectivity and diversification, which in turn will drive the development of secondary infrastructure connections.
Globalisation has achieved its most rapid gains since the turn of the century. The world's emerging markets have dramatically come to the forefront, using these forces to their benefit.
In nominal terms the BRICs have been at the forefront of the advances from the global south, but an increasing arc of nations from Latin America, Asia and Africa is driving these on-going structural shifts. The BRICs have unequivocally attached themselves to Africa to ensure long-term economic growth. But a dearth of African production, a longstanding habit to look to foreign markets, and a host of internal deficiencies -particularly in the form of infrastructure shortfalls and skill deficiencies- mean that the expected growth in African markets is largely inaccessible to African producers.
Successful negotiation of the challenges outlined above will reshape Africa's global economic and political identity in the 21st century. Each challenge presents immense opportunities, and in many cases the deficit is so acute that even a marginal improvement has the potential to yield massive dividends.
Moreover, the interlinked nature of Africa's myriad challenges means that the successful addressing of one challenge will have significant spill-over effects supporting growth and investment.
Improving Africa's infrastructure will provide a boon to regionalism, improve the investment climate, stimulate economic diversification and bolster economic resilience across regional economic communities.
Jeremy Stevens is International Economist, Standard Bank Research. This article was first published in Standard Bank's Guide to Transactional Banking in Africa 2012.
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