Free Trade Prologue: Repairing Fractured Industries In Developing Economies

The African Union estimates that African nations collectively conduct about 15-17% of Intra-African trade. While other regions post much higher numbers somewhere between 60 and 90 percent, according to World Trade Organization estimates. However, what is not often held to greater account, is exactly who is doing the trading.

Perhaps the most curious element of the developing world is its merchant classes. Nestled in hideaways, perched prominently in glitzy oasis-style shopping centers and high-end residential enclaves are foreign merchants of every sort. In the United States, the UK and EU these shops are much smaller and play a less centralized role. However in developing economies–particularly Africa, these market players occupy a huge role that may actually skew trade data.

For instance, trade data from Zambia indicates that its top imports for 2018 were refined oil products, nuclear reactors and boilers, electrical machinery, vehicles and auto accessories as reported by the Bank of Zambia. However, the Zambian government is not buying cars to sell to local Zambians, rather it is the merchant class. Hense, it is their choices that determines African trade statistics. And many of these traders are part of Africa’s longtime entrenched foreign merchant classes.

As the African Free Trade Agreement begins to take shape a much more complex and nuanced picture of Intra-African trade emerges. A picture where many of the large local players are from the EU, India, China and the Middle East. India is now Africa’s Third largest trade partner, reckoning nearly 7 percent of total African trade. India’s Department of Commerce estimates Imports to Sub-Saharan Africa reached nearly $19 billion by the end of 2017. The US has greatly feared China’s expansion on the continent at the neglect of India’s growing role.

But the major caveat here is that many local merchants and multinationals who have the financial volume to import goods are often not African merchants. This means quite naturally the Indian merchant will import his goods from India to sell in Kenya and the Korean businessman will import his goods from Korea to sell in Africa. Both wholesellers and retailers are sourcing their products outside of Africa because they are from outside of Africa.

The only problem with this phenomenon is that it skews Intra-African trade numbers. It also assumes that most African petty traders and businesses chart flights and buy shipping containers full of foreign goods to be strewn across the African continent. A quick visit to almost any African nation will find hundreds of local Africans selling everything from Irish Spring soap to homemade baked goods in buckets, trays and pans, sashaying between traffick and back and forth on city streets. These too are a big part of Africa’s economy and account for perhaps 80 percent of the real people-to-people trade on the micro-level.

But even as Africas largest local retail market must walk miles in blistering heat and endanger their lives selling in live traffick because viable business locations are not affordably priced for locals; foreign goods are still dominating the market.

Even if the trade areas are open, trade barriers are reduced and tariffs mitigated; still there remains a major gulf in those with capacity to buy at scale to ensure African-made goods proliferate the Free Trade Area. For example, Togo is a large buyer of refined oil and petroleum products, however, Nigeria and Angola, two major oil producing Sub-Saharan nations do not export refined oil. Once again despite a wonderful agreement, Togo will be forced to import from outside of the continent.

French-owned oil and gas multinational, Total one of the most prolific petrol franchises in Sub-saharan Africa will likely still import from its foreign partners. Policy and mechanisms will need to be put in place to ensure locally (Africa-sourced) products are sold locally even if the franchisee or business is foreign-owned. French-owned Total draws in over 200 billion dollars annually with a prolific continental presence. While France produces 133,000 barrels a year, it consumes nearly 2 million barrels and exports only 805 barrels–which means it gets much of its oil from other sources.

Without adequate local policy to compliment the AFCTA, along with an empowered local business market, the new framework may not change the actual trade dynamics on the continent. Those dynamics are of a cloistered foreign merchant class that determines its own trade partners and floods local markets with non-local goods and services. African states and local populations are drowning, not because they don’t have access to Exxon Oil, Procter and Gamble toilet paper and TVS motorcars, but because they don’t produce, refine or manufacture any of those items for their own consumption or trade; they can therefore only reap small scale, retail gains.

Foreign merchants tend to fill their shelves with products from their homeland and a few locally manufactured staples. This means local markets will remain small and foreign merchant classes will likely use local people to ferry their products across free trade borders unhindered by tariff or tax.

The AFCTA must be a herald and rallying cry for African nations to become diligent about empowering its local merchants, businesses and SMEs. Without a diligent approach to enforced policy, increased and upgraded office, wholesale and retail store spaces, training, and supply chain controls, the AFCTA could act as a blanket over the ceaseless operation of the foreign merchant machine. Africa’s business men will continue to sit in the heat under umbrellas selling foreign goods that they did not manufactured or import; and Africa’s female entrepreneurs will go on walking for hours selling goods out of the heavy loads they carry on their head with baby in tow.

Africa needs a business and industry renaissance. One that allows companies to scale and work handily with regional partners to ensure functioning trade routes with. Adequate checks and balances. Nations like Nigeria, Ghana and Congo will have to forge the will to refine its own natural resources and supply other Sub-Saharan states. Investment into major farming initiatives that adequately produce and process will need to become national focuses instead of international investment campaigns. The AFCTA has promise, but in disciplined practice.

A presentation for Sub-Saharan Heads of State Only. Click Here to Schedule.

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