As the United States-China rivalry grows, the world has fallen into a new era of trade wars. Although Africa isn’t a direct target, it has affected the continent and exposed the internal weaknesses of its economy.
Africa’s vulnerability to external shocks from the trade war is mainly due to the lack of diversification of its economies and poor integration with the global manufacturing value chain. Whereas many countries in Asia and Latin America saw increased demand for their exports amid the US-China trade tensions, Africa’s economies suffered.
Despite the challenging scenario for Africa, there are still opportunities for the continent to win. A way forward is for Africa to boost intra-regional trade, according to experts speaking at a panel session themed “Africa in the age of the new trade wars”, organized as part of the recent Africa CEO Forum event held virtually.
African countries are already taking significant collective steps towards self-reliance and economic diversification, particularly under the Africa Continental Free Trade Area (AfCFTA) which came into force in January 2021. It is expected to boost Africa’s intra-regional trade by 33% as well as provide a framework that will allow investors to enter a market of 1.3 billion people.
Creating locally consumer-led growth
“The AfCFTA is a conducive way to push forward when it comes to trade,” Dr. Rania Al-Mashat, Egypt’s Minister of International Cooperation, said. “Intra-African trade is very low compared to Europe or Asia. Africa can build its market by leveraging its advantage, which is the huge youthful population.”
Stephanie von Friedeburg, Senior Vice President of Operations at the IFC, agrees that for Africa to reduce its exposure to external risks, the region must work towards boosting intra-Africa trade.
“We need to think about Africa trading with Africa,” von Friedeburg said. “There will be at least 150 million people coming into the middle class over the next decade. That’s an opportunity to create consumer-led growth and increase competition on the continent.”
The IFC VP adds that considering most of Africa’s exports today are raw materials, the continent needs to work on vertical integration and developing the industrialization and use of those raw materials. “This would generate more skilled jobs for the young generation of the continent,” she notes.
Can the pandemic be a wake-up call?
However, the degree to which continental trade agreements and industrial development policies benefit Africa is based on the extent to which its economies can materialize them. Addressing the continent’s infrastructure gap is key to reaping benefits from the trade war, among other crucial factors needed to spur manufacturing and trade.
“Many things are needed, including rethinking policy and regulations at the country and regional levels,” von Friedeburg said. “Equally important is building the regional infrastructure that will support the connectivity of the continent and all 54 countries.”
In addition, African countries should be working to “encourage private sector participation,” Al-Mashat adds. However, Africa’s private sector isn’t as strong as it should be and this prevents the continent from “asserting itself and emerging as a winner” in the trade wars, according to Kuseni Dlamini, Chairman of South-African Massmart Holdings and Aspen Pharmacare Holdings.
“The pandemic has been a great wake-up call for Africa’s private sector to become more resilient so that it can play a better role in the global scheme of things,” Dlamini said. “Trade is a force for good but can’t be beneficial to countries without a strong private sector. We need improvement in the business environment to achieve this.”
Using the green transition to enter a different market
While Africa’s sole dependence on its natural mineral resources is partly responsible for its economic woes, Carlos Lopes, an Honorary Professor at the University of Cape Town and Visiting Professor at Sciences-Po Paris, thinks the continent’s natural capital will play an important role going forward.
“Our strategic minerals are going to be essential for the future as most of the renewable potential is in Africa. But it depends on how Africa goes about it,” he said. “We can have another wave of mineral dependence without transformation or we can use the green transition call to enter an entirely different market.”
Recent trade wars, protectionisms like Brexit, and the pandemic indicate that it is no longer business as usual for Africa. “Now is the time for Africa to grow its resilience, strengthen manufacturing sectors and connect to the global value chain, to position as a winner in the trade wars of our time,” said Dlamini.