Why is the world's most self-sufficient continent still so dependent on everyone else?

Share current article via Email Share current article via Facebook Share current article via Twitter Share current article via LinkedIn In a statement earlier this year, the government reported that South Africa's trade under the preferential terms of the African Continental Free Trade Area (AfCFTA) in the two years to February was worth R2.6bn, spanning products from mining equipment and electrical machinery to food, clothing and plastics. It is still a modest figure in the context of South Africa's wider trade, but after years in which the framework has been discussed through ambitious agreements and summits, it is beginning to find expression, and its commercial reality is becoming somewhat more tangible. Regional integration has been one of Africa's longest-running ambitions, reaching back, at least formally, to the establishment of the Organisation of African Unity in 1963 and gaining renewed momentum with the emergence of the AfCFTA. There is good reason for that ambition to have endured, because Africa's economic case for trading more with itself has always been strong and many of the Western markets the continent has traditionally relied on are growing more inward-looking and more protective of their own industries. But amid the optimism and the real progress to date, there are still some uncomfortable realities about how African economies trade with one another. One of them is a paradox: the continent is among the least self-sufficient in the world, despite having perhaps the greatest capacity to meet its own needs. For example, there are so few direct freight routes connecting African countries that goods moving from one African market to another may first have to travel on a large international vessel to Europe before making their way back to the continent. AfCFTA needs to be accompanied by far more deliberate bilateral trade relationships between countries whose needs and strengths already fit A product that should move relatively quickly between South Africa and Kenya can end up taking a much longer and more expensive route because the connection between those two markets barely exists. Nigeria produces oil, which many African countries need, yet much of it is sold offshore, refined elsewhere and then bought back by African markets at a higher price. Part of the difficulty is that countries often become protective of their national interests when dealing with one another, accepting arrangements with economies outside the continent that can leave them more dependent and allow less value to stay at home. The instinct is understandable because every government is responsible for its own economy, but when each country protects its position without considering the regional system around it, the continent as a whole becomes weaker and each national economy eventually feels the cost. No country has everything it needs to build the scale its economy requires. Its future therefore depends, at least in part, on whether the countries around it can succeed and whether their strengths can be connected closely enough to meet needs that are currently being met elsewhere. That does not mean governments can just remove every tariff and trust that the benefits will spread evenly. A president facing rising inflation or pressure on local jobs will naturally think first about the immediate consequences at home, and any model for integration that ignores that political reality will struggle to move beyond agreement in principle. The AfCFTA therefore needs to be accompanied by far more deliberate bilateral trade relationships between countries whose needs and strengths already fit. If one market imports a product from Europe that another African economy can supply, while the second country depends on something the first produces, the opportunity should be identified and negotiated directly. The exchange may involve goods, services or technical capability, but the principle is the same: begin with real demand on both sides and build the trade around it. Over time, enough of these agreements would give the continental framework something concrete to carry and the AfCFTA would become more relevant because it would be facilitating transactions that countries had already found a reason to pursue, instead of waiting for the existence of the framework itself to create trade. A more enabling environment requires governments to look beyond the immediate pressure on the public purse Trade partners outside Africa have understood this for years. They have built export credit agencies, financing programmes and policy support around their companies so that when an African government or business wants to buy from them, the transaction is easier to fund and less risky to complete. In some cases, the financing is tied directly to the use of suppliers from that country, which means the commercial relationship is reinforced by the financial system behind it. African countries have rarely approached one another with the same level of intent. This is needed in the enabling environment governments create for investment, because trade cannot deepen if the projects and businesses meant to support it cannot get off the ground. In some countries, that environment is beginning to improve as the civil service becomes more technically capable and more comfortable with the way large transactions are structured. Officials have greater exposure to how banks assess risk and what private investors need before they commit capital, which is beginning to change the way governments position themselves around projects. That is one reason companies are becoming more ambitious about expanding across the continent and moving faster than they did a few years ago. A more enabling environment also requires governments to look beyond the immediate pressure on the public purse. A hospital project, for example, may need a tax holiday in its early years to become viable, but that can be difficult to accept when the focus is on the revenue being given up now. The better judgment is whether that short-term concession allows a much larger source of economic activity and tax revenue to develop over time. The same thinking applies to ownership. Governments have often approached major projects as something they must either own completely or leave entirely to the private sector, and when they choose full ownership, they can end up carrying businesses they are not equipped to run until financial pressure forces a sale. What we are seeing more often now is governments taking a meaningful minority stake while allowing a private operator to build and run the business, with the state stepping in where some support is needed to make the project viable. It still shares in the value created and earns revenue from the project without interfering in the decisions that determine whether it succeeds. There is no doubt that the continent's regional integration story is in a much better place than it was even a decade ago, and there is real promise in where it is heading. There is still a great deal of work to do, and sometimes progress will come from taking the smaller practical steps in front of us instead of waiting for one giant leap. • Adegbesan is managing executive: Africa regions, Absa Corporate & Investment Banking.