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Africa: Lift barriers, increase trade

A recent report examines constraints on intra- and extra-African trade in agricultural goods

Niveen Wahish , Thursday 17 Sep 2020
Lift barriers, increase trade
Lift barriers, increase trade
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The 2020 Africa Agriculture Trade Monitor (AATM), published by the International Food Policy Research Institute (IFPRI), has recently been released, providing an analysis of continental and regional trends in African agricultural trade flows and policies.

According to the AATM report, the third in a series of flagship reports, policy reactions among the world’s leading food and agricultural producers during the coronavirus pandemic since the beginning of the year have caused disruptions in world supply chains and threatened food-security systems in food import-dependent countries.

Furthermore, measures to contain the virus have magnified the negative impact of the crisis on intra-continental trade flows and the livelihoods of millions of people across Africa.

But opportunities lie in the crisis, as the foreword to the report points out. Among these is a strong political will to improve intra-African integration with the ratification of the African Continental Free Trade Area (AfCFTA) agreement.

This agreement, launched in July 2019, aims to eliminate tariff and non-tariff measures on goods, improve continental integration, and speed up customs procedures that remain a serious barrier to trade performance in Africa.

According to the report, countries should not let the pandemic stop progress towards economic integration. It said that agreements like the AfCFTA could provide not only a solid basis for long-term economic development, but also a means of effectively fighting future pandemics by facilitating the cross-border trade of food and medical goods.

According to the report, virtual negotiations on the AfCFTA could begin in the coming days and set a new start date for its implementation, possibly before 1 January 2021.

A second opportunity lies in an agreement by African states to establish trade corridors and reduce duties to enable the transit of essential goods that are fundamental to combating the pandemic. These short-term measures could also clearly increase intra-African exports, the foreword to the report said.

The Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA) are the largest economic players within the continent, said the report, followed by the Economic Community of West African States (ECOWAS), the Arab Maghreb Union (AMU), and the Economic Community of Central African States (ECCAS).

“The current export patterns within the different African regions are sufficiently dissimilar to suggest there is room to expand intra-regional trade within the continent,” the report said, calling for more coordinated efforts to create a more integrated market and reduce the negative effects of non-tariff barriers and behind-the-border barriers.

African agricultural exports showed an upward trend between 2003 and 2018, said the report. Furthermore, the African countries increased exports to new destinations such as Brazil, Russia, India, China, and other Asian countries, including Saudi Arabia, Vietnam, the United Arab Emirates, Turkey, Malaysia, and Pakistan. Cocoa beans, cashew nuts, tobacco, coffee, oranges, cotton, sesame seeds, black tea, cocoa paste, and fresh grapes were the 10 most exported agricultural products.

Exports to the EU fell from 45 per cent of the total in 2005-2007 to 36 per cent in 2016-2018. However, in current dollar terms, EU imports of Africa’s agricultural products saw a sustained upward trend, despite the decrease in share, and the EU has remained the top destination for African agricultural exports. The same goes for the US and intra-African destinations, which also grew in value, though their share remained unchanged at five and 20 per cent, respectively.

According to the AATM report, Africa’s agricultural exports have increased steadily over the past 20 years within the continent, but more so within its various regional economic communities. For example, SADC and COMESA member states retained 84 per cent and 66 per cent of their intra-Africa exports within their respective regions in 2016-2018, and ECOWAS, AMU, and ECCAS also retained 79, 60, and 46 per cent, respectively.

Moreover, the share of exports within each regional economic community was significantly larger than the share of world agricultural exports. This could be explained by the geographic proximity, cultural similarities, historical trading relationships, and preferential trade agreements, it said.

The report tracks increased exports of food products such as maize and wheat, but also processed foods such as soups, broths, and food preparations, “reflecting growth in processed food consumption, along with demographic shifts, growing urban food demand, and changing lifestyles and habits in rural areas.”

Rice, cattle, apples, vegetables, sweeteners and fats, beverages, and traditional non-food products such as tea, coffee, palm oil, cotton, and tobacco, were also among the top 20 commodities traded intra-regionally.

The low competitiveness of the African countries can be explained either by issues such as a lack of comparative advantage or factors such as high tariffs and domestic support for some products, in the main producers of agricultural products, the report said. It points out that tariff protection against imports from extra-regional suppliers can be as high as that on imports from world markets.

Furthermore, ad valorem equivalents incorporating non-tariff measures suggest that they can be more trade-restrictive than tariffs. The removal of logistical barriers was also called for in the report, as current barriers stunt coordinated supply chains between and within the various regional economic communities, it said.

“African governments will have to play a critical role in enforcing the removal of non-tariff barriers to intra-continental trade. The challenge of further opening national agriculture sectors is crucial, as intra-continental destinations account for 20 per cent of Africa’s agricultural exports,” the report says.

Domestic support in both developed and emerging markets is another problem facing African agricultural exports. Emerging economies like China and Brazil and advanced economies such as the European Union and the United States are major providers of domestic support for their producers. China has the highest domestic support as a share of GDP.

Non-tariff measures also constrain Africa’s global trade potential, the report said. While Africa accounts for 10.2 per cent of the world’s agricultural GDP, it accounts for only 2.7 per cent of global GDP and 4.2 per cent of global agricultural exports, showed the report.

“These figures reflect Africa’s lower labour productivity, lack of competitiveness in world markets, and the prevalence of non-tariff barriers affecting the continent’s exporters.” The latter range from sanitary and phytosanitary measures to conformity assessment and domestic support in the main producers of agricultural products.

The report argues that a more comprehensive approach is needed to help African exporters increase their competitiveness and reduce the negative effects of non-tariff measures.

Recommended policies include harmonising trade regulation at the continental level, not only by tackling import duties but also streamlining the costly non-tariff measures that “suffocate trade”.

Maintaining the well-being of the end consumer is also imperative, says the report. “Policy-makers, investors, and businesses should prioritise culturally appropriate, nutrient-dense foods, so that trade and value-chain development benefit consumers’ health. Nutrition-focused trade is imperative if Africa wants to avoid the risks of obesity, metabolic disease, and malnourishment caused by processed foods with poor nutrition quality,” it said.

Infrastructure must also serve that purpose by providing facilities such as low-cost cool-storage and food-safety measures.

The improvement of customs efficiency as well as of transportation and telecommunication infrastructure was also a must for the general good of trade, the report said. Tackling issues such as poor access to credit markets, insufficient investment in research and development, and insufficient access to fertilisers, new technology, and irrigation could raise the current low level of agricultural productivity.

 

*A version of this article appears in print in the 17 September, 2020 edition of Al-Ahram Weekly

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