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  • 14th August, 2023

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      From In Africa

      The Impact of Interregional Trade on Africa’s Economy

      We discuss the issues a low level of interregional trade in Africa presents, explore the history, and consider the benefits of improved economic partnership.

      The Impact of Interregional Trade on Africa’s Economy

      Trade is always a significant contributor to a nation’s economy. More specifically, inter-regional trade can play a crucial role in the economic advancement of African countries. However, this does not seem to be an area where African countries have had much success. In terms of both volume and share of trade, intra-African trade lags behind other regions. African Union (AU) reports show that intra-African trade accounts for 14 percent of all African trade. Interregional trade accounts for 60 percent of all European trade, 40 percent of North American trade, and 30 percent of trade in the Association of Southeast Asian Nations (ASEAN). 

      Historical Trade Routes and Networks Within Africa 

      Africa has a rich history of trade routes and networks that facilitated the exchange of goods, ideas, and cultures cross-continent. The Trans-Saharan trade routes facilitated the trade of gold, salt, ivory, and textiles, contributing to the wealth of Mali, Ghana, and Songhai. These routes connected North Africa with West Africa, crossing the vast Sahara Desert. The Indian Ocean trade network connected the East African coast with the Middle East, India, and Southeast Asia exchanging items like spices, textiles, and precious stones. The Swahili city-states along the East African coast also facilitated trade between the African interior, the Indian Ocean, and beyond. They traded gold, ivory, timber, and slaves, among other commodities. Other historical route networks include the North-South trade, the Niger River, The Red Sea trade network, and the Cross-Saharan trade network. 

      The Impact of Colonialism on Trade Patterns in Africa  

      According to a paper published by Joshua Dwayne in 1996 titled ‘The Impact of Colonialism on African Economic Development’, colonialism in Africa altered its history, affecting culture, economy, and political structures. African economies were advancing in trade, but colonisation aimed to exploit resources for European benefit, promoting cash crops and trade networks. 

      Colonisation disrupted Africa’s natural economic growth. Africa had a history of international trade, like West African empires relying on taxing foreign trade. The Atlantic slave trade, which lasted for over three centuries, also played a significant role during colonial times, introducing credit and exchange systems. European demand for slaves boosted trading, leading to advancements in credit, currency-based debt, and interest concepts. However, increased international trade subordinated Africa’s economy to European interests.  

      The slave trade replaced local goods with European products, making Africa a raw material source and consumer for finished goods. This imbalance had clear consequences. The decline of the slave trade began in 1807 when Britain prohibited participation. This led to the “legitimate trade” era, with Africa supplying raw materials for Europe. West Africa focused on cash crops like palm oil. This transition was relatively smooth due to heightened demand for products like palm oil and ground nuts, preventing significant economic repercussions.  

      These agricultural goods played a pivotal role in fueling the industrial revolution, enhancing machine production efficiency and contributing to the manufacturing of consumer products in Europe. Beyond economics, the abolition of the slave trade carried far-reaching political consequences. While Africa had previously exported slaves to the New World’s plantations, the industrial revolution’s need for agricultural commodities prompted a direct shipment of these products to Europe. As a result, Europeans needed to proactively secure a steady supply of these goods. As a result, most of Africa’s trade. Hence, African countries matched their production to European needs instead of other African countries.  

      Current State of Inter-Regional Trade in Africa  

      Per data collected by the International Trade Centre, trade within Africa grew 13.26 percent between 2021 and 2022 to a total of $81.87 billion. Nearly a quarter of the total was the trade of mineral fuels, mineral oils, and other distillation products, signifying that African countries are looking to rely on each other for energy. Other significant traded products were fertilisers and machinery like nuclear appliances, vehicles, electrical equipment, and plastics. 

      These figures are much lower than Africa’s trade with the world, which had a cumulative value of $1.36 trillion in 2022. The difference between interregional African imports and African imports from non-African countries is large: $81.87 billion against $694.52 billion. Contrastingly, European countries imported $5.5 trillion worth of products from other European countries, as opposed to $8.95 trillion from the rest of the world. The values are similar in Asia, where countries spent $5.96 trillion on interregional imports and $9.52 non-Asian countries.  

      Benefits of Inter-regional Trade on Africa’s Economy  

      Inter-regional trade in Africa brings with it a host of economic advantages. One of the significant benefits is the creation of job opportunities due to the increased economic activity spurred by trade interactions between neighbouring regions. This trade expansion also opens up new markets for local products, effectively boosting sales and encouraging business growth. Moreover, the exchange of goods and ideas across regions fosters an environment of innovation and entrepreneurship, as individuals are exposed to diverse perspectives and opportunities. Efficient trade relies on good infrastructure, like better roads, railways, and ports. This connectivity reduces delays and improves the movement of goods. 

      Successful projects enhancing cross-border transportation have boosted inter-regional trade ease. Inter-regional trade diversifies economies, reducing reliance on one market and protecting against downturns. Trading various goods encourages industry growth, making economies adaptable to market changes. On a broader scale, the socioeconomic impact of inter-regional trade is substantial. It fosters closer ties between communities and regions, promoting cultural exchange and understanding. The increased economic activity generated by trade also contributes to higher government revenue, enabling investments in public services such as education, healthcare, and infrastructure. This serves to enhance the overall quality of life and well-being of citizens across participating regions. 

      Challenges and Barriers 

      Inter-regional trade in Africa encounters several challenges and barriers that affect its smooth functioning. One of the notable hindrances is the presence of trade barriers, which encompass various forms of restrictions. These include tariffs - taxes imposed on imported goods - and non-tariff barriers like quotas and licensing requirements. The complexities of bureaucratic processes can further impede the efficient movement of goods and services across regions. Moreover, disparities in regulations and standards among countries within the same region add a layer of difficulty. These differences encompass aspects like product safety measures, labelling requirements, and quality standards. The need to align with diverse and often conflicting regulations can complicate trade procedures, leading to delays and increased costs. 

      • Published: 14th August, 2023


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