Accra, Ghana//-Sub-Saharan Africa faces an international trade environment that is ever changing, bringing new challenges and opportunities for increasing growth and reducing poverty.
Among the latest developments, the COVID-19 (coronavirus) pandemic since January 2020 has crippled economies around the world—including in Africa—through the direct health shock, the effects of pandemic containment measures on domestic economies, and the consequent disruption of global trade in goods and services.
Even before COVID-19 struck, however, a steady string of developments had been affecting the trade environment faced by African economies.
These included the resurgence of protectionist rhetoric, a global economic slowdown, proliferation of regional trade agreements at the expense of the global trading system (as represented by the World Trade Organization), increased global fragmentation of production across borders, and the Fourth Industrial Revolution (whose disruptive, labour-saving technologies include the Internet of Things, artificial intelligence, and advanced robotics).
The effective participation of Sub-Saharan African countries in this ever[1]evolving global trade environment remains central to boosting growth and development in the region.
Indeed, the economic growth success stories of the recent past (including China, the Republic of Korea, and Malaysia) are largely attributed to their participation in international trade.
Participation of firms in global trade is effective in spreading the benefits of new technology to improve overall welfare (Melitz 2003; Segerstrom 2013). Increased access to foreign markets yields increases in productivity and is central to industrialization prospects and job creation.
Because of these gains from trade as well as the special economic challenges that low- and middle-income countries (LMICs) face, preferential treatment has been considered as the most strategic instrument to promote export-led development in such economies.
In 2000, the United States launched the African Growth and Opportunity Act (AGOA), specifically aimed at Sub-Saharan African countries. A year later, the European Union (EU) put into effect the Everything but Arms (EBA) preference, focusing on all least developed economies.
By the sheer size of these two global markets, there were heightened expectations of the AGOA’s and EBA’s impact on trade and growth.
Yet rigorous evaluations of these preference schemes at the aggregate and product levels (using synthetic control methods and difference-in-differences analysis) show mixed results.
The utilization rates for these preferences are also found to be systematically low. This book suggests a strategic shift: while trying to maximize gains from these preferential schemes,
Sub-Saharan African economies should undertake bold domestic structural reforms to scale up their supply capacity while also pursuing new market opportunities to secure market access.
Indeed, with the rise of Asia as a solid third global market, exploring export opportunities in China, India, and the Association of Southeast Asian Nations (ASEAN) countries would seem to be a sound strategic move.
However, given the generally small size of Sub-Saharan African economies, deeper regional integration, anchored around the continent’s largest middle-income countries, is a prerequisite.
To that end, Africa has embarked on the world’s largest free trade project—the African Continental Free Trade Area (AfCFTA).
Recent Trade Dynamics in Sub-Saharan Africa
Sub-Saharan Africa’s exports and imports of goods and services have grown rapidly over the past decade, but the volumes are still low.
Though Africa accounts for a small share of global trade, the share of trade in the national income of most economies in the region is large relative to other regions.
In 2019 the share of total exports in gross domestic product (GDP) was 30 percent in North America, 39 percent in South Asia, 53 percent in Sub-Saharan Africa, and 58 percent in East Asia and Pacific.
From 2000 to 2017, Africa’s share of exports to the rest of the world made up 80–90 percent of its total exports, higher than any other region. These data suggest the high dependence of the region’s economy on international trade, making the region more vulnerable to external shocks.
In the earlier phases of the COVID-19 pandemic, despite having a relatively low percentage of the world’s confirmed cases, the region felt its severest economic shocks mainly through the channel of trade—pandemic-related demand and supply shocks in the region’s major trading partners.
Overall, Sub-Saharan Africa accounts for about 2 percent of global production and 3 percent of global trade in goods and for about 3 percent of the world’s trade in services.
These numbers put Sub-Saharan African trade into perspective within the global economy. The trade dynamics of some of Sub-Saharan Africa’s subregions since 2010 tell a more encouraging story about the region.
Except for exports of goods from 2015 through 2019, Sub-Saharan Africa’s trade has, by and large, grown faster than that of the world. The breakdown of exports by broad classification indicates the growth in exports of capital goods is much higher than the growth in either consumer or intermediate goods exports.
When focusing on subregions and after 2009, East Africa’s exports and imports of goods and services have grown systematically faster than those of Sub-Saharan Africa or the world.
By contrast, Southern Africa’s exports of goods have been performing on a par with the world average. Over the past decade, Sub-Saharan Africa has diversified its major export destination markets.
Although the region’s share of exports of goods to Europe and North America represented 31 percent and 25 percent of its total goods exports, respectively, in 2005, those shares contracted to 25 percent and 20 percent in 2010.
Meanwhile, its share of goods exports to East Asian economies was steadily increasing. In addition, there was a continuous rise in intraregional trade, with a sharp rise just after 2009.
Just after the peak of Sub-Saharan Africa’s exports of goods in 2011, the top export destination for the region was Europe and Central Asia, followed by East Asia and Pacific, Sub-Saharan Africa, and North America.
However, these aggregate trends hide some idiosyncrasies. For instance, the sharp increase in Sub-Saharan Africa’s exports to East Asia during 2010–14 was led by exports of fuels and lubricants.
Conversely, the sharp decline in the region’s exports to North America during 2011–14 resulted from a decline in the exports of fuels and lubricants. A product group that is worth examining closely is the category of inter[1]mediate goods.
Intra-industry trade in intermediate goods gives a rough indication of Sub-Saharan Africa’s participation in global value chains (GVCs)—which, by design, is a source of productivity because the firms that are competitive at the global level tend to be the more productive ones (Melitz 2008).
Focusing on industrial supplies, Sub-Saharan Africa appears to be increasingly trading intra-industry intermediate goods with East Asia, as its exports and imports of industrial supplies to and from that region have significantly increased and been in sync since 2005.
Sub-Saharan Africa’s exports of industrial supplies to the EU were more affected by the 2009 and 2014 commodity price crises and less in sync with the import flows, indicating that this trade was more tilted toward metal and mineral products.
A closer look at disaggregated trade with the region’s trading partners from 2005 through 2018 supports the observation above about the rising share of East Asia in Africa’s exports and imports.
Europe and North America continue to be the dominant export destinations of consumer goods from Sub-Saharan Africa, while the role of East Asia has been growing faster than that of North America as a key source of imports of consumer goods.
East Asia is rapidly replacing North America and Europe as Sub-Saharan Africa’s key trading partner in both intermediate and capital goods trade, particularly after 2010.
As trade with East Asia increases with intermediate and capital goods, this has also been accompanied by rising intraregional trade.
Key Changes in the Trade Environment
The trade dynamics for Sub-Saharan Africa are happening in a changing environment. Among the many changes globally, two could significantly affect Sub-Saharan Africa in its efforts to expand trade and secure greater market access: the resurgence of protectionism (alongside rising trade tensions, particularly between China and the United States) and the rise of the Fourth Industrial Revolution.
The latter is characterized by emerging technological breakthroughs in several fields, including robotics, artificial intelligence, nanotechnology, biotechnology, the Internet of Things, three-dimensional (3-D) printing, and autonomous vehicles as well as the wide penetration of social media networks, which increases the potential of trading goods and services that were long considered nontradable. In the escalating trade war between China and the United States, Sub-Saharan Africa is not a direct target.
But it might be affected by second[1]round effects, especially given the increasing regional presence of Chinese firms that are progressively integrating Chinese and African production net[1]works.
Other developments threatening multilateralism include the United Kingdom’s exit from the EU and the rise of antitrade and antiglobalization sentiments in many high-income economies. It is to be seen how these new developments will unfold and how they could constrain Sub-Saharan Africa’s new trade environment.
As for the Fourth Industrial Revolution, will it pass by Sub-Saharan Africa and marginalize the region further on the global stage, or will it level the playing field with opportunities for leapfrogging?
Will it foster or deter the structural transformation the region dearly needs? In particular, 3-D printing—also known as “additive manufacturing”—is emerging as a world-shattering technology.
It allows the creation of objects by printing successive layers of different materials, mostly plastic or metal, instead of subtracting or cutting material from a large piece or block (which is called “subtractive manufacturing”).
Pushed to an extreme and in sectors that are labour intensive, these emerging technologies might pose a threat to the prospects of industrialization in Sub-Saharan Africa.
They could also present an opportunity if services trade liberalization deepens to complement tariff liberalization and thus allow Sub-Saharan Africa to acquire the skills needed to be better connected to the global economy.
At the same time, these new technologies also improve efficiency, which allows production to expand, in turn driving up trade and employment in other sectors.
In fact, the available evidence shows that 3-D printing is associated with an increase, rather than a decline, in trade (Freund, Mulabdic, and Ruta 2019).
These developments confirm that the global economy is a source of growth that Sub-Saharan African countries cannot afford to ignore despite the persisting trade tensions between China and the United States.
Countries in the region need to (a) optimize their access to leading world markets (such as the EU and the United States) and increase utilization rates for preference schemes; and (b) strategically diversify their market access.
To succeed in such a dual approach, one more step—regional integration— must play a central role to scale up Sub-Saharan Africa’s supply capacity. Before exploring these three courses of action, we start by reviewing the key ingredients needed for a successful market access strategy.
By Souleymane Coulibaly, lead economist and program leader in the Equitable Growth, Finance and Institutions (EFI) Practice Group for Brunei Darussalam, Malaysia, the Philippines, and Thailand; Woubet Kassa, a research economist in the World Bank’s Office of the Chief Economist for the Africa Region; and Albert G. Zeufack, the World Bank’s chief economist for the Africa Region.
Curled from ‘Africa in the New Trade Environment Market Access in Troubled Times’ report produced by the World Bank
Full report: eBook__Africa_in_the_New_Trade_Environment.pdf
