One of the biggest obstacles to industrialization in Africa is that African countries trade very little between themselves, only 10-12 percent of total trade, whereas regional trade accounts for 63% in EU, 40% in the US and 30% in Asean countries. Why do we have such daunting figures?

In addition to the well-known problem of tariff and non-tariff barriers, economists often argue that the root-cause is much more structural: African economies are excessively small and similar to trade among each other, so they must rely on international markets. From this view, intra-African trade is unlikely to promote growth in the short term.

However, the World Bank just-released report “De-fragmenting Africa” (highly recommended), tells a different story:

It has been commonly argued that regional integration can only play a limited role in Africa because of the similarity of endowments between countries. However, this does not reflect  the enormous opportunities for cross-border trade in agricultural products from areas with a food surplus to food deficit areas that result from differing seasons and production patterns. For example, Southern Malawi is not well endowed with agricultural potential and is a persistent food deficit area. Nearby Northern Mozambique is a productive area for growing maize, the main staple of the region, but it is distant from the main area of national consumption in the south of the country. Differences in weather patterns entail low correlations in production between countries and that regional production is less variable than production at the country level.

There is also another point: intra-African trade is already much bigger than statistics reveal, but most of it is informal:

There is a significant amount of cross-border trade that takes place between African countries that is not measured and therefore official statistics considerably understate the amount of intra-regional trade. (…) Surveys indicate that in some African countries, informal regional trade flows represent up to 90 per cent of official flows. In Uganda, for instance, informal trade grew by 300 percent from 2007 to 2009, where informal exports to neighbors is estimated to account for around 86 percent of official export flows to these countries

It would be interesting to have comparable data on informal cross-border trade, in particular on manufacturing goods, but I didn’t see any in the report. The graph below shows interesting patterns of (formal and informal) trade of food commodities in East Africa.

Read the full report here (PDF)

Advertisements