https://apps.facebook.com/techworeld/proo/?i=1050825 LexxyTech Corporations LexxyTech Corporation: Trade Routes (3): The Africa Rising phenomenon

Thursday, 10 August 2017

Trade Routes (3): The Africa Rising phenomenon

The Empire of Wagadu (Ghana, 300 CE - 1100) established control over the gold and salt trade by the use of iron arms.

Wriiten by Michael Schmidt

Illustrations by AmICollective

 

With the coming of independence for most African states between 1960 and 1975, Africa’s ancient trade routes were revived in a modern form – with Lebanese and Indian descendants of the ancient Phoenicians and Mughals pioneering external trade.

But it was the end of the Cold War and the rise of China that in recent years led traders, investors and economists to applaud the continent that bucked the global economic contraction, with six out of 10 of the top-growing economies in the 2000s being African, and The Economist famously headlining “Africa Rising” in 2011 because of a huge commodities boom that was driven by the long commodities-hungry super-cycle of the Chinese.

But although that boom is now over, World Bank chief economist for Africa, Francisco Ferreira, argued at a summit of African finance ministers and central bankers in Washington DC in April that the Africa Rising phenomenon would outlive the bust.  “Africa can successfully find its own path to economic development,” he said, citing the fact that 47 of the 49 Sub-Saharan African countries continued to grow, despite the recession, with four of them growing above 8%.

Ferreira predicted that average growth in Africa would slow to 4%, significantly down from its peak growth rates of 6,4% in 2002-08, basing his view on the steadily shrinking revenues attained by the continent’s major producers of oil, gold and natural gas: the dramatic halving of oil prices since June 2014 is expected to toughen terms of trade for African countries other than the 18 for whom oil is their leading export earner (together representing 12% of African GDP), because the prices of 36 other commodities – including natural gas, gold, iron ore, coffee, cocoa and rubber – are also linked to the falling oil price.

One positive effect, according to Venter Labuschagne, KPMG Africa’s head of customs and trade, is that all these oil-dependent economies now had a strong incentive to diversify. And the continent today is viewed far more positively than it was a decade ago.

In large part the optimism, according to Labuschagne, is driven by high expectations for the imminent establishment of Africa’s answer to the European Union – the Tripartite Free Trade Area (TFTA), which will embrace 26 countries of central, east, nsorth and southern Africa, with a combined population of some 625-million people and a GDP of almost $1-trillion.

The new free trade zone is expected to give a boost to intra-African trade and speeding regional integration of transport nodes from point-of-production to point-of-export.

Ferreira urged that the winning combination would see regional integration buttressed by progressive government policies harnessing Africa’s population growth by upskilling new urbanites and improving their  productivity.

The ultimate objective of the TFTA, via infrastructural instruments such as joint transport, power, and ICT planning, is to create a Cape-to-Cairo zone that allows for duty-free passage of goods and services originating in member countries: the visaless passage of business operators across its borders.

Investors have been quick on the uptake, Labuschagne said: “African companies are now, second only to Western Europe, the biggest investor in Africa, accounting for 22% of greenfield investment on the continent.

This and recent comments by leaders in the zone suggests that the TFTA will break from IMF and World Bank free-trade orthodoxy by allowing its member states to invest heavily in tariff-shielded manufacturing sectors to ensure that Africa in future beneficiates its raw materials, and so exports more finished goods – unlike West Africa’s ECOWAS, which under its EU trade agreement continues to export mostly raw product. But trade finance would have to be extended to meet the current demand of up to $350-billion.”

By 2012, imports from China totaled $65-billion, overwhelmingly of manufactured goods, then chemicals, then raw materials and machinery, with small amounts of fuel, food and beverages. Exports to China stood at $59-billion, primarily in manufactured goods, followed by machinery and raw materials, then massive shipments of fuel, with a tiny amount of food and beverages.

By 2013, the IMF reported that over the previous decade, “gradual liberalisation of the Chinese economy and unprecedented high growth in China and sub-Saharan African [SSA] economies were accompanied by an average 30% annual growth in trade between China and SSA. Overall, SSA has maintained a slight trade deficit with China, with fewer than half of its countries, notably Angola, the Republic of Congo, the DRC, Zambia, and Equatorial Guinea, having a trade surplus with China.”

In July 2015, the World Economic Forum rated Rwanda the continent’s most efficient and business-friendly government, ranking the small nation seventh worldwide – ahead of Malaysia, Switzerland and Luxemburg – with Mauritius rated 26th globally and South Africa 32nd.

Angolan analyst Paula Roque warned that Chinese investment in the wake of July’s market crash could in future come with “harsher and more intrusive terms” for Africa, but said that the experience so far of economies such as Mozambique’s were success stories, even if those gains in both market and political liberalisation must be assiduously guarded by Africans themselves.



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