Intra-Africa Trade: Breaking Down Walls for Economic Growth

Exploring the Challenges and Potential of Strengthening Trade Relationships within the African Continent

Sending goods from Zanzibar to Dar es Salaam in Tanzania should be easy. It’s in the same country, so once the goods are in Zanzibar, they should be available to the rest of the United Republic. Unfortunately, this isn’t the case. You’ll essentially have to reimport the product as though it were entering a new country, paying additional taxes to boot.

Trade barriers between countries are what the AfCFTA (The African Continental Free Trade Area) is trying to solve. It’s been prominent in the news as a potential free trade zone encompassing African countries. We won’t go into the benefits of these sorts of agreements as they have been written about extensively. But suffice it to say that increased trade amongst African countries would be a great thing, potentially unlocking trillions of dollars of additional GDP through incremental growth.

Intra-African Trade: The Understated Economic Force

Official estimates say that around 15% of African trade is intra African, meaning that the other 85% is between African countries and countries outside the continent. This is almost certainly understating the amount of trade that actually occurs between countries due to informal trading that moves goods back and forth between porous borders that would not be feasible to police. Much of this is agricultural commodities which are grown in Zambia say, and then traded to DRC. We know of many anecdotes where trading mamas will buy small volumes of farmed fish from border towns on one side of the border, then walk them across to sell in higher value markets on the other side.

These sorts of trade flows should be celebrated, not swept under the carpet.

There is potential to capitalise on these existing trade flows by looking at what can be done to formalise and increase them – potentially through AfCFTA. How can friction on the borders be smoothed through better management practices and systems to formalise and enhance this cross-border trade and how can this be done whilst at the same time not allowing smuggling to proliferate?

The Zanzibar-Dar Dilemma: An Illustration of Intra-Country Trade Frictions

But the Zanzibar example shows that even free trade within the same country doesn’t always run smoothly. So, what lessons might the Zanzibar-Dar frictions hold for AfCFTA? The most valuable is the importance of trust . For a free trade zone to work, member countries must trust each other to enforce their own borders. The movement of goods from Zanzibar to the mainland breaks down in large part because the mainlanders don’t trust Zanzibari border enforcement. And with good reason. Take rice, for example. The chart below shows the huge difference between declared and undeclared rice imports into Tanzania and Zanzibar (the undeclared data is found from mirror data looking at declared exports from the exporters).[1] It is known by industry insiders that a large portion (if not an absolute majority) of the undeclared imports are being brought through Zanzibar and then smuggled across into the mainland. The mainland government knows this and so requires stringent checks before goods can legally arrive from the island, and the whole concept of legal free trade breaks down (but illegal free trade largely continues).

If border trust is hard to engender within the United Tanzanian Republic, then it’ll be much harder to do across countries. This doesn’t mean AfCFTA is doomed to fail. But it does underscore the importance of cultivating trust between members. Trust of this sort is hard to gain but easy to lose. AfCFTA should focus on setting realistic expectations and securing early wins – and know that the overall process will take many, many years.

From a Trickle to a Torrent: The Evolutionary Path Towards Enhanced Intra-African Trade

The EU can trace its routes to the establishment of the European Coal and Steel Community in 1950. As part of efforts to promote economic integration and thus mitigate the risk of future wars in Europe, the ECSC created a single common market for coal and steel amongst 6 continental EU states. From these beginnings, the EU evolved over the next 50 years to become what it is today. Even though (thankfully) countries in Africa aren’t trying to stop a continental war, the idea of starting with strategic commodities (in the EU’s case steel) acts as a gateway to more and more official trade between neighbouring countries.

The lesson for AfCFTA is clear: walk before you run. Start with a small group of countries with a tight focus and closely specified mandates. Focusing on liberalisation of regional block trade could be easier than trying to do everything all at once. EAC, SADC, ECOWAS, COMESA, AMU, ECCAS, CEN-SAD and IGAD are already acting as the building blocks to ensure things keep moving forwards. The AU (African Union), which is driving AfCFTA, is working with these blocks, but it is still unclear on how much input and harmonisation is occurring. As with any agreement which considers existing treaties, this will take hard work to ensure the existing frameworks help, but don’t hinder the process. The AU should articulate its vision for how AfCFTA can slowly but meaningfully build on the foundation laid by these regional blocks.

Some of the people behind the GPI regularly export to neighbouring countries within the EAC and SADC and we see that these trade blocks do make trade between member countries for locally produced products much easier. These wins can slowly be expanded to include intra-block trade. However, there is still a lot of political friction that comes in the form of non-tariff barriers and these need to be discussed and addressed before trucks get stuck at the border.

With these lessons in mind, AfCFTA should begin with specific goods that are being produced locally and are already being traded informally at volume between countries and formalise these flows. Whether it’s honey from Tanzania to Kenya, fish from Zambia to DRC or horticultural commodities from Cameroon to Equatorial Guinea, trade is already happening. Focusing on these existing trade flows will help formalise and build cross-border trade both within and between existing trade blocks. As these trade flows already occur, the amount of tax income forgone by governments will be minimal.

Unlocking the potential of intra-African trade is not without challenges, but the potential rewards are immense. The Zanzibar-Dar es Salaam situation underscores the need for trust in border enforcement. The teams behind AfCTFA are undoubtedly working hard to ensure a free trade area that considers all the requirements of different stakeholders, which is an exhausting and unenviable task. However, there should be an emphasis at the outset on recognising the current trade flows of locally produced products and formalising these. The road is long, but every barrier broken brings us closer to a prosperous Africa connected through trade. It's a journey worth undertaking.

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[1] A more in-depth discussion of the rice trade in Tanzania can be found here which delves into political considerations as well as how differences in tariffs between countries can induce smuggling ACE-WorkingPaper034-TanzanianRiceBowl-210119.pdf (soas.ac.uk)