March 26, 2013

Introduction to the importance of trade and global partnerships

In support of ONE|

Trade and investment is an essential component of economic growth and an important source of job creation and sustainable income for African countries, communities and producers.

Despite tremendous growth rates in 17 Africa countries over the last decade, sub-Saharan Africa has struggled to reap the benefits of global trade. In 1980, sub-Saharan Africa had a 3.6% share of world trade. By 1998, this share had dropped to just 1.3% and in 2011, it was 2.1%.

Similarly, foreign direct investment (FDI) to the region remains a small fraction of global FDI flows; however, the picture is improving. While the global financial crisis led to a general drop in FDI from 2008, sub-Saharan Africa has fared relatively well compared to the G8 countries (Canada, France, UK, USA, Russia, Italy, Japan, Germany).

Africa’s economic growth also rebounded relatively quickly from the global financial crisis.  In 2011, economic growth in sub-Saharan Africa was 4.9%, and growth across 2012 and 2013 is predicted to average 5.4%; only the developing Asia region is predicted to have higher rates of economic growth during this period. 

Despite this progress, roughly one-third of the African population lives in poverty and building Africa’s capacity for global and regional trade is essential for creating a pathway to sustainable livelihoods. Sub-Saharan Africa faces some of the world’s greatest challenges in accessing local, regional, and global markets.

On the supply side, poor infrastructure for roads, bridges, and unreliable access to energy and under-developed telecommunications systems are significant barriers to trade and discourage investments. Other constraints include a lack of business training, capital to build competitive industries and financial services to help entrepreneurs bring their ideas to fruition. Combined with regressive import tariff policies in many developed countries, these constraints contribute to a reliance on raw exports, such as minerals and agricultural products, rather than finished products. This presents significant challenges to expanding trade across the continent.

Sub-Saharan African countries also face external trade barriers, such as high import tariffs, which make it difficult for their products to compete in important markets like the U.S. and Japan. To worsen the situation, wealthy nations pay subsidies – many of which are trade-distorting – to their producers, giving them an unfair advantage in the global marketplace. In 2011, agricultural subsidies in OECD countries reached $407 billion, which represents 0.95% of these countries’ GDP. More than ten times what was provided to sub-Saharan Africa in the same year.

Within Africa, poor regional integration – both in terms of infrastructure and government policies – poses a barrier to African countries benefiting from trade with each other.

The opportunity:

Inclusive economic growth, driven by trade and investment, will help end poverty in sub-Saharan Africa.

Improving access to developed countries and neighboring markets, enhancing aid for trade to help countries address supply-side constraints and improve competitiveness, investing in infrastructure, increasing capital investment flows, and strengthening regional economic integration can make trade can work for Africa. Even if Africa captured only a small additional percentage of global trade, it would make a big difference. In 2011, 1% of global trade was worth $225 billion, more than six times the development assistance sub-Saharan Africa received that same year.