How to boost productive capacities in Africa was the focus as the Trade and Development Board continued its sixtieth session with a discussion of "Intra-African trade: Unlocking private-sector dynamism."
UNCTAD Secretary-General Mukhisa Kituyi said that increasing such trade could have a significant positive impact on the continent. "I don't think there is any need for me to spell out the potential benefits in terms of job creation, investment, growth and technology transfer," he said during the meeting.
At the end of 2011, the Secretary-General noted, the share of intra-African merchandise exports in total African exports was 11.3 per cent, compared with just over 50 per cent in developing Asia, 21 per cent in Latin America and the Caribbean, and over 70 per cent in Europe. "We have seen the advantages of strong intraregional trade from the experience of the Asian region in the aftermath of the global crisis, when the countries of the region were able to support their trade performance through intraregional trade for quite some time despite the slowing down in global demand. This should serve as a wake-up call for African countries," he said.
"Steady African economic growth in recent years points to the continent's great potential," Dr. Kituyi said. "The African middle class increased from 26 per cent of the population in 1980 to 34 per cent in 2010, with most of the increase occurring over the past decade. But there is a problem - most of that growth has been driven by the commodities boom and, in fact, the share of African economic activity represented by industry has declined."
Increasing intraregional trade was not a simple matter, the Secretary-General said. Much work was being done to reduce trade barriers and eliminate regulatory obstacles but, as UNCTAD's Economic Development in Africa Report 2013 noted, African businesses needed to take advantage of these more open markets by providing more products - and higher value added products - to trade. What was needed was "an overall strategy to boost productive capacity, create employment and reduce poverty," Dr. Kituyi said.
Among the obstacles that should be addressed, he told the meeting, were a high and rising proportion of informal businesses; a shortage of firms large enough to take advantage of economies of scale; weak linkages between firms, as compared to the rich and extensive linkages found in advanced economies which enable businesses to share technology and know-how; low levels of export competitiveness; and a lack of innovation capabilities.
"UNCTAD has focused for some years on the issue of how to expand productive capacities," Dr. Kituyi said, "and is well-placed to work with African governments to help achieve this transition." He added, "UNCTAD has always argued that dealing with the structural deficits of Africa's enterprise sector requires deliberate government intervention to promote entrepreneurship and private-sector development through industrial policy."
Ambassador Abdul Samad Minty of South Africa, who chaired the session, said a vital challenge was to determine what role the African private sector should play in the regional integration process and how Governments in Africa could ensure that African enterprises reaped benefits from regional integration.
Jean-Marie Ehouzou, Ambassador of the African Union to the United Nations and Other International Organizations at Geneva, told the meeting that intra-African trade was much less intensive than in other regions. "Currently it is much easier to send a car to sub-Saharan Africa from Europe than to send the same car between two African countries." He added, "It is also much more expensive to ship such a car within Africa." Africa now only contributes 2 per cent of world trade overall, underpinning the continent's vulnerability. More effective and efficient trade between African countries could help all participating nations, aid them in establishing new modes of production, introduce goods not currently produced on the continent, make domestic economies more resilient, create jobs and establish markets large enough to give African industries economies of scale, Mr. Ehouzou said. Current high rates of economic growth on the continent, averaging between 5 and 6 per cent over the past 10 years, made this a good time to focus on expanding productive capacity.
Frannie Léautier, Executive Secretary of the African Capacity Building Foundation, headquartered in Harare, said the key problem was that Africa had a number of resource-rich but capacity-poor countries. What was needed were effective strategies for the management of revenues from the extraction of natural resources so that these revenues could be channelled into building the productive abilities of domestic economies; improvements in the capacities and competitiveness of the private sector in Africa; investments in human capital to train potential employees and to absorb displaced labour when extractive resources dry up; investment policies that more fully developed currently "incomplete" markets; strengthened social safety nets; and enhanced economic governance.
"Another vital challenge is to carry out cooperative efforts to build and keep peace and stability on the continent," she said at the meeting. "It is important for African countries to work together to set up common macroeconomic policies and to take steps to link formal and informal firms to reverse the trend in which so many African businesses operate informally."
Mwangi S. Kimenyi, Director of the Africa Growth Initiative of the Brookings Institution of Washington, D.C., said increased regional integration would cut down on the costs and time of doing business within the region. Currently, the continent was the most expensive area in the world in which to carry out trade. Border delays for goods in transit were up to three times as long in sub-Saharan Africa as in other regions, for example. There were also disadvantages because of the small size of African production; Africa's total economic size was similar to that of Canada, and most African countries had very small economies - smaller than those of many large and even mid-sized metropolitan areas in the United States of America. "Steps to boost intra-African economic cooperation should extend beyond trade to include measures to ease the movement of people and to boost socioeconomic policy coordination and the management and development of infrastructure," Mr. Kimenyi told the Board.
Aside from such obstacles, the major barrier to expanding trade within Africa was product diversification. The focus shouldn't just be on "final" products but on parts and components, as trade in parts and components helped build regional competitiveness and helped firms to exploit comparative advantages. "Private-sector cooperation in regional value chains is pivotal," Mr. Kimenyi said.
At the morning session of the Board, Taffere Tesfachew, Director of UNCTAD's Division for Africa, Least Developed Countries and Special Programmes, summarized the findings of the Economic Development in Africa Report 2013.
There were compelling reasons for making major efforts to expand intra-African trade, Mr. Tesfachew told the meeting. Among them were that it would help reduce "the excessive reliance of African countries on international markets and thereby reduce their vulnerability to global shocks." In addition, current intra-African trade had an encouraging "bias" towards manufactured goods, and expanding it thus could boost African industry and economic diversification. A larger regional market would also help countries overcome "a major constraint to export competitiveness imposed by the small size of their national economies." Intraregional trade "has enormous potential to stimulate investment in regional infrastructure and create employment," Mr. Tesfachew said.