13 January 2021 – African economic growth is often measured without considering informal cross border trade. Now, for the first time, Afreximbank recognises informal trade.
The African Export-Import Bank (Afreximbank) released its annual African Trade Report (ATR), in which Afreximbank recognises informal trade, in December 2020. The report examines trade and economic developments in Africa in 2019, a year dominated by trade wars and escalating tariffs that resulted in a sharp deceleration of global trade growth. This has been compounded by Covid-19, and as a result, following a fall of 2.8% last year, global trade is expected to shrink by 9.2% in 2020.
The ATR conducted an extensive study of informal cross-border trade (ICBT), the first attempt at measuring in a detailed manner the size and composition of informal trade. Despite regional variations, the report highlighted the importance of ICBT for generating employment and income. The report estimates that it serves as a source of income for about 43% of Africa’s population and is dominated by women. In Southern Africa (the SADC block), female traders account for about 70% of ICBT. In West Africa, food and agriculture products accounted for 30% of intra-regional trade.
Commenting on the report, Prof. Benedict Oramah, president of Afreximbank, said that even though ICBT accounts for a significant proportion of domestic absorption, and has become a major source of income for consumption smoothing, its contribution to GDP is hardly recognised.
By bringing an evidence-based approach to measuring ICBT, the report highlights the areas that can be targeted to grow intra-African trade and transition ICBT to formality. For example, removing technical and non-tariff barriers to trade, as well as simplifying processes, increasing access to finance, and creating payment systems that draw on digitalisation to mitigate risks will help traders scale and move up the value chain. ICBT is currently a cash-only business.
Many recommendations come out of the report which will become even more relevant with the advent of the Africa Continental Free Trade Agreement (AfCFTA). Afreximbank, for example, is rolling out its Pan-African Payments and Settlements System (PAPSS) to enable buyers and sellers to trade in local currency, as well as reducing the security risk associated with trading in cash.
In the period January to August 2019, Africa’s merchandise trade contracted by 12% compared to same period last year, with April and May emerging as the period witnessing the largest contractions. The outlook for 2021 is positive and Africa’s trade is expected to rebound strongly in 2021 as global economic activity picks up and demand for African exports increases.
The share of Africa’s exports to Asia increased to 30.79% in 2019 while the EU’s share decreased to 24.6%. China and India have been the main drivers of the rising trade relationships between Africa and Asia, with China and India accounting for 27% of Africa’s total merchandise exports in 2019.
A similar pattern is also observed in the sourcing of imports by African countries. Even though the EU has historically been the largest market for Africa’s imports, its share of total African imports has been decreasing steadily and Asia has become as important as the EU.
The value of total intra-African trade fell by 5.23% in 2019 reducing its overall contribution to overall African trade, from about 15% in 2018 to 14.4% in 2019. South Africa maintained its position as the largest intra-African trade nation, accounting for 23.1% of total intra-African trade in 2019. The Democratic Republic of Congo (DRC) consolidated its position as a major contributor to intra-African trade, recording an increase of 10.4% in total trade with the continent to emerge as the second largest intra-African trade economy on the continent in 2019. Despite declining by 4.7%, Nigeria’s share of intra-African trade remained constant at about 7% and Nigeria emerged as the third largest intra-African trade country.
Commodities play an outsize role in terms of the value of African exports. Oil and gas, despite a significant fall in price, still accounted for 37% of total African exports in 2019. Afreximbank, through their African Commodity Index, a trade-weighted index which tracks Africa’s 13 most important commodities, saw a V-shaped recovery between February and October although the index is approximately 30% below what it was in December 2018 and 20% below what it was at the start of the year.