Recommendations from the AU Boosting Intra-African Trade workshop
The USAID East Africa Trade and Investment Hub supported a “Boosting Intra-African Trade Workshop,” in Dar es Salaam, Tanzania on 13th-15th September, 2017 to strengthen knowledge exchange and networks among African trade practitioners. The focus was on best practices in trade information and trade finance.
By the end of the workshop, participants put forward a series of recommendations and best practices for the Commission of the African Union (AUC) to consider.
In trade finance, workshop participants stressed the need for financial institutions to find appropriate means of mitigating trade finance risks by allocating and pricing each type of risk to those better positioned to deal with them. Participants also suggested that financial institutions should leverage ICT tools to reach a larger sector of the African trading community.
On issues relating to trade information, particularly regulatory aspects, participants recommended that providers of trade information ensure that information is presented in a user-friendly manner that is accessible and understandable by all levels of the private sector.
To further pan-African uptake of recommendations on trade information and trade finance, workshop participants suggested that the AUC collaborate with pan-African business councils and chambers of commerce to develop proposals for implementation. These proposals could then be sent to partners for consideration, including USAID, United Nations Economic Commission for Africa (UNECA), Regional Economic Communities (RECs) and development financial institutions.
AU BIAT Workshop on Trade Finance and Trade Information in Africa: Recommendations and the Way Forward
There is need for financial institutions to find appropriate means of mitigating trade finance risks by among others allocating and pricing each type of risk to those better positioned to deal with them.
There is need for African Union Member States to develop and strengthen SMEs by organizing them in cooperatives so that they can approach lenders as groups.
There is need for financial institutions to leverage on ICT by developing applications that would enable them to reach out to a larger sector of the African trading community
There is need to resolve issues on payments by creating regional settlement systems in local currencies, which will go a long way in solving issues of inconvertibility of currencies.
Financial Institutions should consider partnering with Regional Business Councils and Associations in building capacities of SMEs and raising their awareness on issues of Trade Finance.
Financial institutions should consider developing alternative and diversify trade finance products that are better suited for the African situation.
African union member states should consider adopting policies aimed at promotion, development and Financing Regional values chains and other light manufacturing through the establishment of Special Economic Zones (EPZs).
Providers of Trade Information especially concerning regulatory aspects should ensure that it is presented in a user friendly manner so as to afford accessibility and availability to the private sector at all levels.
Trade institutions and trade related associations should be empowered so that they can effectively collect, analyze and disseminate trade information to their wider membership.
There should be synergies in the collection and dissemination of trade information especially among the public sector agencies.
There is need for collective investment into trade Information, such as on data bases and communication infrastructure, to ensure that there is availability of quality information.
There is need to strengthen data collection and aggregation at the national and regional levels.
There is need to establish Trade Information Centers in African Union Member States where they do not exist.
There is need to create a Pan African Platform where information should be available and easily accessible.
The Way Forward
Streamline, disaggregate, categorize and disseminate the recommendations of the workshop to all the relevant stakeholders to ensure their implementation and where necessary, refer such issues to the relevant policy organs of the African Union for further guidance and political Support;
Development of proposals for a Collaborative (AUC, DFI, FI, RECs, Regional and Pan African Business Councils and Chambers of Commerce, USAID and UNECA) Pan African Program on Trade Information and Trade Finance for Consideration by partners.
Objectives of the program will, among others, be as follows:
Sensitization and advocacy among trade policy makers on issues of trade information and Trade Information
Implementation of specific actions aimed at dealing with access and availability of Trade Information and Trade Finance
Assist Member States in the creation of a regulatory policy environment that supports availability and accessibility to Trade Information and Trade Finance
Assist is creating synergies among the various stakeholders on issues of Trade Information and Trade Finance
Where necessary, development of policy papers based on the Workshop’s recommendations on issues of Trade Information and Trade Finance for consideration by relevant policy Organs such as:
African Ministers of Trade (AMOT)
The AU Specialized Technical Committee on Trade, industry and Mineral resources
Pan African Parliament Committee on Trade, Customs and Immigration.
AU Specialized Committee on Finance, Regional Integration
AU Specialized Technical Committee on Finance, Monetary Affairs, Economic Planning and Integration
Association of African Central Banks
Network of African Investment Promotion Agencies
Working Paper on Trade Information Systems in Africa
Trade information is critical to the exchange of goods and services across borders as price and quality differentials must be sufficient to offset the cost in terms of time and transport. Modern trade information systems around the world provide importers, exporters, retailers and investors with up-to-date and profit-making knowledge that helps grease the wheels of globalization. Those with access to greater knowledge can make higher profits and raise their standard of living.
In Africa, trade information systems have traditionally been oriented toward the exterior, to Europe, the Americas, the Middle East and Asia. Intra-African trade has gone largely unrecorded, in part due to the informal nature of the exchange of foodstuffs and handicrafts. Trade relying upon paying bribes to corrupt uniformed officials goes unrecorded as well. With modern information communications technologies (ICT), and a growing push for closer regional economic integration throughout Africa, the next decade could see prodigious leaps in access, availability and quality of trade information systems. The result will inevitably be brisk increases in trade between African countries and between far-off regions within Africa, precisely the goal behind the African Union’s initiative to Boost Intra-African Trade (BIAT), a key element of the foreseen Continental Free Trade Area (CFTA).
African trade information systems must of necessity take into account the series of efforts to upgrade the quality, reliability, periodicity and availability of statistical information in general in Africa. Whether macroeconomic data such as balance-of-payments statistics, demographic and other socio-economic data related to the Millennium Development Goals, drought early warning and famine early warning systems, there is a roadmap already in place for “the proper way” to collect, validate, analyze and disseminate statistical information in Africa. The different United Nations bodies have played a foundational role in these efforts, as have the African Union Commission and the African Development Bank.
Trade information systems in Africa have come a long way since the 1990 Addis Ababa Plan of Action for Statistical Development, aided by innovations in Information Communications Technologies (ICT), greater economic and political transparency, advances in primary, secondary and tertiary education, and the catalytic push for closer African integration. Africa’s youth, in particular, have embraced the nourishing culture of ‘open information’ that represents a clear break from the past. There remains a cargo load of work to be done to bring all African countries up to speed in terms of providing trade information.
Building a coherent and effective system will in fact require the participation and bringing-up-tospeed of all African countries. In addition, each of the RECs will need to ‘up their game’ in terms of collecting statistics from Member States, organizing them into REC-wide aggregates, transmitting the information to the African Union Commission, and working on areas of weakness and “gaps” such as in trade in services.
The future for trade information systems in Africa is highly promising. The Continent is getting organized, inspired by the momentum of the Tripartite Free Trade Area, the EAC Common Market Scorecard, and the nascent ECOWAS Trade Liberalization Scheme Scorecard. Sticking to the principles of sound statistical methodology, with an eye towards what type of information do businessmen and businesswomen need, is the recommended approach, along with the absolute necessity to avoid the “politicization” of trade statistics.
This report was prepared by Daniel Plunkett, a consultant to Development Alternatives International (DAI) on behalf of the AUC Department for Trade and Industry as a key input for edification and discussion at the AU BIAT Workshop.
An Analytical Review of the state of Trade Finance in Africa
Trade is “…a basic economic concept involving the buying and selling of goods and services, with compensation paid by a buyer to a seller…” The buyer and seller could reside in the same or different countries. This remit of this assignment is restricted to cross border trade which has various benefits to both exporting and importing countries including, but not limited to creation of variety for consumption; creation of efficiencies through the concept of comparative advantages; creation of employment opportunities and therefore alleviation of poverty and economic inclusion; regulation of prices as countries strive to remain competitive; increased foreign exchange earnings; and fostering peace owing to economic interdependence, among others.
The importance of trade as the cornerstone of economic development to Africa is exhibited by such countries like Botswana, Mauritius and Namibia who have catapulted themselves from low income to middle income countries by improving their ability to trade in regional and global markets. Increasing trade therefore has the potential to significantly change the economic order globally. According to WTO, however, while global trade has been responsible for generating growth and employment in many developing markets, progress has, in most cases, ultimately been secured by improving links with regional neighbours.
Intra-Europe is recorded at 66%, intra-Asian trade at about 52% and intraNorth American trade at 50%. In contrast, intra-African trade is recorded at about 15% which corroborates the fact that intra-regional trade leads to greater economic development. The Asian success story further accentuates the fact that for faster economic development, intra-regional trade (in addition to trade with the rest of the world) is a necessary ingredient.
Unlike in the developed countries, banks are relatively more conservative about supporting local exporters and importers; local banks lack the capacity, knowledge, enabling regulatory environment, international network and/or foreign currency to supply import- and export-related finance. Equally, traders are largely not aware of the available products, or of how to use them efficiently. That most African exports rely on Bank-intermediated finance than other regions (German Development Institute (DI, 2015) helps to put matters into perspective. This overreliance on bank-intermediated trade finance, against a background of capacity-challenged Banks with small balance sheets which are further constrained by prudential regulatory guidelines is a significant impediment for intra Africa Trade.
Research by AfDB shows that the value of Bankintermediated trade in Africa is approximately 350Billion which is equivalent to a third of total African trade. Of this value, the share devoted to intra-Africa trade is around 68 Billion. Given that the share of intra-African trade is 74 Billion or 19% of the total African trade, it is instructive that Africa needs to address the trade finance-related challenges in order to improve trading within the continent. One observation is that Banks finance about 30% of the trade finance need in Africa (globally this has declined to well below 20%). This implies that 70% or more of trade in Africa is on open account. This presents the best opportunity to improve intra-Africa trade and significantly impact the continent.
This report was prepared by Kefa Nyakundi, a consultant to Development Alternatives International (DAI) on behalf of the AUC Department for Trade and Industry as a key input for discussion at the AU BIAT Workshop.