The Other 90%

By Asoka Ranaweera

The writer is the founder and CEO of a company that advises investors on structuring investments and developing projects in West, East and Central Africa

Earlier this year the African Union (AU) inaugurated its newly built headquarters in Addis Ababa, Ethiopia. The new office with its futuristic saucer shaped building was built as a gift from the people of China to the people of Africa.

While many people welcomed the new AU building as an overall sign of Africa’s new found progress others criticized it for being built by Chinese and not by Africans.

The new building according to the critics was emblematic of how African nations as a whole focused their trade and investment relationships with countries outside of the continent rather than within Africa.

Intra-African trade as a whole is around 10% of the continents total trade, which is at face value surprisingly low. Contrast this with Asia where intra-regional trade is around 17% or in the European Union where it is 60% and you understand why people might complain.

There are of course well documented reasons for the low level of intra-African trade. Many African countries produce products that are very similar in nature such as oil and gas, cocoa, coffee and cashew nuts. The opportunity to trade therefore between many countries is limited.

Even today a great majority of African countries trade more with their former colonial administrators than then do with each other. Relationships such as these that have lasted generations cannot easily change.

For as much as Africa has progressed in recent times there are unique impediments, which pose challenges to cross border trade even between countries that are neighbors.

One big obstacle is the fact that most of Africa’s roads and railways were built within a particular country to service ports which would export products to Europe. Few roads or railways were built between countries.

Many roads that do exist between African countries are poorly maintained and are hostage to inclement weather especially in the tropics. While the overall state of infrastructure has advanced, thanks in large part to China, Africa is still a long way off from being interconnected.

This situation can play itself out in odd ways, even now in some parts of the continent it’s easier to fly to Europe and inter-connect to an African country that it is to fly between African countries.

Since 2000 African economies as a whole have seen average growth rates of approximately 5.5% per annum. Driven in large part by the ascendency of the BRICS in general and China in particular Africa has seen an unprecedented period of growth.

In fact due in large part to the BRIC’s, Africa was able to escape the worst effects of the global financial crisis when it struck in 2008. The ability to diversify its trade relationship with the BRIC’s reduced Africa’s traditional reliance on European and American markets.

It becomes imperative that in order to progress further, to deepen and to broaden recent economic advancements and thereby to consolidate the gains so to speak that African countries find ways to engage each other both through cross border trade and intra-regional investment.

No one should be under any illusion that progress will be quick as there are a number of challenges and barriers that will have to be overcome. I work extensively with indigenous companies in West, Central and East Africa and despite many years of work I have not found a single African company willing to venture beyond their immediate neighbors.

This surprises me given the caliber of businesses that I work with, many are major players in their domestic markets and are more than capable in terms of management, institutional capability and finance to invest in and expand in other African countries. So what are some of the challenges and barriers?

Anglophone and Francophone distinctions definitely play a large part in the absence of strong intra-African trade and investment links. The fact remains that Anglophone Africans are much more enthusiastic to work with their peers in English speaking countries than in French speaking ones and vice versa. This situation naturally applies to Portuguese speaking countries in Africa too. Therefore cultural and linguistic differences are impediments both real and imagined?

Pan-African non-governmental institutions that effectively promote business to business relations are virtually non-existent. The absence of such institutions means that opportunities that may exist in countries throughout Africa are not promoted and importantly there is no one out there lobbying both governments and the private sector for more engagement and interconnectedness.

Confidence in the ability to understand risk and evaluate potential opportunities to invest and to trade across borders is very low. This is because by and large many African markets are still intransparent. Whereas a local company might well understand the risks of investing in its own market developing a sophisticated evaluative matrix for opportunities across borders takes time and resources.

Africa has done remarkably well over the past decade. Whereas trade between the continent and the rest of the world in general and the BRIC’s in particular has grown, intra-regional trade has remained static at approximately 10% of the total. Deepening and therefore consolidating Africa’s gains will require creative ways in, which to engage the other 90%.