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Africa and Brexit: An opportunity for a holistic re-think of African trade

11th February 2020

Analysis in Brief: Britain’s departure from the European Union has meant African countries must re-negotiate UK trade agreements. This comes at a time when a continent possessed of growing prosperity and self-assertiveness is reimaging trade as a means for development and not just profit.

African nations are seizing opportunities as they negotiate new trade agreements with one of their oldest trading partners, Britain, following the United Kingdom’s (UK) departure from the European Union (EU) on 31 January 2020. Although the process was lengthy, the will of the 52% majority of British voters who back in June 2016 chose to exit (or “Brexit”) the EU, the political and economic union of 28 member states, is now fait accompli. Britain, which ceded its trade negotiation authority to the EU over the course of 40 years, is again a unilateral negotiator, forging bilateral agreements on its own. However, Britain sees this as a new era rather than a return to the past, and sees Africa as an important player. The partnership is built on potential. Although the combined economic output of Sub-Saharan Africa’s 48 countries is less than Italy’s, for example, the latter’s value is vested in the present whereas Africa, with its enormous growth potential, represents the future.

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This is an existential moment in terms of trade for both the UK and Africa. How Africa will benefit from Brexit – having an additional trade partner or having a trade partner diminished as a market and as an economy – has been a matter of speculation among African economists during the subsequent years of Britain-EU negotiations. What is clear is that this opportunity allows for a new beginning with regards to UK-Africa relations. In a 2018 visit to Cape Town, then British Prime Minister Theresa May rebooted relations from a focus on aid to an emphasis on trade and partnerships. But Africa is now also in a strong position to define relations. As Ghanaian President Nana Akufo-Addo wrote to current British PM Boris Johnson at the latter’s election victory, "We have an opportunity, together, to renew and strengthen the relations between our two countries, focusing on enhancing trade and investment, and scaling up prosperity for our peoples.”

Brexit has opened a window to revised thinking about Africa’s trade with the outside world, and has put new impetus on intra-Africa trade at a time when the African Continental Free Trade Agreement (AfCFTA) is coming into existence. In sum, the African trade must be proactive, as a reactive response to Brexit has shown.

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The future of African trade will be tied to long-term development and not only immediate profits

In September 2019, the five countries that comprise the Southern African Customs Union (SACU) - Botswana, Eswatini, Lesotho, Namibia and South Africa – joined by Mozambique, reached a continuity agreement with the UK to ensure that movement of imports and exports continues as normal. An uninterrupted trade flow is vital as Britain is South Africa’s fourth largest export destination, and bilateral trade amounted to US$ 6.9 billion in 2019. More trade is assured, as Britain is now in a position to trade on its own, without being tied to other EU states’ desires. For instance, while in the EU, South African citrus or Algerian olives might not be allowed into the UK on advantageous terms due to objections by Spanish citrus growers and Greek olive producers. In the wake of Brexit, however, South Africa has already negotiated better access into the UK for 13 agricultural products, including the country’s famous wines. This is a harbinger of such deals to come for African countries. The SACUM-UK Economic Partnership Agreement (EPA) entered into by the six Southern African countries, replaces the EU-Southern African Development Community (SADC) EPA and henceforth is the blueprint overseeing trade between these countries and the UK.

Figure 1: South Africa's top 10 trade partners in 2019 (Data courtesy: South African Revenue Service, 2019)

One reason African economies have stagnated has been a conservative approach toward trade. African nations have been largely content to ship out raw commodities, rather than invest in industry to manufacture products out of those commodities. The drawbacks to this approach are two-fold. Exported value-added products are more profitable, with tax revenues and balance of payments having been negatively impacted by their absence. Additionally, raw commodities from agricultural products to minerals are dependent on world prices, whose fluctuations can slash GDP growth. For years oil-rich countries like Angola and Nigeria were content to coast along on high oil prices, only to have their governments unable to finance their national budgets when oil prices dropped.

To remedy this, one component of African trade negotiations is skills-sharing and skills-training and transfer. Less tolerant toward Chinese and other companies reserving executive and technical jobs for their own nationals when they undertake Africa-based projects, African governments seek to employ a local skilled workforce. This is becoming a requirement in government contracts and is appearing in nations’ investment policies.

Africa’s internal trade is gaining traction

The reimagining of external trade has also boosted interest in intra-Africa trade. Africa’s internal trade is the lowest of any continent with few African countries exporting to other African countries – instead opting for more traditional trading partners in Europe or newer markets in the Americas, Asia and the Middle-East – totaling just 21.2% of all continental exports. In comparison, intra-Asian trade stands at 59%, and 69% of European exports go to other European countries. However, the new AfCFTA will create a single continental market for goods and services, free the movement of trade and goods by cutting tariffs by 90% and eliminating visas, and establish a body that will resolve trade disputes between countries. Africa has experience with the viability of regional trade areas: the Common Market of East African States, the East African Community and SADC. The member states of these three trade communities alone, and there are more, account for 72% of intra-Africa trade which in itself is expected to double under the AfCFTA.

Re-inventing old trade patterns

Trade is not conducted in isolation, but is carried out within relationships that encompass the totality of bilateral activity, including diplomatic alliances, citizen travel and the exchange of intellectual property. The UK is buttressing its trade interests in Africa with such concrete measures as building more embassies on the continent and making UK universities more accessible to African students. African countries must also embrace this holistic view, asking not just what the continent wants from the outside world but what Africa itself offers.

As democracy takes hold on the continent and corruption eases its grip on leadership, governments are responding to more vocal demands from their citizens for economic improvement. They are doing so by looking towards trade, and intra-Africa trade in particular. The UK will not be irrelevant, but the new reality is that Britain no longer holds a position of trade prominence, translating into a good indication of the economic maturation of Africa.

Critical points:

Written By James Hall, In On Africa 

EDITED BY: Creamer Media Reporter
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