Africa Must Be Integrated: Why Trade Barriers Keep States Poor

Written by Bryson Handy; Edited by Andrew Ma

Published on November 8th, 2024

Colonization & Tariffs

Africa before the era of colonization was a dynamic region with extensive trade routes that connected diverse cultures and economies. Caravans traversed the Sahara Desert, transporting valuable resources like gold, salt, and ivory from West Africa to Mediterranean markets. East African merchants sailed the Indian Ocean, cementing trade ties between the Swahili city-states, India, and Southeast Asia. However, when European colonizers arrived, they upended these trade networks, establishing colonial regions whose sole purpose was to export raw materials to Europe for manufacture. These extractive policies rendered African economies woefully underdeveloped when they gained their independence in the mid-20th century. 

Africa’s present-day rail networks, classified by their operational state

Credit: ALG Consultancy

African states’ colonial legacies (as well as chronic mismanagement by African leaders) continue to present obstacles to regional development. African rail networks left largely unchanged since their construction under colonial rule, primarily facilitate the export of raw materials and agricultural products to coastal hubs, hindering regional connectivity. This focus on exporting low-value-added goods partially explains Africa’s low levels of industrialization. Additionally, the failure of 20th-century African states to achieve growth through import-substitution industrialization (ISI)—a policy calling for high tariffs to encourage domestic manufacturing—has further slowed intraregional trade and created uncompetitive state-sponsored manufacturing industries. Non-tariff barriers such as restrictive export licenses and a fragmented regulatory landscape further inflate transaction costs and impede trade.

These tariff and non-tariff barriers to trade carry significant costs to all African economies. Current tariffs make it 6.1% more expensive for African countries to import from within Africa than from abroad. Consequently, intraregional trade languishes at around 14% of total African trade, compared to over 50% in Europe, Asia, and North America. In many cases, non-tariff barriers prove even more costly, with the Trade Law Center estimating that a 20% reduction in transport delays would bring larger economic gains than the elimination of all tariffs across the continent. Trade blocs like the Economic Community of West African States (ECOWAS), the Southern African Customs Union (SACU), and the East African Community (EAC) have established low-tariff regimes or free trade agreements in their respective regions. However, even these blocs fail to achieve high levels of non-tariff integration, with, for instance, non-tariff barriers in ECOWAS costing its member states 241% more than tariff payments within the bloc.

Projected increase in value of African exports by sector under the AfCFTA in 2035

Credit: World Bank

Creating AfCTFA

In 2012, the African Union (AU) took steps to address these problems by announcing the creation of the African Continental Free Trade Area (AfCFTA). The AfCFTA seeks to create a single, liberalized market for goods and services across the continent, harmonize regulations, and break down non-tariff barriers. By 2035, its implementation is projected to increase cumulative African GDP by $450 billion, boost African trade by 81%, raise real incomes by 9%, and lift 50 million people out of poverty.

The AfCFTA also has the potential to spur African industrialization by boosting domestic demand and inducing crucial foreign investment. Freer trade can boost African incomes, thus stimulating consumer demand for domestically produced African manufacturing. Trade in processed goods already composes 53% of Africa’s meager intraregional trade compared to only 35% of African exports to the rest of the world, showing an African market for manufactured goods. It’s predicted that the value of intra-African trade in general manufactured goods would rise by nearly $100 billion. Additionally, improved market conditions in Africa can spur foreign direct investment (FDI) by as much as 159%, providing capital to African firms, increasing the speed of technological adoption, and improving management practices. Gains in productivity as a result of this investment will continue to raise the wages of skilled and unskilled workers, further reducing poverty in the region.

Challenges & Conclusion

First shipment of goods from Kenya to Ghana under the AfCFTA 

Credit: AfCFTA Secretariat

While the AfCFTA has clear benefits for African workers and firms, its implementation faces numerous challenges. Though the agreement technically took effect in January 2021, the start of the COVID-19 pandemic disrupted supply chains, pushing back its implementation. In 2022, the African Union launched the Guided Trade Initiative (GTI) with eight countries (Cameroon, Egypt, Ghana, Kenya, Mauritius, Rwanda, Tanzania, and Tunisia) that had harmonized their tariff regulations with the AfCFTA protocol for several goods. In January of this year, South Africa joined the initiative, exporting AfCFTA-approved refrigerators and home appliances to its neighbors. However, the slow pace of negotiations has led to only about 100 goods being accepted as duty-free by GTI participants, and most of the continent has not joined the initiative.

Deeper regional integration through the AfCFTA can provide the investment, industrialization, and productivity increases that Africa needs to lift millions from poverty and transition the region from low-income status to middle and upper-middle-income status. Current tariff and non-tariff barriers stifle regional growth, and eliminating these hindrances should be a top priority for African policymakers. While the GTI and regional customs unions have begun to break down these impediments, this trend must be accelerated to attain substantial gains. Through deeper regional integration, Africa can chart its own path of economic development.