AfCFTA Africa Economy FDI Finance Governance Trade

Investing in Africa: There is more than just FDI

The future for many Africans is uncertain as the world continues dealing with the Covid-19 pandemic whose increase and mutation is necessitating lockdowns in different parts globally.

Majority of the affected millions are now either out of work or in limbo since some companies have opted for extended unpaid leave for their employees instead of laying them off.

Accordingly, the Covid-19 pandemic has potential far-reaching and multifaceted indirect impacts on societies and economies. These effects could last long after the health emergency is over. The extended negative effects of the pandemic could aggravate existing instabilities or crises, or lead to new ones with repercussions on individuals’ emotional and economic wellbeing, food security, and livelihoods.

With this reality, though, there are several opportunities that African governments should exploit to ensure that they cushion their people, especially the very vulnerable, from the suffering that the pandemic is leaving in its trail.

While the short term interventions are welcome, there is more that can be done on the continent to ensure the sustainability of livelihoods.

According to the Africa Investment Forum (AIF), domestic manufacturing is a path to expand intra-continental trade while also reasserting Africa’s position in global markets. The role of the private sector cannot be underestimated especially with the rolling out of the African Continental Free Trade Area (AfCFTA).

For Foreign Direct Investment (FDI), investors should not view Africa as a single market.

AIF’s Senior Director Chinelo Anohu says that Africa is vast and with its 54 countries, there are 54 different outlooks, 54 kinds of resources, and 54 different ways of managing those resources. However, he added, Africa should remain the key investment destination.

The AIF’s approach is to solve problems and to proffer innovative solutions, according to Anohu.

The opportunities available in Africa due to the pandemic include a vaccine innovation project in Kenya, a cotton processing plant in Angola and a Nigerian telemedicine initiative. All these show that the continent is leveraging on the pandemic but governments have to do more to ensure that these innovations to do stall midway.

Also read: East Africa’s FDI rise to US$11.5B

With small-scale cross-border trade (SSCBT) being of substantial importance in African countries, there is a need to ensure that instead of stifling it, governments must provide an environment for it to thrive.

The World Bank notes that the existence of marked price differences due to variations in production capacities, trade barriers, and regulatory compliance costs, combined with the absence of geographical or social separators, motivate many individuals to trade small consignments across borders.

While SSCBT thrives, the trade is not captured by Customs neither is it recorded in official trade statistics. Thus, the numbers and impact are generally not taken into consideration by policymakers and investors.

The major Economic Corridors in Africa. Small-scale trade is a key factor in lifting Africa from poverty. [Photo/JICA]
The Bretton Woods institution records that surveys of SSCBT have consistently shown that the values and volumes of the multitude of small transactions add up to sizable aggregate import or export amounts that can exceed official, Customs recorded trade.
In Africa, the most complete and accurate account of SSCBT is currently provided by the government authorities in Uganda and Rwanda. These two East African countries have been monitoring SSCBT systematically since, respectively, 2005 and 2010.

After thorough profiling of borders to determine the magnitude and nature of SSCBT, they have placed enumerators at official (and in the case of Rwanda also informal) border crossings to observe and record import and export transactions that are not captured by Customs.

This effort is supported by several key government agencies, including the Central Bank and the Statistical Office, that partner in the supervision and execution of the statistical work and also provide the necessary budgetary resources.

Any typical border station between African countries has many individuals engaging in SSCBT motivated by price differences due to variations in production capacities, trade barriers, and regulatory compliance costs, which remain important in many African countries.

Moreover, the traders often have few alternative income opportunities, so the modest returns from arbitrage trading provide enough incentive to engage in this physically demanding activity. SSCBT is facilitated by the fact that many borders in Africa are not marked by clear geographical or social separators. Instead, pre-colonial trading routes often run through present-day boundaries.

SSCBT is highly diverse with respect to the products traded, the mode of transportation, or the distance travelled. Some traders carry their goods on foot, on pushcarts, or by canoe across the border, others transport them on bicycles or motorcycles, while yet others travel by car or minibus.

Vehicle-based SSCBT can occur over long distances and even transit into third countries. However, most products that are traded by small scale operators are destined for and stay in neighbouring countries.

Hence, SSCBT tends to be regional trade, and the fact that it is not recorded in Customs statistics means that the subsequent elaboration of official trade statistics based on Customs records misses these important regional import and export flows.

SSCBT is important on informing policies for poverty reduction and inclusive growth in border regions.

For small-scale traders, the income derived from their importing or exporting activities is often crucial for the nutritional intake of their families and their ability to pay for basic education and health services. Thus, SSCBT is directly relevant to poverty reduction. In addition, SSCBT also makes a notable contribution to regional food security by linking markets across borders. Many SSCBT goods are smallholder agriculture commodities that end up being sold in open markets to generally poorer segments of the population.

Small-scale cross border trade is highly relevant in eradicating poverty and hunger since in border areas, formal jobs tend to be scarce.

Also read: Integrating small scale traders will help achieve Africa’s economic dreams

SSCBT can make a substantial contribution to sustaining local economies since many individuals who engage in the trade have benefitted from little formal education.

In addition, a large proportion of small-scale operators at border crossings tend to be female.

These women assume a variety of roles in small-scale trade as border traders, transporters, processors, or vendors. This is despite the fact that they face time and mobility constraints due to family obligations. Addressing these gender-specific disadvantages and creating a safe, transparent, and equitable environment at border crossings will facilitate and promote cross-border trade and reduce gender injustice.

Original article on The Exchange

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