Give AfCFTA a Chance
Ethiopia has been impelling for the expansion of Djiboutian ports to accommodate its mushrooming foreign trade on top of exploring alternative sea gates, including the purchase of a stake in Somalia’s Berbera port. The country is also under negotiations with Eritrea to develop the ports of Massawa and Assab. The recent establishment of a one-stop border post (OSBP) between Kenya and Ethiopia alongside the completion of the Hawassa-Moyale road project provides Ethiopia, with its heavy and increasing dependence on imports, another option with Lamu, Kenya’s second largest port after Mombasa.The move is also essential in boosting Ethiopia’s trade relations with neighboring countries. In fact, the opening of the border post and transnational road couldn’t come at a better time. Africa is currently embarking on a new economic path in the launching of the African Continental Free Trade Area (AfCFTA). The AfCFTA, set to begin January 1, 2021, is the highest hope for developing countries like Ethiopia to increase and diversify exports increasingly upwards in the value chain.
Currently, the bulk of African exports are raw materials, agricultural commodities, and minerals, with 70Pct of value addition occurring outside the continent. As a result, intra-Africa trade constitutes less than two percent of Africa’s total foreign trade.
According to the World Bank, the current trade volume between Congo-Brazzaville and Congo-Kinshasa, with their capitals separated by only the Congo River, is five times less than that of East and West Berlin in 1988. Sudan usually produces surplus cotton while Ethiopia is short of cotton yet imports it from Asia. Ethiopia is importing cement from India and Pakistan to satisfy demand while South Africa and Tanzania have surplus product.
But African nations in general are doing little to eliminate trade barriers. Particularly poor road networks are discouraging the movement of goods. Railways and roads are mostly built to link cities with ports and not with integration in mind. Infrastructure built independently, as well as in partnership with neighboring countries, is not targeted at intra-Africa trade. Ethiopia’s interest in regional infrastructure development is fundamentally based on its priority in searching for access to ports to accommodate the ever-increasing import of commodities rather than desegregating trade.
Limited trade posts along borders is the other major barrier impeding trade amongst African countries. For instance, only one post exists between Kenya and Ethiopia, which share an 830-kilometer long border. The lack of railway and road infrastructure among African countries coupled with arduous border checks and custom clearance makes trade within Africa more costly. On the other hand, it is cheaper for an African country to trade with Asia or Europe. Ethiopia has a large market potential in Africa but its markets are more accessible for western and Asian countries.
AfCFTA can have a significant impact not only on trade, but also in regional value chain integration to realize enhanced regional economic integration and Africa’s industrialization where components production is outsourced to neighboring countries, and the final product is produced in a country next door.
Trade agreements such as AfCFTA are meaningless without substantial investments in intra-Africa infrastructure networks, which can unlock an influx of commodities’ movement. Ethiopia has opened a road connection to Khartoum and is also currently planning to launch cross border highways with Eritrea. Ethiopia and Kenya are planning to open an additional three OSBPs. Such development of joint infrastructures must grow substantially to give AfCFTA a better chance of success. EBR
9th Year • Dec 16 2020 – Jan 15 2021 • No. 93
