Daily News Egypt

Africa on path towards resolving economic challenges - Daily News Egypt

Advertising Area

Advertising Area

Africa on path towards resolving economic challenges

It is estimated that by 2030, one in five people will be African. Given the continent’s population size, Africa’s labour force has the potential to prompt the global growth for decades. However, in order to do that, Africans must implement the necessary reforms today. As its population matures, governments, institutions, and organisations need to help …

It is estimated that by 2030, one in five people will be African. Given the continent’s population size, Africa’s labour force has the potential to prompt the global growth for decades. However, in order to do that, Africans must implement the necessary reforms today. As its population matures, governments, institutions, and organisations need to help in directing the young people toward the path to success. If African countries can meet that challenge, long economic growth—both at home and abroad—will be the reward. This growing population, if coupled with the provision of youth with more opportunities, will transform the African continent to become a leading economic bloc in the world. 

Not so long ago, African countries took on the responsibility of supporting the continent’s economy through a number of economic blocs and agreements which give the continent a competitive advantage to trade with each other and reduce imports from outside the continent. This is in addition to the optimal exploitation of resources and wealth which the continent enjoys, and distinguishes it from the rest of the world. Through the best utilisation of the continent’s resources, Africa will become the largest economic power in the world, and will achieve great economic efficiency without incurring its economies with debt from imports.

Egypt pays great attention to Africa

On 21 November, President Abdel-Fattah Al-Sisi emphasised Egypt’s belief in the importance of the economic integration among African countries, and the liberalisation of the intra-African trade. This emphasis was not only represented by conducting free trade agreements, but also through implementing practical measures on the ground which serve as effective implementing mechanisms for these agreements in order increase their value.

Recently, Al-Sisi called on Egypt to host a number of African economic activities, within the framework of the country’s interest to activate and strengthen its economic cooperation with the countries of the continent, such as the Africa 2018 Forum, and the Intra-African Trade Fair.

Egypt’s Minister of Trade and Industry, Amr Nassar, stated, “We look at Africa with a lens which is different from all other world countries. We view it as a partner with whom we share our experiences. It is not just as a market where we want to sell our products, an export destination, or as a source of raw materials. Rather, we aim to cooperate with our African partners in a mutually beneficial manner.”

Nassar further pointed out, “Egypt will be the strong and stable gateway into Africa in the coming period. Here, I should highlight the importance of enhancing the role of the Egyptian and the African private sector in playing an active role toward developing the foreign trade operations, and in attracting more Arab and foreign capital in order to invest in both Egypt and African countries, as well as the essence of moving from bilateral cooperation to begin active continental cooperation.”

The minister elaborated that the Continental Free Trade Area (CFTA) of the three major African blocs, with a purchasing power exceeding $1.3tn, is expected to significantly contribute toward boosting the economic cooperation among a large number of African countries in the first phase of the CFTA, especially with the possibility of implementing  joint Egyptian industrial projects in the fields of transport, logistics, infrastructure, electricity, mega projects, food, engineering, and leather industries.

High transport costs, prevalence of non-tariff barriers are main trade challenges

However, Africa faces some challenges which need to be addressed. First of all, the continent needs to facilitate and implement an effective regulation of the trade in goods and services, and to address the tariff and non-tariff barriers, as well as the regulatory obstacles, besides promoting financial market governance and regulation. The continent should also direct its efforts toward boosting foreign direct investments, and developing a strong infrastructure for transport to include roads, railways, and ports, building a strong infrastructure for energy such as renewable sources, as well as for water and sanitation. This is in addition to utilising strong information and communication technology.

Meanwhile, Nassar noted that the real challenges which Egypt and the other African countries face are the fierce competition from exporters who are competing at the same level, namely, China, India, Turkey, and Morocco. This is a very stiff challenge, as the exports’ subsidies they receive from governments are very high, which places Egyptian exports in the middle of a very strong competitive market.

The minister also pointed out that the medical and pharmaceutical industries represent a strategic window for the entry of Egyptian exports into African countries, as Egypt has many competitive advantages in this field.

Nassar elaborated that the ministry is keen on exporting to the African continent as it is one of the most important target markets, within the framework of the ministry’s strategy to develop and increase exports.

Afreximbank takes on responsibility of endorsing intra-African trade

Benedict Oramah, president of the African Export-Import Bank (Afreximbank) said, “In line with the bank’s strategic thrust to support and finance the intra-African trade, the bank launched a special initiative known as the Egypt-Africa Trade Promotion Programme (EATPP) in January 2015, with a vision to help Egyptian entities tap into the rapidly expanding trade and investment opportunities in the rest of Africa.”

Oramah noted that the EATPP programme was approved at an amount of up to $500m, which has been fully utilised in the form of funded and unfunded trade finance facilities. The bank has also supported large exporters, particularly in the power and construction sectors. In this regard, amounts exceeding $2bn were deployed. 

Moreover, Oramah noted that under the bank’s current Intra-African Trade Initiative, the bank has approved a $200m Global Guarantees Facility in favour of an Egyptian contractor in order to support its projects in Africa and the Middle East. Under this facility, the Egyptian contractor received support for construction projects in African countries, such as Tanzania, Cote D’Ivoire, Ethiopia, Algeria, and Mauritania.

He also pointed out that Afreximbank seeks to achieve a common market in Africa for the purpose of independence.

“The African Continental Free Trade Area (AfCFTA) agreement is a gateway to benefit from resources and products from the African continent,” he elaborated. Oramah added, “There are many partnership agreements between African countries and Egypt to support the implementation of the AfCFTA.”

For her part, Kanayo Awani, the managing director of the Intra-African Trade Initiative, previously told Daily News Egypt in an interview that Afreximbank’s expenditures in Africa are about $10bn in different sectors in order to support the private sector, trade, and industrialisation in the continent.

She noted, “We are working on a five-year strategy from 2017-2022 titled ‘Africa transformed’,  as we work on developing the industry and agriculture, in addition to the transformation of Africa,” further adding, “We are a developmental bank, so all our transactions should include a developmental angel, as it is a part of what we do in our credit assessment. Consequently, our strategy has several key pillars which we rely upon, namely the intra-African trade promotion, industrialisation, development of manufacturing, trade finance leadership, as well as others.”

African economies likely to accelerate in coming years

According to Afreximbank’s outlook on economy performance which will affect the economic scene in 2019, the growth in African economies was projected to accelerate to 4.1% in 2018, from 3.7% in 2017, thanks to a continuing recovery in developed economies and a stronger global demand, with positive repercussions for commodity prices and Africa’s merchandise trade in the short run.

The report also proposed that the main factors which are expected to accelerate the economic growth in Africa are the strengthening of the major oil-producing economies, especially Nigeria, Angola, and Libya, combined with stronger economic growth in Egypt, and an improving macroeconomic and business environment.

“Oil exporters are expected to record a strong upsurge in their export performance, with exports growing by 26.3% in 2017 to $140.7bn, from $111.4bn in 2016, as major oil-exporting African countries saw robust recovery in their export growth,” the report read.

Africa’s infrastructure needs estimated at $130–170bn annually

According to the 2018 edition of the African Economic Outlook (AEO), Africa could be the next investment frontier and it recommends three options for the international financial community to resolve the savings glut, which are the adaptation of a policy of more negative real interest rates in high-income countries, the use of excess savings to finance public investment in rich countries, and the facilitation of the flow of capital to developing countries.

The AEO report estimates Africa’s infrastructure needs at $130–170bn annually. “The problem with the infrastructure-deficit approach is the underlying assumption that one day, Africa and the world might be able to resolve it. Yet, throughout history, infrastructure deficit has been a perpetual policy problem,” Abebe Shimeles, the acting director for the macroeconomic policy, forecasting, and research department at the African Development Bank commented.

Ratifying TFTA represent quantum leap to support intra-African trade

The Tripartite Free Trade Area (TFTA) which was signed in Sharm El-Sheikh in June 2015 has three key pillars, namely market integration, industrial development, and infrastructural development. Some progress has been accomplished under each pillar since the launch of the TFTA in Sharm el Sheikh in June 2015. At the time of the launch, 15 Member States signed the agreement and afterwards, six additional member states signed it. While Egypt, South Africa, and Uganda ratified the agreement. It should be noted that 14 ratifications are needed before the agreement can enter into force. However, negotiations are still on going on some outstanding issues, specifically the rules of origin and liberalisation of tariff.

The Secretary-General of the COMESA, Chileshe Kapwepwe, said that the TFTA is now focused on the next steps, which will see member/partner states embarking on phase two of the negotiations, which will cover the trade in services, intellectual property rights, competition policy, as well as cross border investment and cooperation in trade and development. Another critical issue is the implementation of the TFTA, which is now a key priority for the member/partner states.

The benefits of implementing the TFTA cannot be gainsaid. The infrastructure programmes are already greatly reducing the bilateral costs of the trade between our member/partner states, according to Kapwepwe.

“The tripartite industrialisation programmes are designed to stimulate industrial development through the creation of value chains. Sectors projected to benefit the most are the high impact ones, including heavy and light manufacturing, processed foods, textiles, and apparel,” she noted.

Kapwepwe further stated, “The implementation of the TFTA agreement will therefore result in a positive net real income gains for all member/partner states, an increase in net exports, and an increase in cross border flow of investments, as well as the creation of decent jobs for our people.”

Egyptian exporters emphasise importance of African market

Sherif El-Gabaly, the president of the Chamber of Chemical Industries at the Federation of Egyptian Industries, said, “With regard to the African market, it is a very promising market, but there are a number of issues to be worked on. The first is the Egyptian presence in these markets, such as presence during visits or the presence of Egyptian companies in African markets, as well as participation in exhibitions and opening new branches.”

El-Gabaly noted that there are problems to be focused on in order to increase and revive the trade movement between Egypt and Africa, and solve the transport and shipping problems.

He pointed out that Egypt’s exports to Africa need to be stimulated and supported by the government to exporters, noting that the total Egyptian exports to Africa amounted to $2bn.

One of the government’s incentives was to provide 50% support for shipping costs to Africa, while the Export Development Authority would provide some logistical incentives to African countries’ promotional missions, he divulged.

The former Head of the Textile Export Council, Magdi Tolba, said that Egypt’s exports of textiles and clothing to Africa are not immense, having reached less than 5% of the total Egyptian clothing exports.

“The unification of the three African trade blocs in one agreement is an important step toward opening a new Egyptian market in a continent which trusts the Egyptian product,” added Tolba. “Africa has really evolved, and several important markets have emerged in East and West Africa,” he stated.

Tolba noted that most Egyptian textile are exported to Europe and the US, yet the percentage of these exports does not exceed 0.5-1%, explaining that Africa is a good market and there is an opportunity to open new markets in Africa in order to compensate for the decrease in exports to Europe.

He pointed out that increasing Egyptian exports to Africa requires reforms and procedures in order to be implemented, under the supervision of the ministry of industry and foreign trade.  The most important of those would be the removal of transport obstacles, and ensuring that the risks of transferring exports are limited, as well as contributions by the state in holding exhibitions in African countries.

Tolba suggested that the Egyptian small textile factories could be an important player in the African export market because Egyptian products could be great competitors.

Topics: africa Economy trade

Advertising Area

Breaking News

No current breaking news

Receive our daily newsletter