Africa can buck protectionist trend and thrive, says Afreximbank’s Oramah
The African Export-Import Bank (Afreximbank), headquartered in Cairo, has been doing sterling work for the past 24 years but until fairly recently, tended to go under the radar as one of the continent’s major pan-African institutions.
This of course bears out the inflexible maxim: ‘out of sight, out of mind’ – a characteristic of a large number of African institutions which continue to toil away in the shadows. With media space limited and so many organisations, public and private, fighting to be seen and heard, anything less than a robust proactive approach to securing stage presence will not do.
Fortunately, over the past few years, first under the presidency of Jean-Louis Ekra and now under his successor, Dr Benedict Oramah, who both understand the importance of a strong public presence, Afreximbank is rightly taking its place among the continent’s institutional pantheon.
It is important that it should. After the rollercoaster ride over the past 15 years, the continent, despite the current slowdown, is well positioned to take the next painful but essential step in moving up the development ladder to middle-income status. Given the fickle ‘boom and bust’ commodities cycle, most parties are agreed that the most sustainable route towards this end is through a rapid increase in trade – particularly intra-African trade.
And this is where Afreximbank has a critical role to play. The lifeblood of trade is affordable finance but the muscle is an expansion of markets.
Since 1994, Afreximbank has approved more than $51bn in credit facilities for African businesses, including about $10.3bn in 2016 alone. This is a clear indication of the increasing importance of the bank in facilitating the rising volume of African trade.
Nevertheless, this is not enough. The bank, through its 5th strategic plan, Impact 2021: Africa Transformed wants to see an acceleration of trade to fuel the continent’s industrialisation agenda which alone will deliver the volume of jobs that the continent needs to raise its living standards.
Ranged against these African aspirations is the worrying trend towards increasing protectionism by many developed countries, characterised by US President Donald Trump’s pronouncements as well as the implications of the UK’s Brexit strategy.
The AGM opened with two days of seminars, followed by a meeting of the Afreximbank Advisory Group on Trade Finance and Export Development in Africa. The activities concluded with the formal AGM of Shareholders of the Bank and reflections by Rwanda’s President Paul Kagame on “The path to a Continental Free Trade Area for Africa”.
There was also an investment forum and trade exhibition, hosted jointly by Afreximbank and the Rwandan Development Board to investigate opportunities for deeper integration within the East African Community.
A series of side events included a roundtable of intra-African trade champions, the launch of Afreximbank ’s 2016 African Trade Report and a session on Afreximbank’s Central Bank Deposit programme. The global background Afreximbank president Dr. Benedict Oramah set the early tone by presenting the global background and how this is affecting African economies in his keynote speech.
“In the 1980s and early 1990s, Africa was economically devastated and severely wounded politically to the point of being referred to as a ‘basket case,’” he said. “To manage the crisis, almost all African countries were strongly encouraged to embrace globalisation by advanced economies. In fact, the Bretton Woods institutions made such an embrace the conditionality of the Structural Adjustment Programmes considered as panacea to the economic difficulties of that time.”
He pointed out that efficiency gains of integrated global markets became the ‘gospel’ of trade economists that populated the Bretton Woods Institutions at that time. “The converts received aid and financial assistance; the laggards were left by the wayside”.
As a result of the improved mobility of labour and capital as well as goods and services, the size of the global economy doubled between 2001 and 2010 and expanded by another 20% between 2010 and 2015.
“Global trade on the other hand,” Dr Oramah said, “more than tripled during the same period from $6 trillion in 2001 to over $19 trillion in 2015. These positive developments have helped lift more than 30% of the world population out of poverty and created significant amount of jobs.”
During the same period, he continued, Africa’s trade rose fivefold from about $230bn in 2001 to about $1.2 trillion in 2014. The African economy also expanded by about sixfold within the same time space to over $2.5 trillion in 2014.
“With the prophesies apparently fulfilled, one would have expected a generalised acceptance of the doctrine of globalisation as religion. At its initial stages, it was a doctrine many developing countries were not prepared to adopt. They rightly argued against it because the playing field was not level.
“Developed economies had better resources and skills to engage in global competition than the developing economies. Today, about 30 years after, the tables have turned and the most strident voices against globalisation appear to be emerging in developed economies.
“The apostles have suddenly become apostates!” he told the delegates to general applause. He was referring to the rising tide of anti-globalisation sentiments in the US, the UK and other developed nations.
“The rise of anti-globalisation, protectionism and nationalism is a direct attack on capital mobility, one of the hallmarks of globalisation,” he argued. “Globalisation allowed capital to go where the returns were highest; hence we have seen significant outflows from advanced economies to developing economies, particularly Asia and Latin America.”
During the last one and half decades, FDI flows into developing economies grew by more than 200% from $230bn in 2001 to over $760bn in 2015.
“The capital flow was accompanied by movement of technology and jobs. Industrial and manufacturing activities moved from Europe and North America to Asia where return to capital was highest,” he told the delegates. “As Asian developing economies narrowed their technological gap and became more competitive, accumulating trade surpluses, many advanced economies had resorted to subtle ‘anti-market; policies to contain rising external imbalances.”
Using data from the WTO, he went on to list the restrictive measures from the developed world that have come into force over the past few years. For example, Between October 2015 and October 2016, 182 new trade-restrictive measures were put in place mostly by advanced economies and during 2016, G20 countries introduced an average of 19 trade restrictive measures per month. The total stock of restrictive measures have increased from 424 in 2010 to 2,238 in 2016.
“These developments, coupled with recent global financial and economic shocks, caused global and African trade to slow significantly in 2015 and 2016. Africa’s economic activities also slowed with real GDP growth rate falling below 3% for the first time in about two decades.”
He said that more trade restrictions would be harmful to Africa’s development aspirations but warned that it was unlikely that the tendency towards protectionism would wane in the near term given the price that political leaders in major developed economies would have to pay if they watered down their protectionist policies.
Given this as the prevalent global environment, Dr Oramah said that Africa has to “find a way to maintain its trade-driven growth even as protectionism rises in traditional markets”.
Not wishful thinking He said that the continent has all the ingredients required for a big economic push and to accelerate African trade as the relative low intra-African trade provides room for growth in “a context of contraction of global trade and creeping protectionism”.
Political will, market knowledge, conducive environment and right policies combined with adequate financial resources, will put the continent on the path to industrial transformation and a quantum leap in intra-African trade,” he promised.
“If Europe,” he pointed out, “with a population of 550m people in 28 countries and a land area of 10.2m sq. kilometres, boasts of intra-Europe trade of about $6 trillion, it is possible for Africa with double that population, and nearly double the number of countries and three times the land size to achieve the same level, if not multiples, of that trade.”
This, he told the delegates, was not wishful thinking. It had become possible because, unlike in the 1980s and early 1990s, today there is political will among African governments and most are keen to implement reforms necessary for industrial take off.
As protectionism rises in its traditional markets, Africa has to find a way to maintain its trade-driven growth improved cross-border trade.
Africa has diverse natural resources and abundant labour that can form the foundation for export manufacturing and industrial takeoff. In addition, the continent has robust financial institutions to underwrite such an expansion.
For example, Afreximbank has the capacity to de-risk the trade and financial flows within the continent; the AfDB has also made regional integration one of the key pillars of its High 5 Strategy; sub-regional trade finance banks, such as the Trade and Development Bank and the African Trade Insurance Agency can all combine to support the accelerated trade development.
Commercial banks operating in several countries in the continent are partly easing the challenges of crossborder payments.
In addition, Dr Oramah pointed out, several African business champions are creating manufacturing capacities and fostering the emergence of regional and continental supply chains.
For example, El-Sewedy Electric, an Egyptian entity, has become one of the largest supplier of electricity generation and distribution equipment and technologies in Africa. The Dangote Group has cement plants in about 14 African countries and is now the largest supplier of cement in Africa. By 2018 it will open one of the largest refineries in the world with capacity of about 650,000 bpd and able to supply the total refining requirements of West Africa. ShopRite, the S African retail giant, now operates in no less than 18 African countries. MTN, an African telecom giant, now operates in 22 countries.
“The continent’s entertainment industry,” Dr Oramah added, “has become one of the largest, most attractive and profitable industries in the continent. In 2015 alone, entertainment and media spending from four countries, S Africa, Egypt, Kenya and Nigeria topped $20bn.”
Damaging lack of information But the Afreximbank president took a broad swipe at the lack of information about other African countries that is prevalent in the continent today. Many countries continue to operate in silos, unaware of what a neighboring country may be able to offer in terms of trade.
For example, he said, Australia is the main source of tanned hides and skins for Southern Africa, including South Africa, while Zambia, which is virtually next door, globally exports this same input at a lower cost and its exports are higher than South Africa’s imports.
S Africa imports leather further prepared after tanning from India at a price which is double the price at which Ethiopia exports the input to the world. Mauritius and Nigeria globally import leather products from Italy and Belgium at a much higher costs as compared to what South Africa and Botswana globally exports. Kenya imports raw hides from New Zealand while Burundi exports the same to the world at a much lower price. West African countries, on average import meats worth over $3bn billion per annum from Argentina and Australia while The Republic of Mali, Chad and Sudan could produce the entire meats required by the region.
“With the foregoing in mind, it is our conviction that addressing the information gap could, at a minimum, double the size of intra-African trade from the current level of about $170bn billion nearer to $400bn.
“By expanding intra-regional trade, we as a continent will be better prepared to relate with those now intent on erecting walls to protect their markets. Intra-African trade market can potentially reach $1 trillion. We should seize the opportunity while we can.”
In summary, Dr Benedict Oramah said that keeping all these factors in mind, Afreximbank had chosen intra-African trade, industrialisation and export development and trade finance leadership as three of the four key pillars of its Fifth Strategy.