Inflationary pressures and geopolitical tensions took a bite out of Africa’s regional trade momentum between 2022 and 2023. But institutions, including the African Export-Import Bank (Afreximbank) and the African Continental Free Trade Area (AfCFTA) secretariat, are confident intra-Africa trade will swing back up as risks subside.
AfCFTA secretary-general Wamkele Mene told Business Times at the Afreximbank annual meeting in the Bahamas this week that inflation had a chilling effect on businesses’ appetite for capital, which weighed down business activity in Africa.
“We see the cost of money rising, which has an impact on trade. Now, the tools that we have to deploy to overcome that must be development finance in nature, so that our development finance institutions are able to deploy more capital for risk mitigation optimisation for our industries.”
He said cost-effective rates on loans and insurance products for Africa’s industries were a critical part of ensuring that businesses — especially small, medium and micro enterprises — could access capital at affordable rates to do business in the region.
AfCFTA has established a framework to convert the continent into the largest free-trade area on earth, and by October this year 37 African countries — including South Africa — will be trading under the preferences rules in a range of items, including agricultural products and manufactured goods.
Mene said the Russia-Ukraine conflict was a crisis Africa had to respond to by leaning into its own productive capacity, particularly in agriculture.
Global trade is expected to improve, with forecasts pointing to a 2.6% recovery in 2024 and strengthening by 3.3% in 2025, on the back of moderating inflation and rising global demand. These trends are expected to have a positive impact on African trade
— Afreximbank, 2024 Africa Trade report
“It has caused upward inflationary pressures and food insecurity, pushing millions and millions of people back into poverty. It’s a crisis, but it also should compel us to look at what the African continent has domestically in the AfCFTA market, and what is in its reach to overcome this crisis.”
Afreximbank noted weak trade within and between African economies at the end of 2023, owing to geopolitical tensions and inflationary pressures, but expects the region to make a strong recovery in 2024.
It released its 2024 Africa Trade report in Nassau, the capital of the Bahamas, this week. The event was held in the Caribbean to foster deeper trade ties between the two regions.
In the report, the bank said Africa suffered a decline in imports in 2023 after recording robust performance in 2022. The region’s merchandise imports expanded by about 15.9% to $702.1bn (12.9-trillion) in 2022, but reversed in 2023, contracting by 3.72% to $676bn.
“The challenging global economic and trading environment — characterised by lingering geopolitical tensions, conflicts and trade wars, as well as weak global demand — resulted in a contraction of 6.3% in total African merchandise trade in 2023, in line with a 1.2% contraction in global trade, weighed down by the prolonged effects of high inflationary pressures and tight monetary policies.
“However, global trade is expected to improve, with forecasts pointing to a 2.6% recovery in 2024 and strengthening by 3.3% in 2025, on the back of moderating inflation and rising global demand. These trends are expected to have a positive impact on African trade.”
The report said high levels of sovereign debt were worsened by weak fiscal management, low commodity prices, a lack of appropriate financing to address infrastructure gaps, the urgency of the Covid pandemic, and geopolitical tensions.
“The review period was particularly difficult for global trade, as the protracted Russia-Ukraine war and the eruption of the Gaza-Israel conflict heightened geopolitical tensions and adversely affected global supply chains. At the same time, rising climate change and its associated disruptions further constrained global supply chains.”
The report said that, overall, the outlook for the African region was positive, with the impact of the Ukraine crisis expected to subside, allowing household consumption to improve while inflation declines.
“Within the Eurozone, growth performance varied. In Germany, which relies heavily on Russian gas, the economy contracted 0.3% in 2023 after expanding at 1.8% the year prior. At 2.5%, Spain recorded one of the strongest growth performances in the region in 2023, supported by increased household spending and improved activities in the travel and tourism sectors.”
International Trade Centre executive director Pamela Coke-Hamilton said their research, conducted with Afreximbank, showed that trade between Africa and the Caribbean held enormous potential and could reach $1.8bn (about R33bn) for goods and services annually by 2028.
“But we have a long road ahead of us if we’re going to achieve that potential in practice, because getting to that number means getting rid of all trade frictions and getting investments into the right sectors.”
However, she said that in the past decade alone the share of African exports that went to the Caribbean had been decreasing, and now less than 0.1% of African exports went to this region, while less than 3% of Caribbean exports went to the African continent.
The number of countries, including SA, in the African Continental Free Trade Area that offers preferential rules for a range of items, including agricultural products and manufactured goods.
— IN NUMBERS: 37
Former vice-chair of the US Federal Reserve Roger Ferguson acknowledged that the Fed’s prominence in the global market had an impact on emerging economies when it set rates during periods of high inflation, though he maintained this was never the intention.
“When the Fed sets monetary policy ... it is exclusively, by law, with focus on its dual mandate — interest rate and unemployment. Full stop. When the Fed raises rates, it has a huge impact across the emerging economies, and this has been the source of very serious dislocations.”
He lamented how recent geopolitical events had politicised global economic systems, citing Russia’s removal from the global Swift payment system. He said that while this was aimed at putting pressure on Russia’s economy after the 2022 invasion of Ukraine, the system was meant to be apolitical.
“When I was involved in the oversight of Swift, it was very clear that it was meant to be an international utility, and I think we only got to politicising Swift as a last resort because of the Russian invasion of Ukraine.
“I think we all do better if we have a payment system that’s widely perceived to be apolitical and distinct from politics, so I’d like to get back to that stage, and I think we will get there, but I think we are going through a very unusual time right now.”
At the meetings this week, Afreximbank officials and economic policymakers took a much more pragmatic approach to the dollar-dominated trade markets of the world, punting the Pan-African Payment and Settlement System (PAPSS) as a more practical solution, instead of the mooted idea of starting an entirely new currency.
Afreximbank senior executive vice-president Denys Denya said they introduced the PAPSS system in the market recently to address the imbalance and cost implications created by trade taking place between African economies in US dollars.
• The reporter was invited to the annual meeting as a guest of Afreximbank.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.