Intra-African trade restrictions impact regional trade cooperation, Report says

Kigali ,  Rwanda, 1 November 2012  – Countries should correct systemic restrictions on the length of intra-African export relationships in order to deepen regional trade cooperation among African countries, says a paper presented today at the African Economic Conference which opened in Kigali on Tuesday.

During a discussion led by Dr. Adam Elhiraika, Chief of the Macroeconomic Section at the UN Economic Commission for Africa (ECA),   the author of the paper, Dr. Dick Nuwamanya Kamuganga of the Graduate Institute of International and Development Studies (Geneva) outlined some of the restrictions, according to ECA’s Information and Communication Service.

These include trade costs, negative policy shocks, informational and bureaucratic frictions as well as institutional weakness, he said. “I also find evidence that financial depth, poor institutions and conflicts do increase hazard rates for African exports”, he added.

Dr. Kamuganga suggests that African export trade relationships have a very short life, with the median duration of exporting a product just 1 year and average length of 2.08 years.

The paper argues that, because” sustainable export expansion is a key priority for all African countries to achieve sustainable economic growth”, regional trade cooperation initiatives in Africa have non‐negligible effects on enhancing Africa’s export survival.

It also states that the depth of regional integration matters on lowering Africa’s export hazard rates relative to countries that are not in any regional cooperation.

The paper explains how interaction effects between regional integration and a variety of trade costs such as the time to export and customs procedures tend to diminish with the depth of regional integration, over time.

It explains that factors such as costs to export, transit delays, procedures to export, financial depth and institutional and policy biases against exports increase the probability of export failure in all African regional groups.

The author proposes that an intra-African trade strategy that seeks to increase and sustain export growth rates should comprise elements that can enhance regional trade cooperation efforts “since the results show that regional trade cooperation depth is a non‐negligible driver of Africa’s export survival”.

To buttress his proposition he says ”monetary unions have a relatively higher survival rates and bigger effects on hazard rates than that of the Common Market, which in turn have bigger effects than those of the Customs Union, and which in turn have bigger effects than those of a Free Trade Area”.

In answer to a question on whether regional trade cooperation enhances Africa’s export relationship survival, Kamuganga says that intra‐regional trade cooperation in Africa reduces significantly the effects of a number of these trade friction.

This implies that deeper and increased trade cooperation would sustain Africa’s export expansion, he argues.

“This evidence suggests that export costs, cost of doing business, border and transit delays have non‐negligible effects on the hazard rates of African exports. However, their effects are reversed when I interact these variables with the regional integration variables”, Kamuganga adds.

He also suggests that “policy focusing only on entry into exporting will miss a fundamental aspect of the dynamics of exporting”.

“A strategy that seeks to increase and sustain export growth rates should address constraints to export survival both at the extensive and intensive margin of African trade”, the paper concludes.

Intra-African trade has long been an important area for fostering the integration and development of Africa. This is why the UN Economic Commission for Africa (ECA) established the African Trade Policy Centre (ATPC), which is a lead think-tank on trade policy on the continent.

It recently organized the 2012 edition of the now yearly African Trade Forum under the theme: “Accelerating intra-African trade and enhancing Africa's participation in global trade”.

The African Economic Conference is convened annually by the Economic Commission for Africa (ECA), in collaboration with the African Development Bank, (AFDB) and the United Nations Development Programme (UNDP).

The theme for the 7th session which ends in Kigali on Friday 2 November 2012 is Inclusive and Sustainable Development in an Age of Economic Uncertainty.