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I: Putting on a brave face amidst impending economic chaos
Amid the turmoil in global markets caused by America’s protectionist turn, there have been attempts across Africa to put a positive spin to the chaos. For instance, Kenya’s Ministry of Trade & Industry issued a statement arguing that it remains a competitive frontier market destination for FDI because it only got hit with a 10% tariff. Others noted that African countries’ low trade volumes to the U.S. mean that they’ll be shielded from the worst effects of the tariffs. Yet others have argued that this is an opportunity for African states to make bilateral trade deals with the United States.
Trends in the World Uncertainty Index. Source: UNCTAD
To be blunt, most of this is wishful thinking. The fact of the matter is that, since African countries face greater *perceived* uncertainty during global shocks, there is very little potential upside for African countries in the unfolding chaos. The coming global economic slowdown will most likely reduce demand for Africa’s (mostly) commodity exports; and shrink the supply of the relatively meager foreign direct investment (FDI) the region currently receives. Trade with the U.S. will not magically pick up on the back of whatever deals African capitals arrive at with Washington.
At the moment no one is itching to relocate their factories and related supply chains from East/Southeast Asia to Africa. And even if they were to do so that process would take years. Plus it’s not like African countries are competitive on their most important advantage: abundant labor. African labor remains more expensive relative to most of Asia. That’s before we even get to the region’s logistics and infrastructure gaps (power, roads, ports) and policies that are hostile to trade.
African exports as a % of world trade, 1960-2020. Source: How Africa Trades (edited by David Luke, 2023)
The only potential silver lining in the coming chaos, at least in a select group of countries, is that the global discourse on trade might wake up policymakers from their decades-long stupor. Despite the commodity-fueled ten-year rally in the early 2000s, Africa’s share of global trade (both goods and services) remains far below its peak in the mid 1960s (countries like Benin, Lesotho, and Morocco that are serious about export growth are the rare exceptions).
Notice that the rise in exports in the early 2000s was largely driven by ballooning fuel exports from a few countries. Agricultural products and manufactures still lag fuel exports. Not even ores and metals did as well as one would expect from reading the news on Africa’s unlimited mineral resources (Africa’s share of global mineral output is remains below 6% — and it’s not just because of transfer pricing by foreign mining firms). Meanwhile, manufactures continue to comprise the lion’s share of the region’s imports.
Trends in African exports and imports. Source: How Africa Trades (2023)
All this to say that African policymakers must remain grounded in their reactions to the coming tariff wars, and subsequent shifts in patterns of global trade. They must not pretend that things were fine before the current shock and avoid being sidetracked by time-inconsistent deals (At the moment the U.S. government is nothing but a haven of policy instability). To this end, South Africa and Kenya (among others) should abandon their quests for bilateral deals with the United States and assume leadership on these efforts. The region’s more serious countries should also double down on deepening intra-Africa trade through the Africa Continental Free Trade Agreement (AfCFTA). Moving more goods and services within the Continent can serve as a training ground for export-led growth strategies, in addition to helping build supply chains that are robust to future global shocks.
At the country level, policymakers need to cut through the empty slogans about jobs and demographic dividends and have an honest conversation about the political economy of export promotion. The simple truth is that it’s far much easier to collect rents and/or tax commodity exports and imports of consumer goods than to take the risk of nurturing a domestic manufacturing or value addition base. All the former requires are customs officials and brokers (and in some cases minimal investments in localized assembly/packaging). The latter requires strategic long-term ambition and consistently serious attention to policy across multiple sectors.
II: Deeper intra-Africa trade should provide the foundation for greater global openness
Instead of rushing to Washington to cut lopsided bilateral deals or imbibing copium about Africa’s alleged advantages over Asian countries facing higher tariffs, African governments should (1) not retaliate and (2) exploit the increased salience of trade policies to strengthen intra-Africa trade and rethink Africa’s positioning (or lack thereof) in global supply chains.
The primary goal of these efforts should be to consolidate and extend the gains in trade volumes made over the last 25 years — by embracing the principle of smart openness to trade (especially with other African countries). For the most part, protectionism by default defines the trade policies of most African countries. Much of the protectionism results from sheer inertia, policy capture, or zombie ideological tics not founded on any sound thinking. It is not a surprise that there isn’t a single African Fortune Global 500 company.
This has to change. Trade policy should be calibrated in service to specific developmentalist ends — principally to promote globally-competitive African firms. There certainly will be justifiable reasons to pursue targeted protectionism. However, every protectionist policy ought to be judged by its contribution to specific developmentalist ends. In the same vein, everyone on the Continent should wake up to the idea that reflexively protectionist policymakers rarely succeed at promoting exports. This is precisely because such individuals usually don’t understand how trade works in either direction.
Relative importance of Africa as a trade partner — Africa’s share of total trade by country/region. Source: How Africa Trades (2023)
As part of the push for more trade, charity must begin at home. Intra-Africa trade comprises the biggest share of African trade flows. This is a solid foundation upon which the Continent’s policymakers can build ever deeper and more complex trade relations. But to get there policymakers must get serious about tackling the real drivers of the low levels of intra-Africa trade (endless summitry alone won’t cut it):
Over 50% of the continent’s imports and exports are tied to just five economies, all outside of Africa. Meanwhile, only 16 of 54 African nations source more than 0.5% of intermediate goods regionally, missing critical opportunities for value-added trade and manufacturing.
Notice the slow/absent improvement in the energy and transportation indices. Source: UNCTAD
Within Africa, a few major economies – Kenya, Nigeria, and South Africa – dominate as suppliers and users of value-added goods, leaving regional production networks vulnerable to disruptions in key markets […] Strengthening and diversifying Africa’s trade networks is key to resilience, but infrastructure gaps – especially in transport and electricity – and non-tariff barriers hinder regional supply chains. For example, poor connectivity means road transport accounts for about 29% of the price of goods traded in Africa, compared to 7% for those traded outside the continent.
One area that could provide quick wins in this regard is trade in services. Africa’s share of world services exports is terribly low (and declining) precisely at a time when services provide tremendous opportunities for growth in the global economy. Lack of foresight in the late 1990s meant that African countries barely got any benefits from the tech boom of the last 25 years (outside of perhaps mobile money are related applications in a few countries). The region also performs woefully below its potential when it comes to tourism (including intra-Africa tourism) and business services.
Unfortunately, most African governments have responded to these gaps with gimmicks instead of serious policy. For example, the real money makers in the tech sector remain neglected, with politicians more likely to chase after investors touting “social impact” while using African labor to market test applications that make money elsewhere. In the same vein, too many tourism and informational technology ministries in the region remain stuck trying to mine old and dwindling markets in the North Atlantic, instead of looking inward and East.
Which brings us back to the United States, which despite the current erratic approach tariffs still is a huge market potential for African states.
III: Despite the ongoing tariff wars, there’s a strong case for deeper and mutually beneficial commercial relations with the United States
Even before Washington’s latest protectionist turn, the fact of the matter is that the United States has never been a serious trade partner to Africa as a region. The much-celebrated Africa Growth and Opportunity Act (AGOA) was a unilateral, almost humanitarian move. The fact that it required regular congressional approval flew in the face of basics of business practice. Investors need time and a reasonable level of certainty about the future. Furthermore, over time AGOA transmogrified into a disciplining tool within America’s mis/overused sanctions arsenal. Partly as a result of the externalization of American culture wars, successive U.S. administrations denied African countries AGOA privileges over issues scarcely related to trade.
Trends in Africa’s trade with China and the United States. Source: FT
To be clear, most of these interventions in support of human rights were justified on the merits. The problem was that the weaponization of market access simply functioned as a message to American domestic audiences and had little impact on the intended target countries. Choosing to immiserate whole economies in the name of human rights protection and democracy promotion is heckuva theory of change.
The same challenges extended to a number of other initiatives designed to boost commercial relations with the Continent. Unilateral design by American policymakers ignored African countries’ real needs; and/or implementation saw mission creep well beyond trade/business concerns.1
African countries share the blame for the deplorable Africa-US trade volumes. Most African states have also never been serious about trade with the United States. AGOA and other initiatives designed to strengthen commercial ties have been terribly underutilized. Besides South Africa and a few textiles exporters, most countries used AGOA privileges for commodities with little value addition — of the countries most exposed to U.S. tariff wars only three (Lesotho, Mauritious, and South Africa) post large trade volumes based on manufactures. To add salt to injury, and consistent with general patterns of lack of strategic awareness, over the years African countries’ lobbying to strengthen AGOA has been tepid (with the role left to a thin roster of business-minded think tankers and individual business interests — here Carnegie’s Africa Program and the Center for Global Development stand out).
African countries most exposed to U.S. tariff wars. Source: The BBC
Part of the failure to coordinate on strengthening AGOA is related to the fact that African countries lack serious export-led development strategies. While lots of countries pay lip service to value addition, the numbers tell a completely different story. Commodities make up at least 60% of exports in 83% of African countries (up from 77% 10 years ago). In fact, the biggest early beneficiaries of AGOA were petroleum exporters. The failure can also be attributed to collective action problems. Africa as a region lacks strategic leadership on trade (and other issues) because everyone is simultaneously in charge. Not even the advent of the Africa Continental Free Trade Agreement (AfCFTA) has helped in this regard (much of the boost in intra-Africa trade in the last two decades can be largely attributed to China-related investments in infrastructure and logistics). Indeed, a few countries like Kenya and South Africa have long harbored intentions of striking bilateral deals with the United States and other countries/trading blocs.
To reiterate, African policymakers should not react to the current moment like it’s a disruption to otherwise stable trade relations with the United States. Rather, they should see this as an opportunity to completely overhaul their approaches to trade (and not just with the United States); and ensure that trade promotion becomes a core part of their development strategy. Importantly, deepening intra-Africa trade ought to be the foundation of these efforts.
IV: Conclusion
It is hard to imagine that there was a time when aid disbursements were the primary source of forex flows into Africa. Sadly, the mental models from that bygone era still dominate — you just need to look at the meeting logs (if they exist) of senior African politicians and policymakers; or where they source ideas for policymaking. Very little updating has happened in terms of privileging and expanding trade as a driver of both development (especially job creation) and macro stability (forex risk is a terribly under-appreciated problem in the region).
This post has argued that African states’ best response to America’s tariff wars and the coming global slowdown ought to be to deepen intra-Africa trade as the foundation of (smart) global openness. Nobody knows what the other side of the tariff wars and global trade fragmentation will look like (America’s zero sum approach to relations with China is bipartisan and here to stay). What is clear, however, is that countries that fail to invest in strategic resilience will be exposed to the worst consequences of these upheavals; and with no chance of finding protection within institutions of global governance. African countries must avoid this fate at all cost.
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Great piece, thank you.
Or American economy.