Easy movement of people, goods will catalyze intra-Africa trade

For centuries, African trade was vibrant and goods moved across many lands. Intra-African trade between different states and empires thrived, as did trade between them and Europe (via the Mediterranean), Arabia, and China, at different periods.

Mali sold gold to North Africa and Europe, traveling through West Africa. Somalia traded with the Ming Dynasty in the 13th century. Colonialism had the effect of wiping out these traditional economies, trade routes and skills. Imposed borders and split communities caused trade between historical trading partners to come to a halt. Africa had to start from scratch.

The Gravity Model of International Trade (GMIT) predicts that the trade volume between two countries is directly correlated with the size of the economies and inversely related to their geographic distances. The highest trade occurs between large economies and between economies that are close to each other, e.g. Italy and Germany, France and the UK, USA and Mexico, etc.

This begins to explain the low levels of intra-african trade we see today. The low baseline GDP for the continent also explains why there had been very little trade and hence a lower push for intra-African infrastructure.

As our economies on the continent continue to increase in size, demand for intra-African trade will increase. There is now nascent demand for intra-African agreements, trade routes, and infrastructure (in tandem with GMIT).

So, as Ethiopia’s economy has grown, there has been increased demand to trade with it leading to the completion of the tarmac road between it and Kenya.

As Rwanda’s economy has grown, infrastructure into its neighbouring countries has increased. This is a phenomenon that will keep repeating itself across the continent as individual countries initially export commodities to the largest global economies and eventually start trading with each other.

Developed economies have high costs of labour whereas developing countries have cheap labour and natural resources; as these latter two are consumed and the developing economies grow, they will invariably look to their neighbours to trade.

This means that intra-African trade routes and infrastructure are critical to the longer term success of the growth of the African continent.

Movement of goods and people should be as easy as possible. It is currently very expensive to fly to Uganda — landing rights in Africa contribute the bulk of the cost, which is why it is cheaper to fly to Mombasa than it is to Arusha which is relatively closer.

These are the things that should change to catalyse trade in Africa. People in Kampala should be able to take a holiday in Nairobi or Mombasa and pay $40 (Sh4,000) for a flight just the same way Germans, Italians, Britons can fly to the Balearic Islands for next to nothing.

Goods to Ethiopia should move from Nairobi to Ethiopia via road more easily than through Mombasa and Djibouti via ship. This is the past that we had in Africa and is the future we believe in. This is the future we are building for.

Source: .Business Daily Africa.

 

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