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Infrastructure key to intra-African trade
Ken Ukaoha knows something about infrastructure and intra-Africa trade. He is the founder and chief executive officer of Kenaux International Concept, a shoe and garment manufacturing company based in Aba, southeast Nigeria. Kenaux’s products sell in Nigeria and other African countries, including Ghana, South Africa and parts of Central Africa.
The poor state of infrastructure is the bane of Africans doing business within Africa, says Mr. Ukaoha, who is also the president of the Association of Nigerian Traders. Despite decades of common market agreements within the Economic Community of West African States (ECOWAS), poor transportation continues to impede market access.
“We do not have railway to move merchandise from one country to the other. Sea-freighting goods is also a problem—the sea links are not there,” Mr. Ukaoha told Africa Renewal, underscoring the need for domestic shipping lines that can transport goods across countries.
Mr. Ukaoha, who is also an expert in international trade law and globalisation, explained the difficulties in transporting goods among ECOWAS countries: “When I import raw materials like leather from Hamburg in Germany to Lagos in Nigeria, I pay 850 euros [$986] for a 40-foot container. But the same container transporting our products from Lagos to Tema Port in Ghana costs 1,350 euros [$1566].”
Road transportation, he adds, also presents challenges. “We don’t have good roads, and in the mix of that, you experience a lot of lhiccups along the route,” including police and customs checkpoints, where bribery is common.
Even within countries, the state of infrastructure is so bad that business owners sometimes construct the roads leading to their factories, dig water boreholes or buy electricity generators for production. “All these make us uncompetitive,” Mr. Ukaoha admits.
Speaking recently on the African Continental Free Trade Agreement (AfCFTA), Senegalese finance minister Amadou Ba affirmed the prospect of meaningful gains from the newly signed treaty.
“Our countries are individually and collectively committed,” Mr. Ba declared, but he added a cautionary note that African policy makers must prioritize investments in regional infrastructure that catalyse integration and facilitate intracontinental trade.
“In Ghana, Margaret Lartey, an Accra-based tomato trader, has firsthand experience moving goods by road among different countries. She buys tomatoes from Burkina Faso, Côte d’Ivoire and different regions in Ghana to sell in Accra and is appalled by multiple police checkpoints on the road and extortion at the borders by police and customs officers.
In addition, transportation costs keep rising due to fluctuating fuel prices. “We used to transport a truck of tomatoes from Burkina Faso to Ghana for $738, but this has gone up to $843,” Ms. Lartey grumbles.”
“Construction of road networks, telecom and rail will dramatically open and expand markets and grow business,” notes Mr. Ukaoha optimistically. “If we have a cost-efficient and easy way of moving goods from Ghana to Nigeria and other parts of the [West African] region, that will be a market of more than 350 million people.”
Weakness in financial system
Some business leaders, however, fear the border-free agreement could harm local industries.
Trade liberalization, Mr. Ukaoha points out, could be a “killer” because a flood of imports, even from other African countries, may dislodge the local industry. “Unrestricted imports do not allow local producers to grow.”
Ultimately, Mr. Ukaoha is sceptical about AfCFTA. “We have ECOWAS, the Southern African Customs Union, Economic Partnership Agreements, and many other agreements and frameworks to boost a common market that we are still working to implement,” he says. “And just when we thought we were making progress, we have another trade agreement [AfCFTA], which is punching all previous agreements.... At the end of the day, progress is stalled.”
While the focus is on AfCFTA, critics have pointed to other serious weaknesses in the financial system, which they claim is not helping traders and cannot deliver the economic development Africa needs.
Gyekye Tanoh, of Third World Network-Africa, an Accra-based civil society organization that promotes equitable trade policies, sees a harmful trend of “speculative exploitation of differences between international and interest rates and exchange rate movements by the banks.”
Rather than mobilising capital for the productive sectors of the economy, banks are looking for quick returns by buying government’s securities, Mr. Tanoh told Africa Renewal in Accra.
Ms. Lartey agrees, adding that she could not get a bank loan despite all efforts. Most banks demand collateral that business owners do not have, concurs Mr. Ukaoha, adding, “Even if you meet their demand, the interest rate is too high.… It takes extra hard work, resistance and determination to succeed.”
The liberalization of the financial sector in West Africa is a magnet for the private sector, including foreign banks that have moved in to dominate the sector, changing the structure of domestic banking, including how banks lend to businesses, says Mr. Tanoh.
Even as short-term loans become less expensive, small businesses and cooperatives are hardly considered for loans, he adds.
But there are significant improvements in some financial transactions, making life easier for traders. Cashless payments, provided by most banks, allow a trader in Ghana to travel to Benin and pay for goods without cash. In the past, such a trader would have to carry a bag of cash, which was awkward and risky.
When AfCFTA finally comes into effect, trading among countries will rely heavily on cashless payments. The benefits will be greatest for traders who currently endure excruciating difficulty doing business across borders.
The AfCFTA aims to address the trading impediments highlighted by Mr. Ukaoha and others, particularly policy inconsistency and nontariff barriers such as bottlenecks at the land borders.
Before then, African leaders and other experts pushing for a free trade area have some work to do selling its benefits to sceptical traders.