Trade with Asia underpins Africa’s $1 trillion export opportunity

Africa’s total exports will reach $952bn by 2035, underpinned by high‑growth corridors both between African regions and with regions beyond including Asia and the Middle East, according to a new report by Standard Chartered.

Among the most promising trade routes highlighted in the Future of Trade: Africa report is the East Africa-South Asia corridor, which the bank predicts will grow at 7.1% per annum through to 2035, bolstered by the opportunities of a growing India and bringing economic benefits of $30bn. West Africa will also benefit from links to South Asia as it sees trade grow by 6.1% per annum.

“Most of Africa’s total exports will be driven by trade with the rest of the world, dominated by commodity exports. With India as one of the most rapidly growing major economies, corridors between Africa and South Asia are expected to grow the fastest,” the report says.

The benefit offered by the Middle East-North Africa and the Middle East-East Africa corridors will also be substantial, with their combined trade volume expected to reach almost $200bn by 2035.

Meanwhile, new corridors are also expected to facilitate intra-Africa trade, which the bank predicts will reach $140bn by 2035, equating to 15% of Africa’s total exports. Flows within East and West Africa are expected to grow by 15.1% and 13.2% respectively.

“We forecast robust intra-regional trade growth for West and East Africa. West Africa’s markets hold great potential for forming value chains downstream in agricultural products such as shea butter and cocoa beans. Projects such as the West Africa Regional Communications Infrastructure Project could drive greater connectivity.

In East Africa, large scale cross-border infrastructure developments such as the Lapsset Corridor Project connecting Ethiopia, Kenya, and South Sudan will drive greater trade in the coming decades,” the report says.

AfCFTA importance

However, many of the benefits will depend on the successful rollout of the African Continental Free Trade Area (AfCFTA). Africa’s total exports could be worth 29% more by 2035 if the scheme is fully implemented.

However, common rules of origin will need to be implemented by the AfCFTA to allow the continent’s eight regional economic communities to escape a “spaghetti-bowl effect” under which overlapping REC memberships makes their objectives “difficult and sometimes downright impossible to achieve.”

A poll of over 100 African business leaders conducted by the bank found that 63% believe “complex and uncertain trade rules” are the biggest challenge to intra-African trade, while 51% cited ineffective trade facilitators and 53% highlighted underdeveloped infrastructure.

Executives at the bank say that a range of policy choices need to be implemented if the full value of the AfCFTA is to be unleashed.

“African markets face complex and uncertain trade rules, poor governance, underdeveloped infrastructure, and high costs of capital,” writes José Viñals, the bank’s group chairman.

“These are all a concern for – on average – half of the business leaders in the region. Africa also has a high rate of variance in development levels among its constituent nations. We must take care to avoid the pitfalls of a blanket approach to trade policy and development.”

Around 90% of respondents believe the AfCFTA can address most of these issues.

“If these above-mentioned reforms were to materialise, the AfCFTA could have a huge direct impact on boosting Africa’s trade. According to a World Bank study, if the AfCFTA is fully implemented, the total exports from AfCFTA markets in 2035 could potentially increase by 29% over the 2035 baseline, and total intra-AfCFTA exports could almost double over the same period,” the report says.

“In addition to the direct impact, AfCFTA could have an induced impact beyond what is currently accounted for. For example, manufacturing export growth could boost Africa’s productivity and competitiveness, leading to greater FDI inflows and technology transfers, which could further enhance industrial learning and the export potential of Africa’s industries.”