Report from Africa Trade and Investment Conference, Cape Town

SOUTH-SOUTH TRADE TO COMBAT CREDIT CRUNCH

Bankers from across Africa gathered in Cape Town last week to call for an increase in South-South trade as a means to combat the effects of the global financial crisis on the continent. Trade between "South" economies currently makes up only 6% of global trade flows, although growth has been rapid. Since 1985 Africa's trade with other "South " economies is up 1170%.

The call comes as the financial crisis hits the continent in the form of reduced remittances, a drop in Foreign Direct Investment and an expected cut back in aid monies. Similarly as international banks scale back their credit lines to Africa a liquidity crisis has been growing, with businesses unable to find sources of trade finance for import-export deals. This is threatening the high levels of economic growth in many African countries, with Uganda’s growth estimates recently downgraded from 9% to 6% for the 2008/09 cycle. It was estimated at the Africa Progress Panel in Geneva that total GDP for the continent would fall by $40 billion in 2009.

Opening the high level trade and investment meeting Jean-Louis Ekra, President of Afreximbank, argued that “there is a strong argument that the potential benefits from freer South-South trade may indeed be as large as the gains that developing countries can obtain from better access to rich countries’ markets”. Ekra also called for a “de-commoditising” of African exports, with value-addition seen as essential to development. In Uganda areas suggested for investment in this area included beef products, aquaculture and forestry.

Due to the global nature of the crisis, unilateral action was labelled as futile by Kenyan Trade Minister Omingo Magara. He slammed “mutual mistrust” and an unnecessary focus on “sovereignty” as holding back regional integration. Delegates suggested that cooperation between governments could result in an estimated $460 billion in foreign exchange reserves being freed up to support African banks to lend more freely. The money is currently sitting in non-African banks earning low levels of interest as Western countries continue to cut rates in an attempt to stimulate their economies. The need to be involved in global financial decision-making led South African Finance Minister Trevor Manuel to recently call for the African Union to be given a permanent seat at the G20 meetings

Poor infrastructure, however, continues to hold back economic development across the continent, prompting Magara to suggest 30% of African budgets should be directed at the problem. This, he believed, would have the duel effect of stimulating economies during the downturn and improving the investment environment. As an indication of the lack of reliable power supply, MTN estimates it spent $130 million on diesel for generators at its transmitting towers in Africa in 2008.

Despite the economic challenges facing Africa the conference did, however, remain upbeat at the prospect for continued growth. The telecoms sector is particularly robust, with Uganda experiencing 95% growth in 2008, second only to Uzbekistan globally. With penetration rates still low this is expected to continue in 2009. Similarly the substantial comparative advantage Sub-Saharan Africa enjoys in agriculture makes the sector ripe for further investment once credit becomes more easily available.

Views: 23

Add a Comment

You need to be a member of Business Fights Poverty to add comments!

Join Business Fights Poverty

© 2017   Inspiris. Business Fights Poverty was created and is managed by Inspiris, a Certified B Corp.   Powered by

Badges  |  Report an Issue  |  Terms of Service

Google+