IMF: Intra-African Trade, Remittances Rising

Obinna Chima

Contrary to widely held belief that intra-African trade has remained abysmally low, a new report by the International Monetary Fund (IMF) has shown that countries in sub-Saharan Africa are more closely tied than ever.
This was attributed to the rising trade among countries in the continent as well as remittances—the money people send home when working in another country.

The new study by the multilateral institution showed that closer ties expose countries to each other’s good and bad fortunes.

It noted that booming large economies spur partners’ growth by demanding more of their goods, saying that because people working in a booming economy will send home more remittances.
“Downturns in one country impact another by the same means. So, tighter economic ties also raise challenges. We find trade to be the strongest conduit when it comes to the impact on growth. Trade and remittances drive closer ties.

“Integration between the economies of sub-Saharan Africa has increased most substantially through trade. In 1980, regional exports were equal to only six per cent of total exports, but by 2016 they had risen to 20 per cent.
“This makes the extent of regional integration in sub-Saharan Africa as high as in any other emerging and developing region in the world. This is the result of the region’s higher growth relative to the world, the reduction of tariffs, and stronger institutions and economic policy, relative to the past, throughout the continent.

“The bulk of this trade, however, occurs within rather than between sub-regions—smaller groups of geographically close countries within sub-Saharan Africa. For example, the five countries that make up the Southern African Customs Union -Botswana, Lesotho, Namibia, South Africa and Swaziland – account for 50 percent of total sub-Saharan African trade,” it stated.
According to the report, integration within the region has also increased, due mainly, to wages sent home by workers living in another country.

In 2015, these amounted to about US$11.5 billion.
“Total remittances to sub-Saharan Africa have been broadly stable in percent of GDP over the last ten years, but their composition has changed.

“By 2015, intra-regional remittance flows accounted for one third of total remittances. As with trade, intra-regional remittance flows are large by global standards, about 0.6 percent of GDP, and greater than those in emerging and developing Asia, Europe, and the Americas, which are all less than 0.3 percent of GDP.

“Developments in financial technology—notably mobile banking—continuously reduce the cost of sending remittances. Even though remittance costs are less affected by distance than trade costs, remittance flows mostly take place within the sub-region.

“Cameroon in Central Africa, Côte d’Ivoire and Ghana in the West, South Africa in the South and, to some extent, Kenya in the East are large sources of remittances for the continent,” it added.

Continuing, the report stated, “We find trade to be the strongest conduit when it comes to the impact on growth. We estimate that a one per cent increase in the weighted growth rate of intra-regional partners is associated with an increase of 0.11 in domestic growth.

“We show that the largest economies in the region, like Nigeria and South Africa, which currently have sluggish and slow growth, impact the countries most exposed to them through reduced demand for traded goods and a reduction in remittance flows.

“Conversely, fast-growing economies, like Côte d’Ivoire and Kenya, will buoy other West and East African economies respectively with higher growth from increased demand for traded goods and larger remittance inflows.”
However, it pointed out that Sub-Saharan integration had caught up to other emerging and developing regions’ levels, but noting that enormous potential remains for further improvements, especially between sub-regions.
It recommended that countries can reduce tariff and non-tariff barriers, such as reducing administrative burdens and improve the ease of doing business, including broad ratification and implementation of the African Continental Free Trade Agreement.

“Prioritise infrastructure development, for countries who have room in their budgets, to make trade easier between countries and between sub-regions.
“Moreover, to deal with the increased risks raised by closer ties, countries can also: Diversify their economies through structural transformation and the diversification of exports, while building on their comparative advantage.

“Ensure policies are in place to monitor and regulate, where necessary, cross border trade of goods and services, including effective and efficient customs and border procedures.”

‘Quick Passage of Factoring Bill Crucial’
The quick passage of the bill on factoring in Nigeria has been described as a crucial step in facilitating the ease of doing business and procuring the trust of investors in the country.
Speaking during the public hearing on the Factoring Bill, the Chairman of the House of Representatives Banking and Currency Committee, Jones Onyereri, said the introduction of factoring in the financial sector would serve as complementary financing to conventional financing and would largely target micro, small and medium enterprises (MSMEs).

“This will facilitate the provision of cash flows to MSMES, especially those that have quality receivables and may not be in the position to obtain adequate conventional bank finance due to high interest rate, collateral or credit profile constraints,” Onyereri was quoted to have said in a statement.

Also, the Managing Director of the Intra-African Trade Initiative at the African Export-Import Bank (Afreximbank), Kanayo Awani, highlighted the importance of factoring in unlocking the economic potential of SMEs, noting that it could play a key role by supporting the SMEs, promoting open accounts, which is beneficial to SMEs in enhancing their competitiveness, and providing an alternative source of trade access to finance
She said Afreximbank was committed to supporting the appropriate legal and regulatory environment as a key strategic initiative for the promotion and development of factoring, noting that, under its strategy, the Bank was required to work on improving the legal environment in order to bring about harmonised standards and transparency within the factoring industry in Africa, and providing for legal enforcement arrangements.

The public hearing, which was organised in collaboration with Afreximbank, also attracted the participation of representatives of the House of Representatives Banking and Currency Committee, NEXIM, FCI, the Central Bank of Nigeria, the Debt Management Office, the Nigeria Deposit Insurance Corporation, the Financial System Strategy 2020, and several other stakeholders.