The maritime industry can unlock growth with Africa
Africa has the potential to be the key growth market of the 21st century creating better lives for millions of Africans and helping drive global GDP. But unlocking growth with Africa requires overcoming key challenges including improving governance, reducing barriers to trade, creating jobs for a growing population and investing in infrastructure. The global maritime industry can play a role in addressing these challenges in cooperation with African partners. In this Insight piece we highlight some of the key opportunities and challenges of relevance to the maritime industry.
Amy Jadesimi & Kasper Soegaard
Managing Director at LADOL, Head of Research at Global Maritime Forum
"The global maritime industry can – as a key facilitator of global trade – contribute to creating sustainable and inclusive growth with Africa..."
February 06 2019
Africa has been the second fastest growing region in the world since 2000. In the same time period, Africa has tripled its trade, while diversifying its trade links with the rest of the world. Despite this, many countries in Africa remain among the poorest in the world with a large untapped potential for growth and increased trade. The continent’s challenge will be to ensure that this growth is inclusive and leads to more jobs and less poverty.
To unleash Africa’s potential, African countries have agreed on the ambitious Agenda 2063, which seeks to bring sustainable change to Africa through increased cooperation. This will require tackling issues such as strengthening governance, improving infrastructure, reducing barriers to trade, investing in human capital and creating millions of new jobs.
The global maritime industry can – as a key facilitator of global trade – contribute to creating sustainable and inclusive growth with Africa in cooperation with stakeholders from across the continent. This is especially the case when it comes to simplifying trade, which requires improving infrastructure, logistics and reducing administrative burdens related to trade. The maritime industry can also play a key role in creating jobs and providing training opportunities for a new generation of African talent.
The following overview highlights the main trends, opportunities and challenges for economic growth and development on the African continent in 2019.
Africa’s economic performance
The African economy has been growing by 4.7% annually between 2000 and 2017, making Africa the second fastest growing continent in the world. However, there is significant variation across the continent. While 33 African countries are currently classified among the least-developed countries in the world, more than 20 African countries count as middle-income countries. The differences in GDP and growth reflect the divergent level of economic development, which means that growth opportunities and challenges vary from country to country.
When it comes to trade, Africa has tripled its trade with the rest of the world to more than $800bn since 2000. Trade within Africa, however, continues to make up only a relatively small proportion of world trade, with only around 7% of world trade being loaded and 5% being unloaded in Africa. The relatively low level of intra-continental trade in Africa, compared to other continents, is an indication of the fragmentation of the African market and the dominance of raw materials in African exports.
It is thus a political ambition of the African Union and the many African regional economic communities, to break down trade barriers between African countries in order to foster more intra-African trade. One significant step towards achieving this goal is the signing of the African Continental Free Trade Area Agreement that could boost intra-African trade by 52% by 2022 and create an overall annual welfare gain of $16.1bn according to estimations made by UNECA. The agreement has been signed by 49 countries and ratified by 12, which means that only 10 more ratifications are required for its entry into force.
Demographics as a driver of growth
Africa is endowed with a large demographic potential to be unleashed, which also poses great challenges. Africa’s population is estimated to double to 2.4 billion by the year 2050. This will lead to a rapid increase in the working age population, creating a large labor pool at a critical time when the labor force in China and most developed countries will stagnate and start to decrease. This presents an opportunity for Africa to turn the demographic dividend into higher growth, but also creates an urgent need to create millions of new jobs for the growing working age population. The success will rely on the ability to improve the quality and training of the work force.
Urbanization is another important trend in Africa, with the urban African population predicted to reach 1 billion in 2035. Urbanization will lead to growing domestic demand, since the urban population has higher consumption rates and incomes compared to the rural population. This increase in domestic demand is already being witnessed in statistics, making Africa an increasingly interesting market for consumer goods.
A potential manufacturing powerhouse?
Despite Africa’s great labor pool, finished goods make up only a fifth of all African exports. African producers also export relatively few intermediate goods, which indicates the big potential that lies in the integration into global value chains. Africa is also blessed with an abundance of the raw materials and agricultural products that are necessary inputs in manufacturing. Given these favorable conditions, a diversification and greater integration into regional and global value chains could provide an important boost to growth, trade and job creation in Africa. However, it would also require reforms that improve business conditions, governance, infrastructure and human capital.
Can Africa feed the world?
While agriculture is by far the biggest economic sector in Africa in terms of employment, most farmers are still smallholders or engaged in subsistence farming, a sector with low productivity. Effectively, Africa is still a net food importer, despite the continent’s wealth in resources, accommodating 60% of the world’s uncultivated arable land. Measures such as the application of new production methods, investments in training and equipment as well as the improvement of logistics could radically change this situation. This could make Africa a potential agricultural powerhouse exporting food to the rest of the world.
A source of energy for the future?
Africa’s also possesses vast energy resources, both fossil fuels and renewable energy. It is for instance estimated that setting up solar panels covering 0.3% of Africa’s landmass could provide enough electricity to cover the total demand of the EU. The paradox is that despite being abundantly rich in energy resources , many Africans do not have access to electricity. Enabling access to reliable, affordable, and modern energy services, as well as renewable energy systems, is a necessary step to improving the livelihood of Africans and stimulating economic growth.
Better infrastructure needed
Infrastructure plays a key role in unlocking the African economic potential on nearly all levels. In the past two decades, investment in African infrastructure rose rapidly, due to global private-sector and foreign funded investments. Yet, the investment gap is far from being closed, with infrastructure requirements in Africa estimated to be $130– 170bn a year.
Many of Africa’s ports are poorly equipped, uneconomically operated, and do not meet global standards. Outdated railways and shortfalls in essential hinterland transport networks increase logistics costs, which damages African producers’ competitiveness and makes trading with Africa less attractive.
Governance must be improved
Another great challenge for African countries is the improvement of governance and the reduction of administrative burdens on businesses, which is among the goals contained in the African Union Agenda 2063. In the World Bank’s Ease of Doing Business indicators Sub-Saharan Africa showed the lowest score in 2018 compared to all other regions in the world. Some African countries do better, such as Rwanda which at #41 is ranked above Belgium.
When looking at the relative change in the scores, however, the picture for Africa is more positive. The World Bank finds that Sub-Saharan Africa was the world region that undertook the greatest number of reforms in 2016/2017. Four African countries were among the top ten countries with the highest improvement index, namely Malawi, Zambia, Nigeria and Djibouti. The result is a clear testimony that progress is being made, although much remains to be done.
Progress is being made on trade facilitation – more is needed
Another barrier to growth and trade in Africa are the cumbersome rules and procedures imposed on traders, leading to delayed trade flows and increased costs. Fortunately, multiple steps have been taken in recent years to address this issue. The WTO Trade Facilitation Agreement for instance, requires countries to streamline the administrative procedures related to trade. The fact that steps are indeed being taken to improve trade facilitation in Africa – many of which are done with the involvement of the private sector – is also documented in the Ease of Doing Business report. The report shows that Sub-Saharan Africa was also the region with the highest number of reforms around facilitating trade. If these efforts are continued and strengthened, they could contribute to a substantial boost in trade and economic growth in Africa.
An invitation to collaborate
The objective of the Global Maritime Forum is to shape the future of global seaborne trade to increase sustainable long-term economic development and human wellbeing. We do this by bringing industry leaders, policy makers, NGOs, experts and other influential decision makers together to discuss common challenges and to develop new solutions and recommendations. If you are interested in being part of the discussions on how the maritime industry can work together with African stakeholders to unlock growth with Africa, please reach out to us and share your ideas and suggestions on how the global maritime industry can play a positive role in unlocking growth with Africa.