In a significant shift, African businesses are increasingly prioritizing trade within the continent over traditional markets in Asia, Europe, and North America. Improved quality of goods, competitive pricing, and easier accessibility are driving this growing preference for intra-African commerce, according to the latest Standard Bank Africa Trade Barometer.
The Barometer, which tracks trade trends across 10 countries participating in the African Continental Free Trade Area (AfCFTA), reveals that 37% of businesses now favor African markets for their trade activities. This surpasses the 24% of businesses that prefer Asian markets, 16% that lean towards Europe, and a mere 3% opting for North America.
Countries such as Namibia (75%), Tanzania (48%), and Angola (43%) have shown the highest inclination for cross-border trade within Africa. In contrast, larger economies like Nigeria and Kenya, at 34% each, continue to exhibit strong trade ties with Asian markets, particularly China.
Intra-Africa Trade on the Rise
Surveyed businesses attribute their preference for African markets to simplified trade processes and favorable conditions compared to global markets. Key factors influencing their decisions include the quality of goods (72%), competitive market prices (51%), and accessibility (38%).
The report highlights a notable improvement in intra-African trade relationships and transportation networks, which have made commerce more efficient. Good trading relationships and better transport options have risen from 5% and 2%, respectively, in May 2023 to 15% for both categories by August 2024. Conversely, high transport costs remain a significant challenge for businesses trading outside the continent.
The Role of AfCFTA and Emerging Initiatives
The African Continental Free Trade Area continues to play a transformative role in reducing trade barriers. The Guided Trade Initiative (GTI), launched in 2022, has been pivotal in fostering cross-border commerce by offering preferential tariffs on select goods. Initially involving eight countries, the GTI is set to expand to 30 additional nations by the end of 2024, encompassing a broader range of products such as tea, coffee, moringa, biopesticides, and meat.
Another notable initiative, TradeConnect, launched in November, has enabled Kenyan micro, small, and medium-sized enterprises (MSMEs) to export goods to South Sudan, Zambia, and the Democratic Republic of Congo under the AfCFTA framework. Over the next year, TradeConnect aims to transport $1.2 million worth of goods, targeting a 10% annual increase in Kenya’s exports while reducing logistics costs by 30%.
Infrastructure Boosts Intra-African Trade
Infrastructure development is further bolstering trade within the continent. The Standard Gauge Railway (SGR), connecting Kenya’s port city of Mombasa to Nairobi, with plans for extension to Uganda and beyond, is poised to streamline trade routes. Once completed, the SGR will span 3,800 kilometers, enhancing connectivity across East Africa and reducing transportation costs and lead times.
Shifting Trade Dynamics
While intra-African trade has seen a modest rise from 13.6% of total African trade in 2022 to 14.9% in 2023, challenges persist in global trade relationships. For instance, African businesses continue to favor China due to its product quality (84%), rapid response times (82%), and affordable import costs (79%).
However, the United States remains a less popular trading partner, with only 3% of businesses expressing preference. High shipping costs (50%), tariffs (37%), and currency fluctuations (28%) are cited as key barriers, though Kenya stands out with an 8% preference for U.S. trade.
As the AfCFTA’s initiatives expand and infrastructure development progresses, the potential for intra-African trade to further strengthen remains significant, offering businesses across the continent a promising avenue for growth and collaboration.
