Wednesday, March 9, 2011

Positioning Africa to benefit from the seismic shifts in the world economy

CAPE TOWN - There have been some seismic shifts in the world economy – shifts which were accelerated by the financial crisis and recession, but which did not begin there, said SA minister of Trade & Industry, Rob Davies on Tuesday at the Africa Economic Forum.

The recovery of eastern, western, northern and southern countries, following the recession, has occurred at differing speeds – China’s GDP is growing at 7%, the OECD at 3%, Latin America at 4% and sub Saharan Africa at 5%. “The new peaks are located in the south and the east,” says Davies. “Former sources of growth have faltered. This is a reality we have to grasp.”

Africa, he says, is the next growth story after China, India and Brazil. Of course Africa’s acclaimed mineral wealth is a key factor in the continent’s growth. But this, says Davies, is not enough. There needs to be developments alongside the growth in mining. “Too much of Africa’s mineral products are leaving the continent as unprocessed dirt from the ground. These are sold into the fast growing economies. Mineral beneficiation is a key challenge across all of Africa.”

Changing patterns of trade are also a reality that SA, and Africa, needs to adapt to. Historically the EU was SA’s largest trading partner. But this title is now reserved for Asia, which accounts for 36% of SA’s trade. Within this, China is SA’s number one export destination and source of imports. The US accounts for 10% of SA’s trade, and the sub-Saharan region accounts for 18% of SA’s trade.

While trade strategies must be oriented towards the East, long-term sustainable growth depends on the growth of domestic markets. India’s growth began with that country servicing its domestic market; Brazil was insulated from the financial crisis by the strength of its domestic market and China sees its future growth coming from its domestic market. The question then for Africa, he says is “how do we grow Africa’s domestic markets to yield the benefits we want?”

Part of the answer lies in the formation of a “grand free trade area”. Africa is not one homogenous country. It is divided into 57 countries with different cultures, languages and trade bottlenecks. “This limits Africa’s ability to grow. But on the continent we have 1,1bn people – that is potentially a formidable market.”

The SA government, he says, wants to see the country more deeply involved in Africa. “We already trade with almost every country in Africa.”

This is being taken forward.

Later this month the SA government will host talks with the three African economic communities that are planning to form the free trade area. It will extend from the Cape to Cairo and will include 26 countries, between 500m and 700m consumers and a GDP of $853bn.

The bloc would only be rivalled by China and India in terms of market size and be ranked 15th in the International Monetary Fund’s list of world economies by nominal GDP, somewhere between Mexico and South Korea. “This will create the regional market we need for a strong growth push.”

The three trading blocs concerned are the Southern African Development Community (SADC), the East African Community (EAC) and the Common Market for Eastern and Southern Africa (Comesa).

There are big hurdles to overcome – just finding agreement on overcoming tariff and regulatory barriers will be difficult. “We are attending to these,” says Davies. “We have a strong common mind on how we need to approach this.”

Other problems are more fundamental. The most significant are the infrastructural inadequacies which restrict trade. “Without these improvements a common trading bloc cannot succeed,” he says. “We are addressing this through the North South Corridor, which aims to improve transport links from the Copperbelt of Zambia and the DRC, to the ports of Tanzania and SA and the Trans-Kunene Corridor which links Walvis Bay with southern Angola, over a distance of 1 600 km.

Other areas need to be addressed too, such as agricultural production. “What we are saying is that there are areas where African countries need to come together for mutual benefit.”

The conference continues on Wednesday and Thursday.

Source: Moneyweb