Africa and Brexit: An opportunity for a holistic re-think of African trade

By James Hall

Analysis in brief: Britain’s departure from the European Union has meant African countries must re-negotiate UK trade agreements. This comes at a time when a continent possessed of growing prosperity and self-assertiveness is re-imaging trade as a means for development and not just profit.

African nations face negotiation of trade agreements with one of its oldest trading partners, Britain, as the latter leaves the European Union (EU) officially on 31 January 2020. In June 2016, a 52% majority of British voters chose to exit (or “Brexit”) the political and economic union of 28 member states. How Africa would benefit – having an additional trade partner or having a trade partner diminished as a market and as an economy – has been a matter of speculation among African economist during the subsequent years of Britain-EU negotiations. What is clear is that this opportunity allows for a new beginning with regards to Africa-British relations. In a 2018 visit to Cape Town, then British Prime Minister Theresa May rebooted relations from a focus on aid to an emphasis on trade and partnerships. But Africa is now also in a strong position to define relations. As Ghana President wrote to current British PM Boris Johnson at the latter’s election victory, “We have an opportunity, together, to renew and strengthen the relations between our two countries, focusing on enhancing trade and investment, and scaling up prosperity for our peoples.”

Brexit has opened a window to revised thinking about Africa’s trade with the outside world and has put a new impetus on intra-Africa trade at a time when the African Continental Free Trade Agreement (AfCFTA) is coming into existence. In sum, the African trade must be proactive, as a reactive response to Brexit has shown.

UK Prime Minister Boris Johnson has succeeded where his predecessor had failed after the UK Parliament
passed legislation implementing his Brexit deal.
Image courtesy: Andrew Parsons

The future of African trade will be tied to long-term development and not only immediate profits

In September 2019, five Southern African countries (Botswana, eSwatini, Mozambique, Namibia and South Africa) reached a continuity agreement with the UK echoing the Southern African Development Community (SADC) agreement with the EU to ensure that movement of imports and exports continues as normal. Uninterrupted trade flow is vital as Britain is South Africa’s fourth-largest export destination, and bilateral trade amounted to US$ 9.7 billion in 2018. Unlike most other SADC countries, South Africa does not have duty-free access to the UK market. This can change through negotiations with London, which, for South Africa, is an advantage brought on by Brexit. For its part, Britain is courting African trade partners and hosting African business and political leaders at Buckingham Palace during a UK-African Investors Summit in December 2019. The summit was part of British Prime Minister Boris Johnson’s vision of a “Global Britain” – a vision African nations also ought to seek as a goal. Signs are evident that such new thinking is taking root. The fact that France also held a heads of state summit aimed at greater Franco-African trade and that in 2018 China flew in 51 African heads of state for a similar gathering is evidence that Africa has commodities, products and markets that foreign powers covet. Indeed, due to Africa’s population growth, by 2050 a quarter of the world’s consumers will be African.

Figure 1: South Africa’s top 10 export destinations in 2019.
Data courtesy: South African Revenue Service, 2019

One reason African economies have stagnated has been a conservative approach toward trade. African nations have been largely content to ship out raw commodities, rather than invest in industry to produce products out of those commodities. The drawbacks of this approach are two-fold. Exported value-added products are more profitable, with tax revenues and balance of payments having been negatively impacted by their absence. Secondly, raw commodities from agricultural products to minerals are dependent on world prices, whose fluctuations can slash GDP growth. For years old-rich countries like Angola and Nigeria were content to coast along on high oil prices, only to have their governments unable to finance their national budgets when oil prices dropped.

To remedy this, one component of African trade negotiations is skills sharing and skills training and transfer. Less tolerant toward Chinese and other companies reserving executive and technical jobs for their own nationals when they undertake Africa-based projects, African governments seek a local skilled workforce. This is becoming a requirement in government contracts and is appearing in nations’ investment policies.

Africa’s internal trade is gaining traction

The revised thinking on external trade has also boosted interest in intra-Africa trade. Africa’s internal trade is the lowest of any continent with African countries exporting to other African countries, rather than traditional trading partners in Europe or newer markets in the Americas, Asia and the Middle-East, totalling 21.2% of all continental exports. In comparison, intra-Asian trade stands at 59%, and 69% of European exports go to other European countries. However, the new AfCFTA will create a single continental market for goods and services, free the movement of trade and goods by cutting tariffs by 90% and eliminating visas, and establish a body that will resolve trade disputes between countries. Africa has experience with the viability of regional trade areas: the Common Market of East African States, the East African Community and SADC. The member states of these three trade communities alone, and there are more, account for 72% of intra-Africa trade. Intra-African trade is expected to double under AfCFTA.

Re-inventing old trade patterns

Economists have been prominent in Africa’s media as Brexit nears completion, offering trade explanations in the shifting landscape of Africa’s oldest trade partners. However, these same experts are publicising the new reality of Africa’s growing position of strength. As democracy takes hold on the continent and corruption eases its grip on leadership, governments are responding to more vocal demands from their citizens for economic improvement. They are doing so by looking towards trade, and intra-Africa trade in particular. The UK will not be irrelevant, but the new reality is that Britain no longer holds a position of trade prominence, translating into a good indication of the economic maturation of Africa.

Key Points

  • The need to renegotiate trade deals with the UK comes at a time when the African trade paradigm is changing to emphasise economic development.
  • A rethinking of trade patterns also comes at a time when the African Continental Free Trade Area will boost intra-Africa trade
  • Better trade deals for Africa also reflect Africans desires in a growingly democratized continent for economic equality