According to a report by Boston Consulting Group (BCG), economic integration across Africa is “gathering speed” and African businesses and indigenous entrepreneurs are driving that integration. The report analyses how they’re expanding their operations and capabilities and how they have overcome economic barriers. These businesses also understand that they can help further economic and social development creating environments that support their businesses.
Growth and Integration
According to the report, there are 75 African companies across 18 countries. These are mostly comprised of airlines, financial institutions, and telecom operators. African airlines are expanding the number of countries they reach, financial institutions are advocating for trade and expansion, and telecom operators are progressing connectivity through communication.
“On average, the top 30 African companies now have operations in 16 African countries, up from an average of only 8 in 2008,” the report says.
Average annual direct foreign investment, which is money given from African countries to other African countries, more than double from $3.7 billion to $10 billion over the past few years. Average annual intra-African exports also grew from $41 billion to $65 billion.
This growth is attributed to African companies over foreign ones. This is likely because they have a full commitment to Africa, a superior grasp of data, on the ground experience, and the ability to navigate informal business environments. They have been using these strategies to advance their local markets as well as international ones. Another report by the BCG, shows how African companies would often use these strategies to beat the multinational corporations at their own game.
Overcoming Barriers
The success has overcome logistical challenges such as the highest average cost of shipping and distributing goods. This is because of the poor connectivity and methods of transport between nations, such as bad road networks.
According to a report from the London School of Economics International Growth Center, fixing road networks in Africa is an essential way for boosting trade. Research from 2015 estimated that transporting goods from some Sub-Saharan African countries could cost up to 5 times more than form the United States.
The report also notes that tariffs could create inequalities within countries and that many African countries have a lot to gain from free trade agreements.
Fortunately, new policies have paved the way for this economic integration to occur. The African Continental Free Trade Area, (AfCFTA) agreement was signed by 44 countries in Kigali in late March. If ratified by each country, the AfCFTA could be one of the biggest trade blocs in the world.
This could be a step towards the African Union, free trade across the entire continent. Africa is very vast and most of the countries are small and have little economic activity. This would create a single market of up to 1.2 billion people and a collective GDP of more than $2 trillion. Although progress towards this is very slow and uncertain.
The Single African Transport Market, an initiative by the African Union, has the aim of increasing connectivity by lowering costs of traveling. It will also result in more direct flights between countries rather than stopovers in the Middle East or Europe. This comes after many countries have also relaxed rules for visas. This would not only boost the economy by making transport of good easier, but it also has the potential to encourage tourism to African countries by other Africans.
“Africans invest more in Africa, Africans trade more in Africa, and Africans travel more to Africa,” says the BCG report.
Featured image via Wikimedia Commons
http://qz.com/1191558/africa-union-launches-single-african-air-transport-market/
