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African Agricultural Trade Status Report 2017: Executive Summary

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In order to maximise the benefits of regional integration and look for new opportunities for competitiveness, policymakers, the private sector and development partners need access to accurate and comprehensive data on intra and inter-regional trade in Africa with respect to agricultural goods. It is in this context that CTA and the International Food Policy Research Institute (IFPRI) are launching the “African Agricultural Trade Status Report”, which examines the current status, trends and outlook in African trade performance, making an important contribution towards data and analysis of developments both at regional and at continental levels. The Report, which is released in conjunction with the Briefing, builds on the work by the Regional Strategic Analysis and Knowledge Support System (ReSAKSS) of CAADP and the African Growth and Development Policy Modeling Consortium (AGRODEP) trade and also reflects the CTA’s commitment to advancing knowledge and sharing of best practices relating to agricultural trade.
The Brussels Development Briefing n.47 on the subject of “Regional Trade in Africa: Drivers, Trends and Opportunities” took place on 3rd February 2017 in Brussels at the ACP Secretariat (Avenue Georges Henri 451, 1200 Brussels) from 09:00 to 13:00. This Briefing was organised by the ACP-EU Technical Centre for Agricultural and Rural Cooperation (CTA), in collaboration with IFPRI, the European Commission / DEVCO, the ACP Secretariat, and CONCORD .

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African Agricultural Trade Status Report 2017: Executive Summary

  1. 1. Executive summary African Agricultural Trade Status Report 2017
  2. 2. Executive summary To maximise the benefits of regional integration and look for new opportunities to improve competitiveness, African policymakers, the private sector and development partners need access to accurate and comprehensive data on intra and inter-regional trade with respect to agricultural goods. It is in this context that the ACP-EU Technical Centre for Agricultural and Rural Cooperation (CTA) and the International Food Policy Research Institute (IFPRI) commissioned the African Agricultural Trade Status Report, which examines the current status, trends and outlook in African trade performance, making an important contribution towards data and analysis of developments both at regional and at continental levels. The Report builds on the work by the African Growth and Development Policy Modelling Consortium (AGRODEP) and the Regional Strategic Analysis and Knowledge Support System (ReSAKSS) of CAADP and trade and also reflects the CTA’s commitment to advancing knowledge and sharing of best practices relating to agricultural trade. In addition to accurate data to assist policy-makers to take informed decisions, this collaboration aims at maximising the input from the highest African analytical capacity on agricultural trade and strengthen an African pool of expertise through AGRODEP. Regional trade within Africa and between the various regions will offer the biggest opportunities in the near future for the local private sector, SMEs and producers and value chain actors. In this context, CTA and IFPRI believe that an annual African trade report is needed and that for the next editions, a broader range of partners would join this initiative.
  3. 3. Trade provides the potential for improving consumer welfare and producer incomes, boosting overall economic growth, and reducing poverty. In Africa, increased and more diversified agricultural trade on the global and regional levels could provide leverage for efforts to raise productivity at all stages of the value chain, and facilitate the transformation of agriculture into a high-productivity sector providing adequate incomes for producers and stimulating growth throughout the economy. Increasing agricultural trade also has the potential to improve food security and contribute to stabilizing local and regional food markets by making them less vulnerable to shocks. In addition to the benefits of global trade, intra-regional trade has increasingly been recognized as a key element of efforts to increase food security and agricultural development in Africa. The 18th African Union Summit in 2012 was organized under the theme of “Boosting Intra-African Trade.” In 2014, African leaders committed to tripling intra-African trade in agricultural commodities and services by 2025, as one of a limited number of commitments in the Malabo Declaration on Accelerated Agricultural Growth and Transformation for Shared Prosperity and Improved Livelihoods. The trade commitment included accelerating the establishment of a Continental Free Trade Area and a continental Common External Tariff and taking measures to increase investments in trade infrastructure and enhance Africa’s position in international trade negotiations. Despite longstanding recognition of the benefits of trade and the importance of improving Africa’s competitiveness, the continent is performing beneath its potential in global and regional agricultural markets. Recent increases in exports have been offset by even larger growth in imports, leading to a deterioration in Africa’s trade balance. Intra-regional trade in Africa is growing, but remains significantly below the levels seen in other regions. These challenges result from a host of factors, including historical trends and more recent developments inside and outside of Africa. Action on many fronts is needed to remove constraints to improving the competitiveness of Africa’s producers. Highlights The African Agricultural Trade Status Report (TSR) provides detailed descriptive assessments of the current status and recent trends in Africa’s trade performance and competitiveness at the continental and regional levels, as well as more in-depth investigations of the determinants of trade
  4. 4. performance and the relative importance of different drivers and constraints. The goal of the report is to provide comprehensive and timely evidence and analysis on the status of African trade in order to inform policy discussions on measures to enhance trade performance at the global and regional level. In addition to the introductory and concluding chapters, the report is divided into five chapters presenting findings on Africa’s trade performance and outlook. Chapter two reviews trends and patterns in Africa’s global agricultural trade since 1998. The chapter finds that although agricultural exports more than doubled between 1998 and 2013, imports increased fivefold, leading to a growing trade deficit. The main drivers of this surge in imports are rapid population growth and urbanisation, income changes due to economic growth, and changes in dietary patterns. Among the major Regional Economic Communities (RECs), only the SADC region has maintained a consistent trade surplus over the last decade. The chapter finds that despite the increase in agricultural exports, the share of agricultural exports in Africa’s total exports has declined by half over the period, due to more rapidly rising exports in minerals and oil. Africa’s agricultural exports show signs of moderate diversification over the period, while imports have remained fairly stable. The EU remains Africa’s top trading partner, but both imports from and exports to the EU have dropped over the period, while trade with Asia has doubled; Asia is likely to take the EU’s place as Africa’s top trading partner if these trends continue. Recent efforts to pursue increased economic integration have resulted in significantly increased intra-regional trade during the period, although the overall level of intra-regional trade remains low. Chapter three examines patterns in intra-regional trade at the continental level and among major RECs, namely ECOWAS, ECCAS, COMESA, and SADC. The chapter finds that intra-African agricultural trade has expanded significantly since 1998, increasing at about 12 percent per year in value terms. However, the share of intra-African trade in total African trade is still very low compared to other regions or continents. For example, 20 percent of Africa’s trade was intra- regional in 2013, compared to around 40 percent among American countries, 63 percent among Asian countries and 75 percent among European countries. Obstacles to better performance of intra-regional trade in Africa include weak productive capacity and the lack of trade-related infrastructure and services.
  5. 5. The largest increase in intra-REC trade in the past decade and a half took place in the ECCAS region, while the slowest increase was in the SADC region. The chapter finds that ECOWAS shows the highest regional trade integration, as measured by the ratio of intra-REC trade to the REC’s trade with Africa; ECCAS shows the lowest. COMESA and SADC play larger roles as destinations for and origins of African trade than do the other two RECs. Chapter four reviews the changes in competitiveness of exports of different countries and different agricultural products over the past three decades, and investigates the determinants of these changes through econometric analysis. The chapter aims to shed light on the factors behind recent improvements in trade performance in order to further accelerate gains and reduce trade deficits. The chapter finds that most RECs saw their member countries maintain or increase their competitiveness in global and regional markets, with the exception of ECCAS, whose member countries tended to lose competitiveness. Improvements in the competitiveness of COMESA, ECOWAS and SADC member countries took place primarily in intra-regional markets. The majority of African export commodities gained competitiveness in global markets, with some exceptions; however, the most competitive commodities account for a fairly small share of exports. Africa’s top five most competitive commodities in global markets represent only 1.8 percent of African exports to these markets, suggesting potential for expanding exports by leveraging competitiveness gains among emerging export products. The chapter finds that determinants of competitiveness improvements include the ease of doing business, institutional quality, the size of the domestic market, and the quality of customs. Chapter five examines the factors contributing to Africa’s improved agricultural export performance, using a gravity model to assess the importance of different determinants of trade and of the constraints to further improving exports. The study finds that supply side constraints, including production capacity and the cost of trade, affect trade performance to a greater extent than demand side constraints, which include trade policies and agricultural supports in importing countries. This suggests a focus on removing domestic constraints to increased trade, including by improving infrastructure and increasing agricultural productivity. For example, the study finds that a 1 percent increase in land productivity increases trade flows to the global market by about 6 percent and to the African market by 7 percent. The chapter also finds that non-tariff barriers to trade are increasing and present larger obstacles to exports than do tariffs. The chapter highlights
  6. 6. the potential of regional economic communities to promote the removal of barriers to trade at both the regional and global levels, as well as the continued importance of global cooperation to facilitate trade. Chapter six focuses on the outlook for expanding intra-regional trade within West Africa, the feature region of this report, and the potential effects of expanded trade on regional food markets. The chapter finds that the distribution of production volatility among West African countries suggests significant potential to lessen the impacts of domestic shocks through increased regional trade, while patterns in agricultural production and trade show scope for increasing regional trade levels. Analysis of a simulation model suggests that intra-regional trade will continue to increase under current trends. Intra-regional trade growth can be accelerated through even modest reductions in trading costs, modest increases in crop yields, or a reduction in trade barriers. In particular, intra-regional trade in cereals during the 2008–2025 period is expected to increase by 23 percent over baseline trends following a 10 percent reduction in overall trading costs; by 36 percent following a removal of harassment costs; and by 33 percent following a 10 percent increase in crop yields. The increased intra-regional trade resulting from these changes would reduce food price volatility in regional markets. The TSR chapters demonstrate undeniable improvements in Africa’s trade performance over the past decade and a half, in both global and regional markets, as reflected by generally increasing competitiveness for the majority of countries and commodities. However, progress has been uneven, with some regions and countries consistently underperforming others. Challenges remain in further enhancing Africa’s competitiveness on the global market and in increasing intra-regional trade, which remains below its potential despite significant recent improvements. The findings of chapter four point to the importance of the institutional and business environment in improving a country’s export competitiveness, while chapter five also emphasizes the role of domestic factors in increasing exports, including production capacity and trading costs. Chapter six focuses on the West Africa region, demonstrating the role of potential domestic and regional policy actions to increase intra-regional trade and enhance the stability of regional markets. The chapters suggest a series of recommendations for policymakers, including efforts at the country and regional level to increase agricultural productivity along the value chain, improve
  7. 7. market access, and improve the functioning of institutions; regional actions to enhance economic integration; and continent-wide efforts to promote trade facilitation in international negotiations. Policy actions such as these can influence the trends described in this report and accelerate improvements in Africa’s trade performance, thereby increasing incomes and improving food security across the continent.

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