Despite broad economic growth across many parts of Africa and the Middle East over the past decade, trade relations between the two regions have been gradually diminishing. Both regions share strong historic bonds and have a long history of social and cultural ties. Despite the decline, analysis commissioned by the International Islamic Trade Finance Corporation (ITFC) shows that there is significant potential to boost intra-regional trade and economic integration. Doing so will make a marked difference to the lives of many communities in Africa; with underlying challenges such as low levels of financial inclusion, poverty and the African youth bulge, this is an opportunity the world cannot afford to overlook.
A study by the International Trade Center (ITC) shows that inter-regional trade between Arab and African countries accounts for only 0.3% of the world’s agricultural trade. Yet, Arab member countries from the Organization of Islamic Cooperation (OIC) export $1.06 trillion to the rest of the world, while Sub-Saharan African (SSA) OIC countries export $0.16 trillion. This big difference illustrates the gap African countries are compared to the Arab world.
More ominously, 70% of Africa’s $0.16 trillion is oil. There is also a large disparity for inter-regional export flows. 30% of Arab OIC members’ non-oil exports are currently destined to Arab OIC markets. Arab countries buy from each other. For SSA OIC countries, the situation is different: out of the 26% of non-oil exports destined to OIC markets, only 9% go to OIC markets in SSA.
The agricultural sector is one of the most glaring examples. It is Africa’s single largest employer by industry sector. On average, according to the OECD, the sector contributes 15% of GDP in sub-Saharan Africa and employs more than half the labour force. Conversely, many countries in the Middle East (including all GCC countries) struggle to grow their own produce, because of their extreme climates. African countries have enormous opportunities in sectors that could be considered ‘low-hanging fruit’, such as livestock, coffee, sesame seeds and cocoa-based and fisheries products. However, there are deeply ingrained structural challenges that impede this opportunity.
Bridging the Region’s Untapped Export Potential through Arab-Africa Trade
For most industry sectors in Africa, there are structural hurdles, which include weak logistics infrastructure. In agriculture, exporting fresh produce requires speed and end-to-end cold storage, which are rare luxuries for many rural farmers. Other challenges include poor processing capabilities (this is an issue across almost every sector in the region) and extremely weak access to loans that would enable growth and investment. If these issues could be overcome, many more jobs could be created, companies could flourish, and entire communities can enjoy an uplift in income and quality of life. If Africa’s enormous agricultural sector were to thrive, we would also see the processing supply chain grow and a step-change in food security.
To bridge these untapped export potentials, ITFC launched the Arab Africa Trade Bridges Program (AATB) in 2017 in Morocco under the High Patronage of His Majesty King Mohammed VI. Designed to leverage new commercial partnerships, strengthen existing ones, and increase trade and investment flows, the program is focused on driving intra-regional trade and investment between Arab and the 25 African OIC countries. AATB strives to support the development agenda in beneficiary countries contributing to export development, economic diversification, job creation and inclusivity, especially for youth and women.
At the heart of this program is an understanding that trade is the most effective way to lift the standard of living for all margins of society. These outcomes will be realized through hands-on practical tools. These include the creation of opportunities for traders to present their export products to buyers, the creation of a new online business network to facilitate business contacts and information exchanges, the establishment of logistics platforms in selected African countries and the development of trade finance and export credit insurance products and services. These will enhance competitiveness and build partnerships between the two regions and as such are all crucial practical pathways to facilitating business relations between exporters and importers.
Arab-Africa Trade and its Contribution to the UN SDGs
More than a year into its implementation, the AATB program is well underway with resources targeted right across industry sectors, including agro-food industries, health and pharmaceutical industries, building and construction materials and equipment, and machinery and electrical equipment. All of these have high potentials for commercial and investment partnership between two regions. Crucially, they are all industries with enormous scope for job creation and skills development.
These outputs – raising living standards through economic empowerment – are the most important metrics. AATB will therefore measure itself not on the amount of money spent but on tangible benefits to society and a contribution to several Sustainable Development Goals (SDGs). These include zero poverty, zero hunger, good health and well-being, quality education, gender equality, decent work and economic growth, industry, innovation and infrastructure and partnerships for the goals.
It is proven that economic growth correlates directly to a reduction in poverty. We know that trade is the surest way to build sustainable industries, drive skills development, and accelerate job creation in the region. There is enormous potential for intra-regional trade between two of the world’s largest markets, which if realized can transform the quality of life for millions. For its part, ITFC will continue to play an active role in achieving these outcomes through enhancing Arab-African trade.