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Uncovering Africa’s Trade Potential – Phil Hales, Barclays Trade Director for Wales Looks

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Phil Hales Barclays

Phil Hales, Barclays

Sub-Saharan Africa (SSA) has become much more open to trade over the past decade. The increase and diversification of trade flows have been driven by a range of factors, including evolving partnerships with fast-growing emerging markets and substantial investment in extractive sectors and associated infrastructure. It has also been bolstered by rapidly growing consumer markets in major African cities, and supported by budding intra-regional trade and better integration into global value chains.

Much is now being done to further bolster trade. The region has taken positive steps to improve the transport and logistics environment, for example, albeit from a very low base. This includes investment in hard infrastructure such as road and rail, as well as soft infrastructure such as administrative procedures and trade policies which are essential to make the most of improving transport networks. While many obstacles remain, Sub-Saharan Africa has made strong progress in terms of creating a more open and lucrative environment for realising business investments. In addition, many states are making in-roads into lowering tariff and other non-tariff barriers, pursuing a pro-business reform agenda and addressing the skills gap through better health, education and training services.

Against this backdrop it’s no surprise that the trader and investor appetite for engagement with Sub-Saharan Africa has picked up considerably in recent years. Companies from the UK are competing with rivals from Europe, the Americas and Asia, to build up their trade ties within the continent. Yet the fact remains that, outside of a handful of larger African countries, relatively little is known about Africa’s trade openness, or the size of the trade opportunity.

Whilst South Africa is the standout performer overall, Nigeria arguably represents the most exciting long-term opportunity for UK businesses in Sub-Saharan Africa. The country already imports around $2.4bn (about £1.51bn) in goods from the UK each year, making it the second largest market for exporters after South Africa. However, its performance in terms of openness and intra-African connectivity means that Nigeria still has a long way to go before it can hope to compete with South Africa as a regional trade hub or as a gateway to other African markets. Nigeria needs to address a range of business environment deficiencies that create great uncertainty and hidden costs for foreign firms, while investing heavily in transport networks and power provision to reduce non-tariff barriers to trade. Currently, Nigeria is potentially a profitable market for UK-based companies that know how to operate in its complex regulatory environment and that can overcome the logistical difficulties posed by the inadequate infrastructure, for example, by providing their own power and water supplies.

More generally the West and Central African countries, including Nigeria, perform reasonably well on market size and growth but currently under perform on trade, largely due to tariff policy and border administration. The most populous states within this region hold the most prominent trade opportunity: these being Ethiopia, DR Congo, Tanzania, Ghana and Mozambique. These countries are considered Africa’s ‘sleeping giants’ and are playing catch up after significant political and economic upheaval. All of these countries are increasingly attractive markets to foreign firms and international investors with an eye on long-term returns from fast-growing markets for a range of consumer facing goods and services supported by rising incomes and an expanding middle class.

With the guidance and support of UKTI and their bank we would encourage businesses to take advantage of the thriving trade opportunity within Africa, due to its rapidly growing consumer market and the improving border controls, tariff policies and transport networks highlighted here. The export potential of this market boasts promising opportunities for expansion for businesses who can effectively manage the risks posed by trading in this developing market.