Forex shortage caused by economic constraints is challenging intra-Africa trade

Forex shortage caused by economic constraints is challenging intra-Africa trade

Intra-country trade across Africa is stuttering. Find out more here...

Dollar into piggy coin bank and flag of South Africa
Dollar into piggy coin bank and flag of South Africa/ iStock
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Intra-country trade across Africa is stuttering as businesses struggle to find the foreign currency, most notably the US Dollar, they need to pay for imports - a shortage caused by the depreciation of local currencies, higher interest rates and capital flight in the continent’s developed markets, says findings in latest Standard Bank Africa Trade Barometer.

This barometer, launched to address the information vacuum surrounding African trade data, is now one of the continent’s leading trade indexes, supporting the growth of intra-Africa trade. The fact that most surveyed businesses were small businesses is one of the central value-adds of the publication (see Editor’s Notes: 5). In its third issue, the barometer concentrates on ten countries: Angola, Ghana, Kenya, Mozambique, Namibia, Nigeria, South Africa, Tanzania, Uganda, and Zambia.

“Although there are many tariffs and other, non-tariff barriers inhibiting intra-Africa trade as also defined and articulated in African Continental free trade Agreement (AfCFTA), one of the key non-tariff barriers is information, which the Trade Barometer is helping address through up-to-date survey data on the views of African businesses, the environment they operate in, trade behaviour and their perceptions on trade” says Philip Myburgh, Head of Trade & Africa China for Standard Bank Business and Commercial Banking.

Seven broad categories are used to construct the ATB Index ranking by collecting data from primary and secondary sources. These categories are trade openness, access to finance, macroeconomic stability, infrastructure, foreign trade, governance and economy, and traders’ financial behaviour. 

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“The ATB reveals that macroeconomic conditions across the ten featured countries are mixed, with significant downside risks occurring in many markets negatively impacting the tradability attractiveness of these countries,” says Myburgh.

The solid economic gains recorded after the Covid-19 pandemic are being challenged by an uncertain global environment characterised by tightening global financial conditions, the spillover effects of Russia’s invasion of Ukraine, subdued global growth, and persistent climatic threats.

In addition, continued currency depreciations and higher interest rates have contributed to higher sovereign debt for African countries. These factors have led to foreign currency shortages in most of the ten markets.

This significantly impedes cross-border trade, as businesses struggle to acquire the necessary foreign currency to pay for their imports.

Despite challenging macroeconomic conditions, business confidence is positive across the ten measured markets, increasing marginally from 57 points in September 2022 to 58. 

Seven of the ten countries experienced an increase in their business confidence scores. Nigeria led with a 10-point rise in business confidence, reflecting the perceived positive impact of planned and implemented pro-business policies by the new government elected in 2023.

On the other hand, South Africa and Zambia were the only two countries experiencing a fall in business confidence. In both instances a range of factors influenced this view but most notably for South Africa the extensive power cuts impacting businesses were referenced whilst for Zambia slow progress in debt restructuring talks was a leading factor amongst many. 

Countries with improved overall ranking ratings were Kenya (from position 7 to 6), Mozambique (6 to 3), Namibia (3 to 2) and Nigeria (8 to 4). The countries that declined were Ghana (2 to 5), Tanzania (5 to 7) and Uganda (4 to 8).

“The ease of trading across borders is rated at 43 points, below the neutral score of 50. Trade between countries is, therefore, still difficult,” says Myburgh.

Businesses identify poor infrastructure, complex policies, and import/export duties as contributors to complicating trade. More positively, the ease of doing business with Nigeria improved, with the country scoring 47 (out of 100), significantly improving from the score of 39 in September 2022. 

In most of the ten countries surveyed, businesses conduct significant trade facilitated by preferential trade agreements that lower customs duties. Exports are significant in regional trading blocs that include the East African Community (EAC), the Southern African Development Community (SADC) and the Economic Community of West African States (ECOWAS).  

Poor infrastructure remains a significant obstacle to business operations and cross-border trade. Encouragingly, with the African Continental Free Trade Area (AfCFTA) agreement gaining traction, African governments are working on shared border infrastructure-related problems.

“Several projects are underway across all the ATB markets to rectify infrastructure issues. If achieved, this ambitious trade pact, the world’s largest free trade area, will create a single market for goods and services for almost 1.3 billion people across Africa and significantly deepen the economic integration of Africa,” concludes Myburgh. 

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