Reducing time and cost of transport key to intra-Africa trade

The June 10 signing of the Tripartite Free Trade Area helps in addressing one of the African Union’s concerns.

With just two years to go until the deadline for the creation of free trade areas and Customs unions in each of the regional economic communities (REC) as stipulated by the 1994 Abuja Treaty, the TFTA is a milestone accomplishment for the continent.

The African Union, an institution that has been closely following the progress of the treaty, notes that African countries, as an economic bloc, currently rank low in terms of global economic classification.

The African continent is home to 14 per cent of the global population and yet it accounts for less than 3 per cent of global GDP and receives only 3 per cent of foreign direct investment. Africa accounts for only 1.8 per cent of imports and 3.6 per cent of global exports.

According the AU, intra-African trade stands at around 12 per cent versus the 60 per cent, 40 per cent, and 30 per cent intra-regional trade that exists in Europe, North America and the Association of South East Asian Nation (ASEAN) respectively.

That now stands to change fundamentally as the private sector begins to play an active role in addressing these issues.

African governments are now seriously trying to create an enabling environment for investment and trade. Smarter regulation, a commitment to cutting red tape and a willingness to develop partnerships with the private sector is encouraging new investment, which in turn supports government revenue collection.

This enables governments to invest in infrastructure and capacity building (education, health), which in turn gives investors the confidence and incentives they need to ramp up their investments, creating multiplier effects in the economy.

The government’s key role is to act as an enabler by creating a conducive environment for these new partnerships to thrive, ensuring relevant stakeholders are involved in the decision-making process and execution of strategies.

In return, the private sector ensures commitment, discipline and improved service delivery. However, it is key that the private sector act responsibly to ensure that projects are sustainable.

This can be achieved through knowledge and skills transfer to local staff and increased access to the unique expertise and core competencies of the private sector partner. Another key element is facilitating the scale-up of proven, cost-effective interventions through private sector networks and associations.

In recent years, the economies of the East African region have grown by an average of about 6 per cent per year, despite the fact that there have been no major mineral exports from the region.

Since 2008, freight volumes through the region’s major ports, Mombasa and Dar es Salaam, have been growing at 8 per cent and 13 per cent per year respectively.

Mombasa now handles more than 22 million tonnes per annum and is expected to handle 27 million tonnes per annum by 2016, serving Kenya, Uganda, South Sudan, Rwanda, Burundi, Zambia and the Democratic Republic of Congo.

As Africa continues to realise its resource potential following an exploration boom, opening up the continent by integrating transport networks will have a positive impact on the export of raw materials from the hinterlands and conversely raise the region’s economic standing.

Trade is growing up to 8 per cent per annum across the region and economic growth is picking up. Without the transport and logistics sector becoming more efficient, growth would be severely constrained.

Reducing cost and time of transport and logistics would increase trade, reduce the cost of living, and contribute to higher exports and faster growth for Africa.

Coupling the compelling African demographic narrative with the results of growing resource-based industrialisation, the private sector cannot ignore the need to design our investment thesis around human capital development.

Karim Sadek is managing director of Qalaa Holdings, an infrastructure and industry investment company and the leading investor in Rift Valley Railways.