2024 Public Sector Perspectives

Infrastructure The quality of transportation and communication infrastructure in Africa is an obstacle for regional integration. In fact, infrastructure that is designed to facilitate international trade is much more developed than those of intra-Africa trade. In total, the continent has an average of 2.5 kilometers of railway track for every 1,000 square kilometers, lagging far behind the world average of 23 kilometers 11 . Furthermore, the poor quality of the region’s roads, rail, and port infrastructure increases the costs of intra-African trade by 30 to 40% 12 . Ports are no different – poorly equipped and badly operated ports experience delays in shipment handling, long processing times and increased handling costs. African ports are 50% more expensive than in other parts of the world, according to the African Development Bank (AfDB). Additional challenges to ports stem from the lack of integrated systems of road and rail lines linked to ports 13 . For example, cargo traveling from a port to a city in a landlocked Sub-Saharan African country generally spends more of its time (75%) at the port than on the road. Likewise, cargo spends nearly three weeks on average in Sub-Saharan African ports, compared to under a week in large ports in Asia, Europe and Latin America 14 . The poor state of African infrastructure constrains economic growth by 2% every year and it is estimated that the continent needs up to $170 billion per year by 2025 to overhaul its infrastructure 15 . While there is more to be done, there is progress in some major infrastructure projects, in particular for those that span across countries, and are expected to play a crucial role in developing an interconnected Africa. A notable example includes the partnership between the UK’s development finance institution, British International Investment (BII), and DP World, a leader in global supply chain solutions. The partnership, which was agreed in 2021, focuses on modernizing and expanding three ports in Dakar, Sokhna and Berbera, with further ports and logistics investments across Africa to follow. Through this collaboration, trade enabled through the three initial ports will improve access to vital goods for 35 million people, support 5 million jobs, and add $51 billion to total trade by 2035 16 . Another noteworthy instance took place in February 2023, when several African heads of state came together to discuss 69 infrastructure projects valued at $160 billion and which aim to boost Africa’s economic integration and competitiveness. This initiative is part of the Programme for Infrastructure Development in Africa (PIDA) and includes projects such as the Abidjan-Lagos Highway project which will go along the coast of West Africa, connecting Abidjan with Lagos via Accra, Lomé, and Cotonou 17 . African sovereigns must continue to invest and open key infrastructure corridors to open markets and drive down costs. In addition to infrastructure investment, governments need to deploy technology to maximize impact of tackling trade challenges. Digitization Technology is an enabler of tackling intra- Africa trade challenges but is also an area of improvement for the region. Important developments have taken place in connecting people in Africa, as an ever- increasing number of people now have access to mobile technology and are connected by the internet. Every country on the continent has greater access to internet and computers than in 2012, while every country but South Sudan has seen an increase in mobile connectivity and communications 18 . Internet development in Africa has allowed users to access information and financial services, monitor market prices, set up businesses and connect with regional countries and the rest of the world. Even though internet penetration is the lowest compared to other regions, the number of connected users is growing faster than the global average. 11 China Daily 12 Wilson Center 13 Wilson Center 14 World Bank 15 Wilson Center 16 BII 17 Africa Business Insider 18 Mo IbrahimReport 2022 Mobile technologies and services are essential in ensuring employment and sustainable development because increased take-up of mobile services creates improvements in productivity and brings efficiency gains. According to WTO estimates, global exports of digitally delivered services recorded an almost fourfold increase in value since 2005, rising 8.1% on average per year in the period 2005-2022, outpacing goods (5.6%) and other services exports (4.2%). However, growth in Africa and in less developed countries continued to lag, with Africa holding less than a 1% share of digitally delivered services exports in 2022 19 . A promising avenue in this sector is the potential of a regional digital currency to ease trading within Africa, which is worth exploring by both countries overall and central banks alike. Embracing digital currency for intra- Africa transactions can streamline processes and reduce costs. It also presents a unique opportunity for Africa’s youthful and digitally savvy population which can further boost this possibility, facilitating widespread adoption and fostering financial inclusion and economic growth. The African Export-Import Bank’s (Afreximbank) and AfCFTA’s Pan-African Payment and Settlement System (PAPSS) is a remarkable example. PAPPS offers a solution to the fragmented nature of payment and settlement systems by providing financial market infrastructure connecting African markets to each other and thereby enabling instant cross-border payments in respective local African currencies for cross- border trade. This system will be key to facilitating and accelerate intra-African trade by eliminating the continent’s financial borders as well as formalizing and integrating Africa’s payment systems 20 . Conclusion The G-20 report, Seizing the Benefits of Trade for Employment and Growth (2010) , highlighted that “trade openness has been shown in practice to bring greater economic growth and greater employment, so long as it is complemented by appropriate macroeconomic and supporting policies.” Against the backdrop of turbulent social, political, and economic shifts in the world order, the African continent should inwardly concentrate its efforts and focus to aggressively promote the region’s “trade openness” and implement relevant policies. Political leadership and commitment will be critical in forging and implementing proper macroeconomic and supporting policies as well as the necessary regional framework to foster greater intra-regional trade flows. A key area of focus is the need for greater standardization of regulation (which the AfCFTA addresses to an extent through common standards and the harmonizing of trade laws), as the current impediments to intra- Africa trade predominantly stem from the complexity and diversity of regulatory frameworks across the continent. Continued strategic investment in physical infrastructure and human resources (i.e., education, health) is also fundamental to the implementation of the trade agenda. Lastly, Africa needs to not only leverage its comparative advantages (e.g., favorable demographics, arable lands and natural resources) but also embrace and employ the disruptive technologies that are beginning to transform the old order. Digitization is changing the rules of trade by introducing new products and services, transforming industries and value chains, disrupting business models, and creating new employment opportunities. Technology should continue to allow Africa to realize advances and leapfrog physical challenges to provide greater access to products and services for its people and the wider region. Today the momentum is positive, and the direction is clear for the realization of an integrated and flourishing trade community on the African continent. 19 WTO Global Trade Outlook and Statistics 20 Afreximbank Citi Perspectives for the Public Sector 29 28 Bolstering Intra-Africa Trade Flows Amidst the Current Global Scenario