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The Trade Numerologist: Africa’s Promise Relies on Inter-Continental Trade

18 March 2019 John Miller

For decades, Africa's top economies have sought to build a new brand of widespread durable prosperity and escape the painful legacy of colonialism.

In this century, the continent has reckoned with an over-reliance on raw materials, systemic poverty, and crumbling ports, roads, and other transport links.

Nigeria, Egypt, South Africa and other top African economies are trying to forge a new path by integrating companies and markets across the continent. Boosting inter-African trade is seen as the key to the continent's success in the 21st century.

In March 2018, 44 countries signed the African Continental Free Trade Area Agreement (ACFTA). Once it's fully ratified, it will do away with tariffs on 90% of goods, and remove obstacles to cross-border African investment and sale of services. The dream is a single market with an aggregate gross domestic product over $3 trillion.

Building more inter-African trade faces several challenges. Trade deals signed with the US, the European Union, and China offer appealing alternatives to trading with neighbors. Africa's export economies countries are often controlled by foreign companies shipping valuable resources to their home markets.

All five of African's richest economies -- Nigeria, Egypt, South Africa, Algeria, and Ethiopia -- are heavily dependent on the exploitation of natural resources. Only one of Nigeria's biggest export markets is in Africa.

Top destinations Nigerian exports, 2018

  • India $10.3 billion (+34%)
  • Spain $5.9 billion (32%)
  • US $5.3 billion (-21%)
  • Netherlands $4.7 billion (+67%)
  • France $4.2 billion (+68%)
  • South Africa $3.5 billion (+115%)
  • UK $2.8 billion (+73%)
  • Indonesia $2.4 billion (+107%)
  • Germany $2.4 billion (+47%)
  • Sweden $2 billion (+92%)

Nigeria, a sprawling country of 203 million with a GDP of $1.1 trillion, has built an economy based on manufacturing, petroleum production, banking and technology, agriculture, and film.

Its main obstacle to developing more intra-African trade isn't tariffs, but rather tough licensing and standards requirements, and the poor state of roads, ports and other trading infrastructure throughout the continent.

Those things made it easier for China to take up the mantle of developing trade with Africa, building markets for its own manufactured goods whilst importing raw materials from the continent.

China's top African trading partners, 2018, (global ranking) total trade

  • #27 South Africa $41.8 billion
  • #32 Angola $27.8 billion
  • #45 Nigeria $15.4 billion
  • #50 Egypt $13.9 billion
  • #57 Algeria $9.1 billion

The country on the continent with the most integration in markets is South Africa, which has dozens of domestic companies focused on shipping to Africa.

South African export destinations, first 11 months, 2018

  • China $8 billion (+3%)
  • Germany $6.6 billion (+12.5%)
  • US $5.8 billion (-4%)
  • UK $4.3 billion (+38%)
  • Japan $4.2 billion (+8%)
  • India $4.1 billion (+10%)
  • Botswana $3.8 billion (+7.2%)
  • Namibia $3.3 billion (-0.3%)
  • Mozambique $3 billion (+13%)
  • Netherlands $2.8 billion (+13.5%)

South Africa's oldest market is its former colonial power, the UK, and it benefits from broad diversity in its export base. Britain's disentanglement from the European Union could further boost its imports from South Africa.

Top South African exports to UK, first 11 months, 2018

  • Precious stones, pearls $1.8 billion (+34%)
  • Cars, trucks & parts $1 billion (+113%)
  • Edible fruits & nuts $499.2 million (+12%)
  • Electric machinery & parts $172.2 million (+20%)
  • Beverages, spirits & vinegar $141.5 million (+26%)
  • Ores, slags & ash $88.2 million (+15%)
  • Prepared vegetables, fruits, nuts $43.1 million (+35%)
  • Iron and steel $32.8 million (-8.6%)
  • Aluminium & articles of aluminium $32.8 million (-3.7%)
  • Sugars & sugar confectionary $30.5 million (+717.8%)

That's a difficult act to replicate for a poor nation like Senegal. The West African country of 15 million, exports more by dollar value to Switzerland - much of that gold - than to any of its African neighbors.

A report published last year by the African Export-Import Bank acknowledged a "low level of intra-African trade" and argued that "intra-African trade offers tremendous potential as a mitigant against adverse external shocks and global volatility."

Top Senegal export destinations, 2018

  • Switzerland $533.9 million (+76%)
  • Mali $342.2 million (-5%)
  • India $299 million (+101%)
  • Spain $132.9 million (+29%)
  • Ivory Coast $127.8 million (-7%)
  • China $112.4 million (+11%)
  • Italy $102.8 million (+43%)
  • Guinea $93.6 million (+15%)
  • France $81.3 million (+10%)

The key for Senegal will be building new markets for its exports of sustainable consumer products like its fish, edible preparations and tobacco.

Top Senegal exports, 2018

  • Gold $555.8 million (+47%)
  • Fish & crustaceans $468.6 million (+19%)
  • Inorganic chemicals $284.9 million (+67%)
  • Fuel $234.9 million (+10.2%)
  • Salt, sulfur, lime, cement $206.4 million (+19%)
  • Ores, slags & ash $164.5 million (+13%)
  • Edible preparations $144.5 million (+6.8%)
  • Tobacco $95.4 million (-11%)
  • Oil seeds, grain, fruit $85.3 million (-0.3%)
  • Vegetables, roots & tubers $72.7 million (+10.4%)

In its report last year, the African Export-Import Bank said it had "supported the growth of intra-regional trade through increased financing of, and investment in, trade-supporting infrastructure to expand light manufacturing industries" in order to "transform the structure of African economies and diversify exports." Its success will be key to building a healthier economy for Africa this century.

Posted 18 March 2019 by John Miller, Guest Blogger

The Trade Numerologist is IHS Markit's unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit's Global Trade Atlas database, the world's most complete and accurate set of trade numbers.

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