South-South Trade A Path for Africa’s Integration

Transcript:South-South Trade A Path for Africa’s Integration:
South-South Trade A Path for Africa’s Integration into the Global Economy Eswar Prasad Cornell University and Brookings Institution Enhance trade and other forms of integration within the African continent Increase Africa’s share of world trade and its prominence in the world economy Boost industrialization and economic development in the region Improve economic and social welfare: jobs, equity, inclusiveness Objectives South-South Trade as Catalyst Building scale: big regional market with considerable growth potential if market fragmentation reduced Reducing reliance on imports, increasing value added within region Learning by doing to prepare for global competition Creation of supply chains within the region that can then be linked to global supply chains Potential for South-South Trade in Africa Consumer Goods Large and growing populations Rising middle class Consumer aspirations rising Investment Goods Enormous demand for physical capital, low capital-labor ratios Need for infrastructure investment Integration into Supply Chains Opportunities at regional level Avenues for Expanding Trade Commodities, raw materials Vulnerability to global shocks, price cycles But opportunities for capturing more value added Low-wage, low-skill manufacturing Other competitors Automation/robotics displacing human labor Low productivity, high unit labor costs in region Avenues for Expanding Trade Services Low-end, low-tech services Higher-end services, including logistics New and emerging industries Green technology Information, communications technology Robotics, artificial intelligence Avenues for Expanding Trade Supply chains Capturing more value from commodities trade Benefiting from comparative advantage in specific tiers of global supply chain Generating stronger manufacturing base in Africa through regional supply chains Potential for vertical, horizontal integration within region Basic Requirements for Trade Expansion Education, skill upgrading to align quality of labor with needs of externally-oriented industry Physical (and soft) infrastructure, including reliable power, roads, ports Transportation and logistics to support trade across continent Financing Long-term financing for physical capital Trade finance, credit guarantees, and other short-term financing needs Financing for Trade Harnessing domestic/regional savings effectively Channeling foreign capital into productive investments, esp. through fixed-income markets Foreign capital brings many collateral benefits Technological, process innovations Better governance Adds liquidity, depth to domestic financial markets Regional institutions such as AfrEximBank have important catalytic role Barriers to Foreign Capital Underdeveloped financial markets: shallow, lack of liquidity Vulnerability to global shocks: exposure to commodity price cycles, high levels of external debt, balance of payments risks Undisciplined macroeconomic policies Political instability Weak governance: quality and effectiveness of public institutions, rule of law, corruption Ancillary Issues Promoting sustainable growth in trade and GDP; spreading