Alarm bells are starting to go off in the African countries government, which is a good sign.Trade experts have for long warned that unless protectionism in the continent’s trade is addressed, the huge deficit will continue to balloon and in favour of developed countries. For example, according to a report published recently by an African think tank, Egyptian government plans to raise soon the price of subsidised gasoline where both types of fuels are sold, less than half their market prices and more than 50% less than sub saharan Africa average. The new government’s short-term solution is to raise fuel prices and thus lower fuel imports. But rising consumption, both from industrial and household consumers, means that fuel imports will eventually rise again. Record levels of foreign direct investment in recent years have driven demand for capital goods and raw materials, while rising fuel consumption and soft commodity prices have contributed to the widening trade deficit with China and United States being the main beneficiary.
But the think report also noted that even with an increase in the price of subsidised fuel, African countries could still record a trade deficit for another two decades. This is primarily because commodities make up 60 percent of Sub Saharan Africa’s exports. High commodity prices are good for the continent. But commodity prices are famously cyclical and an expert I spoke to revealed to me that rises are unlikely any time soon. This means African countries must export more finished goods to achieve balanced trade. African countries government’s push to develop more downstream processing of raw commodities is the right path to this end. I think of Tanzania,Ghana and Uganda with their rich natural resources, they can be major exporters of semi-processed and processed commodities but that is not happening. The challenge is to achieve downstream processing and encourage private-sector investment in related industries. If this can be done, African countries will have a huge competitive advantage, boosting exports. The longer-term solution for African countries is to boost export competitiveness by improving and developing their manufacturing sector.