Have you wondered how to best go about trading in Africa? The trade of goods is probably one of the most traditional and dynamic African business models we know of. But a lot is changing in this regard. African policy makers and businesses alike are stressing on the importance of trade. In particular these two aspects of it:
1) Local value addition before export to create local jobs and generate more revenue on the continent during the trade transactions
2) The increase of export to avoid a trade deficit (that occurs when a nation spends more money importing than making from exports)
So when you are thinking about African trade it is importance that you understand the focus on the above.
Export is in – Import is out
Here is what the above context teaches you:
1) Export is being widely supported and promoted by governments, so expect the local business climate and trade regulations in several African markets to improve in this regard.
2) Import is something governments want to decrease, and as a result we see increased import tax or certain items that will not be allowed for import. Especially once they compete too much with the local manufacturing market. Import tax has gone up in several countries, and the EAC for example discusses currently a ban on second-hand clothing, as they are feared to damage the growth of local apparel industries. This is a trend that I would expect to continue in the coming years.
So in very general terms: if you want to do trade with Africa from anywhere in the world, looking at what you can get out of Africa to serve another market in the West or the East may be a more forward-looking approach for your Africa business.
Intra-African trade on the march
Many African producers are thinking about accessing export markets in the West and while there are certainly many opportunities out there, intra-African trade is currently growing at a much faster pace. To be aware of this development is crucial for your success, as it may change your entire approach when growing your business. But being aware of the big rise in intra-African trade also opens opportunities for you in regard to logistics and transport, or other services and securities you could provide to actively support intra-African traders and address some of the obstacles they face. A great niche to step into – just think about how you could add value in this regard.
photo credit: theniles.org
Cross-Border trading is easiest in the East African Community
The EAC is currently Africa’s most dynamic trade region and it is working visibly towards taking down trade barriers within its member states. A lot has happened in this regard over the last few months, which means that you are looking at an opportunity to do business in a single market of an estimated 150 million. It is the perfect choice if you are looking at fast expansion, business diversification, and risk mitigation. Nairobi is currently the capital of the EAC and the most popular base for most businesses. There are talks about adding Ethiopia to the EAC which would add a lot of traction to the EAC trade region, but in comparison to other markets in East Africa Ethiopia is more of a closed market so it may not happen any time soon.
Doing trade with these 8 African countries and the West can cost you more
Remember, Africa has 54 countries and national and international trading regulations in regards to them vary widely. According to the Africa Business Network and DHL, globally, the increased concern around public safety has resulted in the intensification of security measures for transportation of goods internationally.
Countries across the globe are classified according to their security risk profiles and are either regarded as red, white or green – The classification determines the level of security measures applicable to the countries, and include various restrictions on the items that can be transported, as well as the screening levels packages need to be subjected to before being cleared for transportation to the EU and US. A DHL representative explained last month that a red country is considered high risk due to potential national security concerns. Similarly, a white country is considered to have a certain level of risk, but not as high a security risk as a red country whereas green countries, such as France, have a minimal security risk level.
The African countries currently classified as red countries include Niger, Nigeria, Mali, Somalia, Somaliland, and last month Sudan, South Sudan and Djibouti were added. That can make trade transaction with those countries more difficult and costly.
Please share your feedback, experiences or questions trading in Africa to keep our communication going. And click ‘Notify me’ if you like to get my latest posts and Africa business tips into our inbox.
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Thanks Dr Harnet for sharing this important advice. I’m following up your writings from today because I want to be one of the next African millionaires.