Seize The Day: Intra Arab-Africa Trade

The rationale for building powerful trade and economic ties between the Arab and African regions is relatively straightforward but extremely compelling. A cursory glance at the agricultural sector illustrates the point. Agriculture in Africa is the region’s largest employer by sector and contributes around 15 per cent (OECD) to the region’s entire GDP. Most Arab member countries of the Organisation of Islamic Cooperation (OIC)—including geographically close members like GCC Countries—are unable to produce very much of their own agricultural needs.

Yet trade between the two regions barely impact global agricultural trade. An International Trade Center (ITC) study commissioned by the International Islamic Trade Finance Corporation (ITFC) stated that in 2016, Sub-Saharan Africa (SSA), North Africa and the Middle East together accounted for 15.1 per cent of world agricultural trade. However interregional trade between Arab and African countries accounted for only 0.3 per cent of total volume of global agricultural trade. It also shows the huge difference in export capabilities between the two regions, with Arab OIC markets exporting $1.06 trillion to the world in compared to Sub Saharan Africa’s $0.16 trillion, of which 70 per cent is oil and oil products.

The reality is that the level of trade between the two OIC regions does not reflect the existing potential between both markets and more broadly, the SSA region is falling behind the Arab world in the value of its exports. Considering the regions’ burgeoning youth populations and its impending needs in terms of job creation, food security and economic diversification, OIC member nations have a collective role to play in enhancing inter Arab-Africa trade now more than ever.

Low hanging fruits

 The most apparent areas of collaboration can be found in sectors that have high potential for commercial and investment partnerships between the two regions. The ITFC-ITC study shows that Arab OIC countries have potential to export polymers, cement, iron/steel structures and prefabricated buildings, which the SSA region needs to support the high levels of infrastructure development taking place. The agro-processing industry such as sugar cane, wheat flour, milk and cream, canned sardines and non-alcoholic beverages also have high export potential to SSA markets but is not being fully tapped into at present.

On the other hand, SSA countries have high and proven potential to export livestock, coffee and sesame seeds to the Arab OIC region. There is also some scope for growing exports of agroprocessing goods, like cocoa-based and fisheries products, which are currently mostly exported within the SSA region itself. What is evident is that agro-food industries, health and pharmaceutical, building materials, construction supplies, machinery and electrical equipment have high potential for greater Arab-Africa trade. Yet the inter-regional trade volumes between Arab and African OIC nations comprise of a mere fraction of trade with European, and more recently, Asian markets. In response to this, in 2017, ITFC launched a trade promotion programme called the Arab Africa Trade Bridges Program (AATB). programme is aimed at addressing some of the many challenges that prevent business communities in Arab and SSA OIC nations from fully taking advantage of the existing trade potential between the two regions.

The programme aspires to facilitate new partnerships for trade, investment and technology transfer between the two regions. Amongst the ways in which the programme will achieve this is by improving the overall business and investment climate and strengthening public-private cooperation at a regional level and supporting inter-regional value chains in strategic economic sectors. Since its launch, the AATB has been implementing programmes that increase commercial and business exchanges between SMEs from both regions. It has also rolled out initiatives that provide opportunities for trade finance and credit insurance to exporters from both regions.

By facilitating cooperation among trade and investment support institutions and by engaging the private sector directly, the AATB programme aims to enable information sharing on a range of business-critical issues, such as markets and trade regulations. Partnerships with the private sector and public sector institutions provide technical assistance to build human and institutional capacity in trade and investment. More importantly, the programme is opening new doors to Islamic trade finance.

Boosting intra Arab-Africa trade

Given that its mandate to promote intratrade among OIC member countries and that with the world, ITFC, through the AATB programme, has established partnerships with financial institutions within the Arab and SSA region to offer incentivized financing lines that support trade flows between the regions. Amongst them include the Arab Africa Trade Finance Program (AATFP) offers a wholesale approach to trade finance through the provision of risk mitigation facilities and liquidity support. It consists of short-term lines of credit and risk sharing facilities offered to financial institutions operating in SSA and Arab countries in order to facilitate their own trade finance operations.

In 2017, ITFC established new partnerships with Banque Centrale Populaire du Maroc (BCP), in order to support their West African subsidiary, Banque Atlantique, for an amount of EUR 40 million. It also set up a two-step Murabahah for an amount of $150 million with AFREXIMBANK, dedicated to financing commodities exports from 13 Sub Saharan Africa countries and imports of three Arab countries. Ultimately, the provision of practical solutions like finance, trade promotion, market intelligence, capacity building, and networking is opening new doors and leading the way for enterprises that want to take advantage of two neighbouring regions with huge export potential.