Trade and investment flows and a perspective for analysing trade policy in Africa

Abstract

When a country participates in the global economy, it does so on the basis of foreign exchange inflows and outflows. Even the flow of ideas, in the form of intellectual property rights, entail services trade and foreign exchange. The extent to which exports dominate the inflows of foreign exchange into African countries may be surprising: at $421 billion in 2019, they eclipsed official development assistance ($31 billion), foreign direct investment inflows ($40 billion) and remittances ($84 billion) (Luke 2020).Africa's trade, unfortunately, underperforms both in volume and content. Despite having grown in the last couple of decades, it continues to represent an undersized share of world trade. And it remains overly concentrated in fuels, metals and ores. This concentration phenomenon is the case for all but a few African countries. The form of investment inflows into African countries perpetuates these concentrations, which do little to serve the aspirations of structural transformation and industrialisation held by African leaders. That is the story, at least, for most of African trade. Trade within the continent, between African countries, is different. It comprises an unusually large share of manufactures. It is hoped that it is exactly this trade that can be boosted with initiatives like the African Continental Free Trade Area (AfCFTA), and in turn contribute to sustainable economic transformation in the continent.This chapter elaborates the status of trade in Africa, looking at how much Africa trades, of what and with whom. Trade policy is the principal vehicle through which the role of trade can be improved as a driver for African development. Accordingly, the chapter concludes with an elaboration of the analytical perspective that grounds the approach used to assess trade policy in Africa throughout the book.