Written by Malik Corbett
Earlier this year over 40 countries in Africa signed a continent-wide free trade agreement that is aimed at lowering tariffs and improving the inefficiencies and the lack of infrastructure across Africa. The continent’s dilapidated infrastructure and inefficient networks, both hard and soft, has kept most of the 54 countries on the continent at a disadvantage to the rest of the world.
Africa’s total trade is just $760 billion in the period from 2015-2017, compared to $4.1+ trillion from Europe, $5.1+ trillion from the U.S. and $6.8+ trillion from Asia according to the United Nations’ Economic Development in Africa Report 2019.
Free trade is the key for countries in Africa to get out of the imperial era model of exporting raw material while importing manufactured goods from the same material that was extracted from the resource rich land. This arrangement keeps Africa the poorest continent because the wealth created from processing their raw resources is not enjoyed locally, but rather flows downstream to be used in building industries located in foreign lands where skills and wealth accumulate. The current state of affairs has left countries in Africa at a disadvantage.
That being said, Africa’s free trade instincts could be key in lifting the world’s poorest continent out of poverty, especially at a time where protectionism and isolationism is on the rise around the world. Furthermore, The US vs. China Cold War which is just getting started could put Africa in a powerful position as both sides will need raw material and resources to strengthen their industries and military. If The African Union forge a real intra-continental free trade deal then investments could rush in to build infrastructure and talent pool.
Could DeFi Jump Start Global Trade for the African Union?
If the governments in Africa are serious about seizing the opportunity to increase trade with the world then building scalable financial markets is imperative. Decentralized Finance or DeFi is a technological innovation that many leaders on the continent should embrace. DeFi could provide a cost effective means to get many of the unbanked on the continent to participate in the global financial system.
However leaders must think bigger than remittances. The greatest opportunity that blockchain and cryptocurrency can offer Africa is the potential innovation to be able to allocate capital efficiently and cost effectively which will be needed if the continent is going to radically improve much needed intra-continental infrastructure, both physical and soft networks.
Reform around intra-continental free-trade should be accompanied with investment in capital markets, fintech and DeFi could help attract investors for key infrastructure projects to facilitate trade, linking countries with transportation pathways such as roads, rails and interconnecting power grids and communication networks. Free trade across the African Union could be an economic boon for the continent with the potential market size of over 1.3 billion people according to data from worldometers.com.