How will a global trade war affect Africa?

By James Obuba

On 2nd January 2019, the Dow Jones Industries Average dropped by 660.02 points as Apple shares declined due to Apple’s CEO, Tim Cook cautionary effect of the USA-China trade truce. The Trans-Atlantic trade war between EU and USA has seen a distortion in the auto-mobile industry trade, steel and aluminum. The withdrawal of USA from Iran Nuclear deal has culminated to imposition of sanctions and more so to crude oil exports from Iran. The Brexit negotiations between UK and other EU countries have been in place since June 2016 with no vivid deal yet to be reached. This has disrupted trade not only in Europe but across the globe. With Africa currently commanding a paltry 2.4 % of the global trade, the ongoing global trade wars, begs the question, is Africa going to lose or gain?

The Trans-Atlantic trade has led to imposition of tariffs on auto-mobiles, steel and aluminum between USA and the EU countries. USA, currently a major import market of European Auto-Mobile makers: BMW, Volkswagen, Mercedes Benz, Jeep and Fiat with over USD 20 Billion worth of revenue. A pending imposition of 20% tariff of car imports by USA to Europe has coerced auto-mobile makers to increase their presence in Africa. A good case in point is, Volkswagen that has signed MoUs with African countries such as Kenya, Rwanda, Ghana and Nigeria, to set up integrated mobility solutions. The imposition of tariffs on steel and aluminum on Europe imports means that manufacturers’ will have a newer search for market frontiers and Africa isn’t an exception.

Globally, the USA-Iran trade truce has caused a stir in the oil market. Iran currently contributes to 5% of global oil production as per the Energy Information Administration (EIA) with 3.8 million barrels per day. The USA imposed sanctions on Iran’s oil exports is bound to impact on trading allies that import oil. Globally, a probable oil crunch is in waiting due to oil supply disruption. According to British Petroleum (BP) report in 2017, Africa net exports value of gas and oil stood at 8.9% and 10.2% respectively. These values are likely to increase with the ongoing war between USA and Iran. China was a major importer of Iranian oil but has turned to Africa to beef up its demand which was 20% of the demand and likely to increase to 30% with Angola contributing the bulwark proportion.

The Brexit deal, between UK and other EU countries has distorted trade between EU and other global trade partners and Africa is no exception. The UK’s withdrawal from EU suggests that the global command on trade of EU’s exports previously at 38% might be distorted. Europe has for the last four decades been a major export market for Africa’s extractive and agricultural sector. Agricultural commodities, in particular horticulture are likely to be given preference by UK when renegotiating, hence a probable increase in Africa’s exports. The UK will create an avenue for African countries like Egypt, Kenya, Zambia and Ivory Coast, to have more choices in preference to the access of Europe’s market and negotiation as compared to EU’s tough imposed tariffs on Africa’s agricultural commodities, due to quality standards and protectionism.

The China-USA trade wars have distorted the market of various commodities like soya beans. The International Grain Council of 2017/2018 put animal feed at 613 million tonnes with soya beans having 20 million tonnes. The imposition of 25% tariff on soya beans by China on America’s soya beans imports means Africa is bound to have an advantage in soya beans trade. Interestingly, in September, 2018, China and Ethiopia, struck a deal for Ethiopia to export soya beans to meet China’s demand. Another success story in Africa is that of African Improved Foods (AIF) a firm in Rwanda which has positioned itself as a Soya beans bulk collector from Democratic Republic of Congo, Uganda and Rwanda for export to China.

The trickle-down effect is likely to be improved livelihoods of the small-scale farmers in the Rwanda, Burundi, Uganda and DRC. According to the Index –Mundi, a comprehensive data portal for countries, South Africa accounts for Africa’s 72% import demand to Intra-Africa trade and has been less affected by the USA-China trade truce. Other countries in Sub-Saharan Africa like Zambia, Uganda, Zimbabwe, Kenya and Tanzania have to increase their budget allocation for structural transformation in Agriculture to tap the international market.

The global exchange-rate war over the last two decades has seen countries and regions drift from the Bretton Woods System (BWS).  The Sino-Centric System  from China as a counter to BWS has bred multilateral organizations like: China Development Bank (CDB), Export Import Bank of China (C-EXIM) and Asian Infrastructure and Investment Bank (AIIB). The Renminbi as an alternative reserve currency has emerged to counter the US Dollar and has been the major trade currency of Sino-Centric system. The BRICS states (Brazil, Russia, India, China and South Africa) in effort to have a formidable influence in global trade have instituted the New Development Bank (NDB) to forge and have a bargain in the global – exchange rates. Africa is bound to lose from the exchange rate wars; hitherto it has not formulated a formidable action plan to counter the global exchange rate wars. Afrexim Bank, as a Pan African Bank has to step up its effort in value increase of Africa’s currencies that are weak.

Conclusively, the global trade wars have distorted the trading pattern of USA, Britain, Iran, China; from the financial markets to commodity trading. Africa as a global participant in trade needs to rethink its trade items with an eye on extractive and agricultural sectors. Africa has unmet potential in the Agricultural sector like increasing local sourcing and formulation of quality standards procedures for Agri-products to access markets like EU and Asia. There is a beacon of hope for Africa, since major global trading blocks and countries seem to have more engagement with Africa, with a lead example of China (Sino-Africa Trade) which has reaped big from the trade, as exemplified by the Chinese fish imports to Kenya which has set a new record. New data compiled by the Kenya State Department of Fisheries shows that the value of fish imported from China increased by 11.8 percent to a historic high of Ksh1.7 billion in 2018.