Many major economies are turning to Africa for economic growth. To achieve this, they have developed whole-of-government strategies such as The Prosper Africa Project in the United States, which aims to increase two-way trade and investment between the U.S. and Africa, and China’s Belt and Road Initiative, which seeks to create a commercial and digital superhighway between China and Africa. Strategic interests primarily drive these initiatives, but their underlying goal is similar: to gain influence and compete in what some consider the last frontier for global growth in a continent that has experienced sustained demographic, social, and economic growth over the past two decades.
How is Canada Positioned in This Global African Drive?
The ‘Why Africa’ report by the Business Council of Canada, written by Dan Ciuriak of Ciuriak Consulting, examines Africa’s attractiveness for trade and Canada’s readiness and competitiveness in expanding its commercial engagements on the continent.
The report has a historical and forward-looking perspective, reviewing Canada’s trade performance in Africa over the past two decades and identifying potential benefits from expanding trading relationships with the continent in the coming years.
Using “A Gravity Model Analysis,” which assigns empirical values to factors known to influence international trade, such as market size and distance, as well as “commonalities of language, legal system, and historical relationships,” the report measured Canada’s trade in Africa against the potential market size over a given period. It also recommended strategies to increase Canada’s readiness to seize new and growing opportunities.
A key finding in this report is that Canada’s exports to Africa have tripled between 2001 and 2018, from $1 billion to $3.3 billion. However, Canada is still lagging behind significant economies, such as China, the EU, and India, in terms of relative and absolute growth. During the same period, China’s trade with Africa grew 17-fold, from $6 billion to $105 billion, and India saw a 10-fold growth from $2.8 billion to $27 billion. The EU led in absolute terms, with an export expansion of over $115 billion.
This report highlights that Canada has captured less than 1% of the additional global exports to Africa realized in this period. This indicates a risk that Canada may be left behind in an increasingly important global market unless it develops a strategy to sustain and expand its foothold.
The report also identifies African markets and sectors where Canada has exceeded the expected trade performance and those where it has underperformed. The report then analyses the impact of these factors on Canada’s overall performance during this period.
Canada has exceeded expectations in exports to Algeria, Morocco, and Ghana, mainly driven by agri-food exports. The exports to these markets have been successful due to the wheat exports, which are described as “long-standing destinations” that have not “scaled over time because agricultural exports do not scale,” unlike manufactured goods exports. Ghana still tops the list in the category of “sought-after” manufactured goods. However, in Burkina Faso, where Canada is the biggest mining investor, Canada’s manufactured goods export outperforms in relative terms by over 200%. The report also highlights that Canada’s trade underperformance tends to occur in Africa’s biggest economies: Nigeria, South Africa, and Egypt. These countries have a combined GDP four times larger than the ten countries where Canada recorded its most robust export numbers between 2016 and 2018. Notably, Nigeria alone has a GDP bigger than the top ten “best performing Canadian export destinations in Africa between 2016-2018”.
Unfortunately, in Nigeria, Canada underperformed the model expectation by as much as 56%!
Canada faces a challenge in offsetting a 40% shortfall of trading potential in Africa. This report suggests that Canada can improve competitiveness and scale up trading in the fastest-growing and most dynamic African economies to overcome this challenge.
The report also highlights that, in the next few years, Africa’s top ten under-traded economies have the potential to increase their export growth by up to US$2.5 billion, including almost US$1.9 billion in manufactured goods exports. The export growth could rise to USD 4 billion and USD 4.1 billion if Canada can fully offset the “Africa discount” effect on its exports, which leads to a 28.6% overall reduction of trade for all goods and a 45.6% reduction for manufactures.
The report further suggests that if Canada exported to Africa on par with its global performance, considering the discounts based on the Gravity model, exports to Africa would be US$5.3 billion in 2025. This suggests a growth potential of about US$2.8 billion over the coming half-decade from the level recorded on average over 2016-2018 of US$2.5 billion for all African economies.
Where Does Canada Find This Growth?
The Canada Business Council reports show that many African countries are expected to grow above average in the coming years, presenting new opportunities for Canadian businesses in Fintech and e-commerce. The region’s infrastructure deficits are being leapfrogged by mobile technology, facilitating growth in these sectors.
The report highlights that Canada needs to improve its African market presence to capture new growth and diversification opportunities.
The report also notes that Africa is removing internal barriers through the African Continental Free Trade Agreement (AfCFTA) and infrastructure projects that improve internal connectivity by road, rail, and telecommunications, including the rapid growth of e-commerce. This is happening when there are growing barriers to international trade and investment.
To build Canada’s economic ties to the world’s fastest-growing continent, the Business Council of Canada recommends a strategic approach. They reiterate that the most significant opportunities for Canadian exporters exist in countries such as Nigeria, South Africa, and Egypt, where Canada should improve its performance.
Finally, the report suggests that Canada should quickly develop a comprehensive economic and development strategy for Africa. This strategy should be developed with a broad group of stakeholders, including businesses and NGOs.