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Major economies are increasingly looking towards Africa for economic growth, and to achieve this many of them have developed whole-of-government strategies like The Prosper Africa Project which the United States hopes will “substantially increase two-way trade and investment between the U.S. and Africa”, and China’s ambitious Belt and Road Initiative which amongst other things, aims to create a commercial and digital superhighway between China and Africa. Even though strategic interests might primarily be driving some of these initiatives, the underlying goal is similar, to grow influence and compete vigorously in what some consider the last frontier for global growth, in a continent that has seen sustained demographic, social, and economic growth in the past two decades.
How is Canada Positioned in This Global African Drive?
The Business Council of Canada’s ‘Why Africa‘ report, authored by Dan Ciuriak of Ciuriak Consulting, examines Africa’s trade attractiveness, and Canada’s readiness and competitiveness in growing trading and commercial engagements in Africa.
The report is historical and forward-looking in scope, reviewing Canada’s trade performance in Africa in the last two decades, and what Canada can benefit from expanding its trading relationships in the continent in the coming years.
Relying on “A Gravity Model Analysis” that allocates empirical values to factors that have been shown to influence international trade like size and distance to destination markets, and “commonalities of language, legal system [and] historical relationships” in these markets, the report was able to measure Canada’s trade in Africa against the potential size of the markets over a given period, and recommend ingredients for a successful strategy that increases Canada’s readiness to meet new and growing opportunities.
A key finding of this report is that while Canada’s export to Africa tripled between 2001 and 2018, from $1 billion to $3.3 billion, it still fell behind major economies like China, the EU, and India in relative and absolute terms.
During this period China’s trade with Africa grew ’17-folds’ from $6 billion to $105 billion, India saw ’10-fold’ growth from $2.8 billion to $27 billion while “The EU led in absolute terms with an expansion of exports of over $115 billion.”
So, in the context of the increased global trade to Africa in the past two decades, Canada “captured less than 1% of the additional global exports to Africa that were realized in this period”. Reflecting a risk that Canada may be “shunted aside from an increasingly important global market, absent a strategy to sustain and expand its current small foothold.”
The report also sheds light on African markets and sectors where Canada outperforms the modeled trade expectations and those where Canada underperforms. It then shows their impact on Canada’s overall performance during this period.
For example, driven mainly by agri-food exports, Canada exceeded suggested model expectations in ‘considered’ good exports by 79% in both Algerian and Moroccan markets, and by 114% in the Ghanaian market. Noteworthy is that the successes recorded here are mostly driven by wheat exports to these markets which are described as “long-standing destinations” that have not “scaled over time…because agricultural exports do not scale” unlike, manufactured goods exports which do.”
In the ‘sought-after’ manufactured goods category, exports to Ghana still top the list in “absolute terms”, but it is in Burkina Faso, where Canada is their country’s biggest mining investor, that Canada’s manufactured goods export outperforms in relative terms by the most, over 200%! The report is, therefore, able to specifically tell where the drag on Canada’s overall trade numbers with Africa exists. Canada’s trade underperformance tends to occur in Africa’s biggest economies. At least three of them. Those of Nigeria, South Africa, and Egypt. Combined, just these three countries have about four times the total GDP of the ten countries where Canada recorded its strongest export numbers between 2016 and 2018. Nigeria alone has a GDP bigger than the GDP of the top ten “best performing Canadian export destinations in Africa between 2016-2018”.
But in Nigeria, Canada underperformed the model expectation by as much as 56%!
So the challenge going forward is how Canada can offset what the report identifies as a 40% shortfall of trading potential, by improving competitiveness and scaling up trading in “the fastest growing and most dynamic African economies.”
For the top ten under-traded economies in 2025, compared to the current levels of trade, the potential export growth would amount to US$ 2.5 billion, including almost US$ 1.9 billion in manufactured goods exports. These increases would rise to USD 4 billion and USD 4.1 billion if it were possible to fully offset the “Africa discount” effect on Canada’s exports (which amounts to [a] 28.6% overall reduction of trade for all goods and a 45.6% reduction for manufactures).
The report continues that “for all African economies, we find that, if Canada exported to this region on a par with its global performance, taking into account the discounts on the basis of the Gravity model, exports to Africa would be US$ 5.3 billion in 2025, suggesting a growth potential of about US$ 2.8 billion over the coming half-decade from the level recorded on average over the period 2016-2018 of US$ 2.5 billion”
Where Does Canada Find This Growth?
The Canada Business Council reports note that many African countries are projected to keep growing above average in the coming years and so the region continues to present new opportunities for Canadian businesses to engage and scale, especially in Fintech and e-commerce where mobile technology is leapfrogging the continents infrastructure deficits. The report points to Canada’s need to improve its market presence in Africa so as to be properly positioned to capture “new growth and diversification opportunities.”
In positioning for future growth, the report highlights that “at a time of growing barriers to international trade and investment”, 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.”
In recommending a strategic approach to “building Canada’s economic ties to the world’s fastest-growing continent” the Business Council of Canada again reiterates that “The most significant opportunities for Canadian exporters exist in countries such as Nigeria, South Africa and Egypt where Canada should be performing much better”
Canada should move quickly to develop a comprehensive economic and development strategy for Africa. “This needs to be developed with a broad group of stakeholders including businesses and NGOs.”