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The UK should not overlook Africa when signing trade deals after Brexit

    With negotiations between the UK and the EU moving slowly, many fear the consequences a ‘No Deal’ may have on the UK economy. But there should be no need to fear, as Brexit presents a huge opportunity to become a global economic power. Re-establishing links to the Commonwealth and emerging markets in the East such as India and China would mark a huge step in fulfilling this goal. Yet one region often overlooked by those who wish to see the UK trading freely around the world is Africa.

    The nature of our split with the EU will of course have an impact on our future trading relations across the world. This will no doubt be the government’s priority as we leave. We can all agree on the benefits of continued free trade with the EU. But in the event of a ‘No Deal’, the removal of the Common External Tariff will still present the UK with an opportunity to trade more freely with many African countries, of whom 10 have an annual growth rate of over 6%. An increase in non-EU exports could offset any drawbacks of a potential reduction in trade with the EU in the long run.

    Ethiopia, currently the fastest growing politically stable country in the world, has a growth rate of 8.5%, compared to 1.7% in the UK and 2.2% amongst advanced economies1. According to the IMF’s World Economic Outlook, of the top 20 fastest growing economies in the world in 2017, nine are in Africa, with 20% of the world’s population. Although such high economic growth rates can be unsustainable, medium-term growth prospects remain strong in Africa, according to PwC.

    Ghana, for example, will prioritise industrialisation in order to increase growth, with the industrial sector growing by 11.5% in 2017 compared to 1.8% in 2016. What’s more, the agricultural sector grew by 7.5% in 2017, compared to 5% in 2016. Ghana is a large exporter of gold, cocoa and oil, turning a trade deficit of 3.3% of GDP to a surplus of 3.1% last year.

    More trade with African countries presents big opportunities to the UK. For example, the UK’s withdrawal from the Common Agricultural Policy (CAP) is likely to increase competition between UK agricultural producers and African agricultural exporters, benefiting both African exporters and UK consumers.

    Moreover, there would be no need to reinvent the wheel when it comes to trade deals with African countries. The Southern Africa Development Community (SADC) recently signed an Economic Partnership Agreement with the EU, which could be used as a template for a UK-SADC Partnership.

    Promoting the continuation and expansion of regional African trade blocs would lead to greater opportunities for FDI and increased regional trade, and may allow productive industries in Africa to flourish. The long-term competitiveness of industries in Africa would be increased, with the benefits of trade spilling over into neighbouring countries.

    However, the current trade blocs in Africa are highly fragmented, and could be improved. More harmonised blocs in Africa may become easier negotiating partners than single countries, allowing the UK to reach larger markets more quickly. The announcement of the Tripartite Free Trade Agreement, a merger of three African trade blocs, (SADC, EAC & COMESA) is a positive step in terms of African economic integration.

    A report by PwC outlines the UK’s capacity for trade after Brexit, including trade with fast-growing countries in Africa. The UK is the second largest service exporter in the world, behind the US, with exports amounting to 12% of GDP2. As markets in Africa grow, so too should their demand for UK services imports. UN data shows that Africa offers a higher return to investment than any other emerging market5.

    Nevertheless, the African markets mostly represent unfulfilled potential. The markets in Africa remain relatively small, representing less than 6% of world GDP2. Following a slowdown in commodity prices, growth in African countries slowed in 2016. Infrastructure remains generally limited, and political instability is also a main barrier to economic integration.

    But the potential is huge. According to current projections, consumers in Africa will buy more goods and services than Russia and slightly less than India in 2020.

    Although UK goods exports have generally matched world trade volumes since 2007, within the European single market, UK goods exports have slightly underperformed. The volume of UK exports to the rest of the EU was 1.7% lower in Q2 2016 than in Q1 2007.

    However, in markets outside the EU, UK goods exporters appear to have outperformed their counterparts in the European Union. UK goods exports to countries outside the EU have grown by about 20% more than the EU average in the last ten years. Furthermore, UK goods exports to non-EU countries are now 43% higher than in early 2007. Now that we are leaving the EU, this is certainly an encouraging indicator of the ability of the UK to expand its trade with non-EU countries.

    Brexit is a means to an end, in which the outcome is a more prosperous and global UK. It is well known that free trade benefits all parties, and the opportunities it presents us with must be taken. The UK is well set to thrive outside of the EU, and by building on the UK’s current export position, the benefits of increased trade with African countries could be great.

    Tom Doughty is a CPS Economic Research Intern. He studied Economics with French at the University of Nottingham, and has previously worked for an international market research company in Paris. 

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