Regional trade differences Import partners by region
Source: TradeMap, RisCura analysis
When the continent’s imports are viewed on an aggregated basis, there is a significant concentration of imports from Western Europe (31%) and East Asia (26%). While each region certainly does have a large exposure to those two export powerhouses, there is significant variation between regions.
East Africa, for example, has a far larger reliance on East Asia for its imported goods, making up 36% of the region’s total imports. The region also has a much larger exposure to the Middle East, and a significantly lower exposure to Western Europe than the rest of the continent. This variation is partially the result of geography and partially the result of cultural ties.
By far the most economical way to get goods to Africa is by sea, meaning that the shortest oceanic voyage becomes the preferred partner, by default.
Southern Africa stands out with its impressive intra-continental trade, with 22% of imports coming from within the sub-Saharan African region. This is mainly due to South Africa exporting to its neighbours in Southern Africa, highlighting the potential for intra-African trade as well as the importance of good transport links. Again, the structural difference between South Africa and other sub-Saharan countries is highlighted, but also how this also influences the structure of the economies of South Africa’s neighbours.
North Africa has the overwhelmingly largest exposure to Western Europe, with 41% of imports coming from across the Mediterranean. And, the region’s trade with sub-Saharan Africa is negligible. This along with the difference between this region and the rest of Africa, in terms of wealth and distribution in wealth, results in a unique investment environment distinct from sub-Saharan Africa.
We argue that the reason for this interesting differentiation of trade partners between regions is mainly due to the large impact of transport costs on import decisions, as well as cultural preferences due to relationships that have built up over time. Due to most products in Africa being imported from far away, the proximity to the import destination makes a big difference in the selection of trade partners. By far the most economical way to get goods to Africa is by sea, meaning that the shortest oceanic voyage becomes the preferred partner, by default.
There is very little differentiation across regions in terms of the suite of products that the continent is required to import.
A significant portion of imports (28%) is machinery, electronics and vehicles. Of this amount, about a quarter is imported from China, with Germany, Italy, France and the USA combined making up another 27%.
About 18% of Africa’s imports is ironically made up of mineral products, the majority of which are refined fuels. Nigeria’s Dangote refinery, estimated to be completed in 2019, will have a major impact on the quantity of refined fuels imported into Africa from offshore, as the refinery will have sufficient capacity to meet the country’s needs and supply the surrounding region. Ghana has also recently publicised its interest to import petroleum from the Dangote refinery rather than internationally once it comes online. Nigeria currently imports its refined petroleum from Belgium, the Netherlands and France and distributes to its neighbours.
While investor interest is reinforced for high growth-rate regions like Maghreb, East Africa, Ghana and Francophone West Africa, there are low growth-rate concerns for Nigeria, South Africa, Southern Africa (ex SA) and Central Africa.