Trending Sectors in Africa
Africa is the second most populated continent with approximately 1.3 billion people living in 54 independent countries. Africa covers 20% of the total world surface, and some of the earliest civilizations emerged in Africa five thousand years ago. However, in economic terms, Africa is far away from its real potential. Its GDP is only above Oceania and GDP per capita is still below $2,000. According to Worldbank research in 2015, 41% of Sub-Saharan population lives below the poverty line of $1.9 per day.
Despite all these economic disadvantages, African countries are taking serious steps in promoting trade and developing welfare. In March 2018, 44 out of 54 African countries signed the African Continental Free Trade Agreement (AfCFTA) in Kigali, Rwanda. The agreement outlines the removal of tariffs on 90% of goods, allowing free access to commodities, goods and services across African countries. If the African Continental Free Trade Agreement enters into force, the Intra-Africa trade can converge to the level of Intra-Asia or Intra-Europe trade.
In the last decade, some African countries were able to attract the attention of foreign investors. Especially, the textiles industry developed rapidly in East Africa. Ethiopia is a great example of industrializaiton for other African countries. In 2017 alone, textiles accounted for the 6.5% of total exports with $144 million total value. 10 years ago, the percentage of textiles was only 2.8% with $53 million total value.
Africa consists of historically rich and diverse countries. There is an estimated of 1500-2000 African languages, and more than 3000 tribes in the continent. After the African Independence Movement in 1960s, the economic shape of the continent dramatically changed. The newly formed countries not only kept their historical ties with European countries, but also made trade agreements with American and Asian countries. As a result, the Gross Domestic Product of the continent increased significantly.
When we consider the effects of globalism and population increase, the total GDP is expected to rise faster. However, the African continent is still behind other geographic areas, such as Latin America, East Asia and Middle East. This underdeveloment is caused by major political, social and economic issues: most notably civil wars, lack of infrastructural development, health problems and political system. However, there is a great potential for the development of Africa.
The Sub-Saharan Africa region shows unique characteristics when compared with North Africa. That is why, in some analysis, we separate these 2 regions and include North Africa into Middle East. Sub-Saharan African countries does not have similar GDP and GDP-per-capita levels compared to other developing countries in Latin America and East Asia. You can see the GDP and GDP-per-capita position of Sub-Saharan Africa and other regions in Exhibit 3.
Starting from 2018, international trade faced significant challenges after the implementation of tariffs on steel and aluminum by Trump administration. On July 6, USA imposed additional tariffs on Chinese goods worth of $200 billion. These additional tariffs were the beginning of a time called “Global Trade Wars”.
Secondly, the long-term effects of Brexit on global trade is still unknown. United Kingdom’s integration to the European Union single market has not been determined. In March 2019, the Brexit deal will be voted and shaped, however, the market players are still uncertain about its outcomes.
In response to the tariffs from the USA government, China declared the preperation of a new foreign investment law. The new foreign investment law can be used as a leverage during the trade negotiation with USA and could amplify the costs of the trade war. According to the study of The National Bureau of Economic Research, the trade war had a negative annual effect of $7.8 billion on the US economy.
In a negative trade environment, Turkish companies should look for new markets to mitigate risks. The Turkish Government negotiates Free Trade Agreements in the new markets, such as Ghana, Sudan, Djibouti and Cameroon. Also, there are efforts to initiate trade and investment cooperation with West African countries. In the recent years, Turkey hosts international conferences and forums to boost its exports and gain advantage in the international trade arena.
Turkey currently has Free Trade Agreements with Mauritius, Egypt, Morocco and Tunisia in Africa. Also, Free Trade Agreements with Ghana, Sudan, Djibouti, Democratic Republic of the Congo, Cameroon, Chad and Libya are under negotiation. Turkey took part in the Trade and Investment Cooperation Agreement with West African Countries: Benin, Burkina Faso, Côte d’Ivoire Green Cape, Gambia, Ghana, Guinea, Guinea Bisau, Liberia, Mali, Niger, Republic of Nigeria, Senegal, Sierra Leone and Togo.
In a volatile trade environment in the developed markets, Turkish companies can gain important potentials in the African markets. Most of the countries in Africa are net importers and high-growth markets. The infrastructure system is developing fast with recent investments. Finally, Turkey is negotiating Free Trade or Cooperation agreements with major African countries and the investments in this region is expected to be safer in the near future. Turkish companies should follow news from Africa to gain commercial benefits.