The world of trade in West Africa and the entire continent as a whole has been through different transformations from the days of colonization to date when countries are thriving on their own merit with different policies, cultures and changing population preferences. As a progressive business, you are likely aware of all these, but are you keeping up with the latest trends in the sector?
Why should you care?
Keeping up with importation trends allow your business to:
- Adapt to changing times
Hop on to the newest ways of trading easily and embrace policies that make it easier for your business to thrive in the region, especially in the wake of COVID-19 effects.
- Identify expansion areas
You may be a business that deals in local products and are looking to expand into other countries both near and far. Or you may want to source cheaper materials for your manufacturing or readymade goods to add to your stock. Staying abreast with the biggest and easiest corridors to import from positions you at an advantage.
- Remain competitive
In the dynamic trade environment, you cannot afford to sit and wait for things to become commonplace. Leverage the first-mover advantage and be the go-to business for new products and services. Knowing what the government is doing to ease trade and participating in newly-formed initiatives poises your business strategically. Additionally, you don’t want to be caught flatfooted when another unprecedented crisis hits.
The emerging trends in importation with a special focus on Nigeria, Ghana and Senegal
Why these three countries?
Nigeria takes a lead in many importation numbers, not just in West Africa but in the entire continent. For example, alongside South Africa, it accounts for almost half of food imports into the continent. This comes as no surprise since Nigeria is the most populated country in Africa.
On the other hand, Ghana and Senegal have been ranked among the fastest-growing economies in the world in several consecutive years. In addition, Nigeria and Ghana together account for 59% of the Economic Community of West African States(ECOWAS) imports. This community has a total of 15 member states. Therefore, looking at trends in these three countries is a good representation of general trends in trade in the West African region.
AZA Finance has a strong presence in all three countries if you ever want a piece of the importation cake. We help businesses pay suppliers across the globe in a matter of hours all at the touch of a button. You can talk to us to learn more here.
In general, the most imported products in the West African region are fuels, representing 24% of total imports. All kinds of motor vehicles and machinery follow closely then cereals, plastics, iron and steel, pharmaceuticals, fish and seafood.
Stay ahead of the pack with these international trade trends in 2021 and beyond.
- China’s Meteoric Rise
Chinese imports are not going away any time soon. The industry will remain strong especially now, when many local suppliers have struggled to remain in business. China continues to offer cheaper options to many popular goods, including phones and machinery.
Overall, the country is Africa’s largest trading partner and it continues to cultivate these relationships through various initiatives. China was also on the frontline in supporting many African nations combat the pandemic. It is therefore no surprise to see China rise through the years. A look at our visualizations, shows the country’s exports to West Africa rise through the years to the top of all three charts except Senegal, where it remains second after France. However, it will not be a surprise if it surpasses it this year.
One important event to look forward to this year is the Forum on China Africa Cooperation (FOCAC) Summit. While it will likely be virtual, the two sides are looking forward to strengthening the bilateral ties which means more trade between Africa and China.
On January 1st 2021, the African Continental Free Trade Area (AfCFTA) came into effect after years of discussion. Many players across the continent have looked forward to the ratification of this trade agreement for many reasons. The AfCFTA will not only help African countries establish trade corridors for essential goods between each other but also reduce duties and establish regional value and supply chains. As it stands, only 2% of trade in the continent is with other African countries, compared to 47% in The Americas, 61% in Asia, 67% in Europe and 7% in Oceania.
The effects of the trade area will not be instant. This is because Africa markets remain fragmented not just from a trade perspective but in deeper areas like culture and language, based on historical events. We will begin to see the impact of the agreement in 2021 and going forward. For foreign investors, it means different entry points into the continent as it will be more open.
- The Impact of COVID-19
The COVID-19 pandemic caught a lot of us by surprise. For months it seemed to have not hit Africa until the first confirmed case was announced in Egypt. Soon after, African governments started announcing restrictions and lockdowns to tame its spread. In addition, trade was majorly affected with the closure of borders. The World Bank projected that economic growth in sub-Saharan Africa would decline from 2.4% in 2019 to between -2.1% and -5.1% in 2020. This was confirmed later in the year, with the fall projected at -3.3%.
The pandemic instantly affected international supply chains and is now just recovering from these effects. The recovery is a major factor to observe as it will affect what goods are imported into the region.
- GDP and economic growth
As a result of the above factors, a rebound of economic growth in 2021 is almost assured. Different countries will experience growth differently. For example, Nigeria’s growth might be slower than Ghana and Senegal as it is more resource-intensive. As economies rebound, these countries are looking into more ways to diversify their economies to cushion the effects of a global crisis.
With growth and industrialization comes the need to build more infrastructure and strengthen manufacturing. This is fostered by a thriving trade environment that will continue to change as countries craft their policies.
- Consumer trends
Besides the need to build country infrastructure and manufacturing capabilities, import numbers have also been driven largely by changing consumer trends. With GDP growth, the middle class is becoming more affluent while the general population continues to grow rapidly across West Africa. This second fact has seen West African countries increase their imports of cereals, with this being among the top five products imported by Senegal and Ghana over the years.
The rise of the middle class has seen more vehicles purchased across the region with the corollary being refined petroleum imports. Indeed, consumer expenditure in Africa has grown at an annual rate of 3.9% since 2010.
Also witnessed is the change in food preferences as the increasingly urban population looks at fast food and other imported products as the go-to nutrition sources. At the same time, there is a new wave of consciousness pointing to more traditional foods as the healthier choice. Watching how these two trends interact among the middle class in West Africa will be interesting in coming years.
- The effects of a rising e-commerce
As consumer trends have evolved, e-commerce has grown with them. Nigeria is a king in this sector, with the country being home to two of the biggest e-commerce companies in the continent: Jumia and Konga. While these two have had their successes and failures in good measure, it does not mean this sector is not growing. Now more than ever, the continuing pandemic waves have caused many companies to give e-commerce channels a second look.
Indeed, there has been a rise in social e-commerce too through social media channels such as Instagram where whole businesses exist solely on Instagram, making prompt deliveries upon orders. Payment companies especially in Nigeria continue to innovate to aid in payment processing for both small and big businesses. Indeed tech giants in the West have been making big investments in companies like Paystack and Flutterwave in Nigeria in the wake of these advancements.
- ICT Innovation
It is difficult to ignore the effects of the rapid spread of internet access and mobile phones in West Africa and the exciting opportunities they present. China is very aware of this wave. The introduction of 5G in the region is also creating another avenue for innovation and demand. Chinese companies like Huawei and ZTE hold in the tech sector will burgeon with this development. Transsion, on the other hand, will continue to dominate the mobile phone market.
The rising middle class is always on the lookout for the latest technology that will improve their lives and keep them in touch with the global village. Adoption of mobile-first strategies will also be beneficial for anyone looking to tap into this import market or even the tech sector.
- Growth and innovation in FMCG and distribution services
Even with the pandemic, the FMCG sector in West Africa is seen as one of the more resilient industries that is ripe for investment in this recovery period. In Ghana, stockpiling during the 2020 lockdown drove dramatic growth in FMCG sales especially for food items. According to Kantar Group, annual FMCG growth hit 28%. The numbers declined in the last quarter of 2020, but like in other sectors, a rebound is expected in 2021.
Again, the rise of the middle class and population growth have necessitated creativity in how FMCG are marketed and distributed in the region. A key driver to distribution is the infrastructure network. Governments are more willing to invest in infrastructure, including welcoming foreign investment and private sector participation. China still takes the lead in infrastructure development with its Belt and Road Initiative (BRI) and thus the move towards the East for imports will remain strong.
On the other hand, technology solutions are also key in growth in this sector, with the population slowly warming up to using technology-enabled tools to shop and move around. FMCG companies have had to focus on the customer experience and speed at which distribution happens. Innovation in this sector will go hand-in-hand in strengthening local manufacturing to balance imports and exports in the region.
- Import Substitution
Among the many things that COVID-19 resurrected is import substitution. Many African countries in Sub-Saharan Africa have tried to strengthen their manufacturing capabilities since independence but it has not been with a lot of success. The pandemic however, revived the idea that too much reliance on imports can spell doom on a country when imports are held back by a global crisis in which borders are closed. Import substitution presents an environment for healthy competition.
Now more than ever, the establishment of local pharmaceutical production facilities and increased access to medication is vital. At the same time, the rise of India on our charts is a direct result of pharmaceutical imports from the country. We see a ripe environment for Indian companies to work with West African countries to build local medical plants as it recently happened in Uganda.
Alongside the AfCFTA policies, countries in West Africa and the continent as a whole have renewed policies on agriculture and agri-processing production and trade. These policies are aimed at striking a balance between food imports and exports as it is crucial to not be over-reliant on imports for basic needs. With such policies, we aim at regional self-sufficiency in food production while boosting intra-regional trade.
One clear thing to look out for is the intra-Africa policies and how these will shape future import patterns. ECOWAS has always been better integrated than similar regional communities and has room to keep improving for open trade to thrive.