Africa-UK moving forward together
rade relations are changing globally. As regional groupings are disrupted and reformed, global value chains contract, protectionism creeps in and the digital economy strengthens, old hat trading portfolios look increasingly out-dated. Without a doubt, enthusiasm for multilateralism has waned and the World Trade Organisation faces an existential crisis having not completed a new round of global trade liberalisation in two decades, since the Doha Round. For most of the past seven decades global trade grew twice as fast as the global economy and increased on average by nearly 7% a year, according to the IMF. Since the financial crisis and a commodities tumble, trade growth has averaged just 3% since 2012. On this footing, many are beginning to look to bilateralism and the possibility of forging better structured and more rewarding trade deals. As each country strikes out its competitive advantage, new trade partners are envisaged and Africa and the UK find themselves at this coterminous juncture today. Development and shared prosperity are key to the priorities of the UK, which is helping its African partners to achieve the Sustainable Development Goals (SDGs), so all parties are set to benefit.
The UK has a long tradition of trading with African nations. The UK is the world’s sixth-largest exporter and in terms of its European counterparts, exports around 20% more to third party countries. UK exports to non-EU countries are 43% higher than in 2007 and exports to Africa have grown at an annual average rate of 8.7% over the last 20 years. This growing trend represents significant opportunities for African nations and companies looking to do business. Indeed, trade between UK and Africa totalled £28.7bn in 2016, with the biggest recipients of UK exports being South Africa and Nigeria. As it stands most of the UK’s bilateral agreements are pegged to the European Union – the Financial Times found a total of 759 agreements covering trade in nuclear goods, customs, fisheries, transport and financial services. Although these agreements will need to be re-worked post-Brexit, Liam Fox, UK secretary of state for international trade, has confirmed this will happen with “zero disruption”. Brexit, even, will be a golden opportunity for Africa to entrench and expand its trade relations with the UK government’s growing international vision.
The UK’s Department for International Trade (DIT) is leading the push and acts as the go-to deal broker for UK companies doing business in Africa. The vision is to use the UK’s expertise to partner and collaborate with African governments and the business community to support sustainable economic growth through industry job and wealth creation. Its team of advisers located in 24 offices across Africa (with a main office in Johannesburg) provides expertise in sectors ranging from manufacturing and construction to services and technology, with a focus on infrastructure and energy. It has been instrumental in helping UK firms invest more in the continent and creating a robust trade policy environment to enter new markets and build on existing ones.
DIT Africa has established an African Trade Services Unit, which works directly with UK SMEs to answer trade and investment queries, identify business opportunities and help companies better understand the markets in Africa. An initiative called the Africa Economic Horizons is also being piloted in Kenya, Ethiopia and Tanzania and is designed to pull together the department’s experience and expertise across trade policy, diplomacy, and aid to ensure bilateral growth opportunities are maximised and commercial and development outcomes are delivered. Government collaboration in Africa is a key priority for the UK as it aims to forge new trading relationships that maximise benefits for developing countries and the UK. DIT has also created an Africa Infrastructure Board which brings together notable British infrastructure companies with a footprint in Africa to collectively
identify infrastructure programmes across Africa and work together with governments and industry leaders to facilitate deals. Future infrastructure deals could support African development by improving the
continent’s health, transportation and
Finance and investment
The UK is one of the top investors in Africa. In 2015 it ranked second in the world at $64bn, according to a UN report. Mining and quarrying and financial services were the main sectors in receipt of UK foreign direct investment, and accounted for 54.4% and 34.3% respectively in 2014. Indeed, the UK services export share is higher than any G7 economy at around 12% of GDP, compared to about 8% in Germany and France, 4% in the US and 3% in Japan. British investment in Africa more than doubled between 2005 and 2014 and over the same period African investment in the UK grew by over 500% to £3bn.
The scope and breadth of investment in Africa and vice-versa is impressive, yet more is possible. One initiative working to boost investment, the ODI project, engages in research, servicing investors, creating propositions, gathering evidence and long-term methodology in order to support British investors. The project has established support for over 250 UK companies in Ethiopia, Kenya and South Africa.
The UK also offers competitive and innovative financing with the national export credit agency, UK Export Finance (UKEF). As its CEO, Louis Taylor, puts it, the organisation believes that “no trade with the UK should fail for lack of finance or insurance. We want to ensure the quality of UK products and services is matched by agreeable payment terms and competitive finance.” UKEF can give overseas project sponsors attractive-long term financing that makes sourcing from the UK more competitive, either in the form of guarantees on bank lending or by borrowing directly from the UK government at competitive rates. As a complete package, goods and services are accompanied by attractive finance with repayment terms of 2–10 years, stretching up to 18 in sectors such as renewable energy.
In 2015, UKEF joined African Trade Insurance (ATI) as a shareholder, working together to identify and promote real business opportunities where UK and African countries can collaborate and encourage trade. UKEF and ATI can also share risk with other ATI-members in strategically important markets, increasing risk capacity for projects in African countries sourcing goods and services from the UK.
As an illustration of how this works in practice, UKEF’s loan of £250m, its largest ever to an African government will help finance the construction of a new international airport in the Kabaale region of Uganda. This will become the country’s second international airport, and have significant long-term benefits for the country’s economy. UKEF’s finance will help support work on the construction of the runway, taxiway, cargo terminal and other necessary infrastructure to be undertaken by the UK arm of infrastructure firm Colas UK.
With competitive financing and sector-specific expertise, the UK government and DIT have helped numerous projects – mostly in infrastructure and energy – come to fruition in Africa. The projects continue to have a transformational impact in terms of integrating local companies into the global supply chain and job and wealth creation.
The Africa team at DIT have been working with British companies in East Africa to bring investment, skills and knowledge to support the rise of the energy sector in this region. For example, the University of Aberdeen teamed up with University of Dar es Salaam on a $2m grant to develop local human resource capabilities. The universities have developed a curriculum across a range of energy related disciplines including engineering, geosciences, social services, business and law.
In terms of technical assistance and financing strategies DIT has been working with numerous African governments to get projects off the ground. In Ethiopia, DIT helped Mott MacDonald, a British engineering and development consultancy firm, provide technical review and advisory service to the Ethiopian Railway Corporation to help the optimisation of the design of a 760km standard gauge electrified railway from Addis Ababa to the port of Djibouti, a development which will significantly boost Ethiopia’s trade prospects. In South Sudan the government reappointed DIT to run a Basic Services Fund (BSF) which assigns funds to non-government contractors to provide essential infrastructure and services. In Ghana, DIT provided technical assistance to Ghana Water Company Ltd for the rehabilitation and expansion of water systems across 10 regions of Ghana. They worked to determine and establish the full range of activities, investments and other measures needed to ensure the safety of dams and reliability of water services.
In addition, UK legal services continue to provide support to countries across Africa. From training programmes for judiciaries to structuring finance for infrastructure projects, UK legal practitioners and English law continue to support economic development across Africa.
As Emma Wade-Smith, the UK’s trade commissioner for Africa says, “We continue to work hard to build a strong platform from which to help UK companies explore the full range of opportunities to build good commercial partnerships in Africa. The UK’s sectoral and financing strengths match well with what many African economies are looking for, to help generate more jobs and inclusive growth. I’m excited about the scope for the UK to do even more to partner with African governments and business.”
In short, DIT is leveraging its expertise in infrastructure and energy to provide much needed services and know-how to African partners. The department also works to boost trade and capital flows between Africa and the UK and functions as an authoritative go-between for any government or company wishing to do business. As the UK looks further afield than traditional regionally mandated trading partners, Africa can only be set to gain from a new trade logic in the UK. At the same time, British companies and the UK government are well on track to recognising the enormous opportunities Africa can offer the UK, and organisations like DIT are committed to ensuring these are not wasted. In this new context both Africa and the UK are on to a win-win relationship. n
For more information contact