Trade And Remittances Within Africa

from the International Monetary Fund

— this post authored by Francisco Arizala, Matthieu Bellon, Margaux MacDonald, Montfort Mlachila, and Mustafa Y. Yenice

Contrary to popular belief, countries in sub-Saharan Africa are more closely tied than ever, thanks to rising trade with one another and remittances – the money people send home when working in another country.

Our new study shows that closer ties expose countries to each other’s good and bad fortunes. Booming large economies spur partners’ growth by demanding more of their goods, and because people working in a booming economy will send home more remittances. Downturns in one country impact another by the same means. So, tighter economic ties also raise challenges.

We find trade to be the strongest conduit when it comes to the impact on growth.

Trade and remittances drive closer ties

Integration between the economies of sub-Saharan Africa has increased most substantially through trade. In 1980, regional exports were equal to only 6 percent of total exports, but by 2016 they had risen to 20 percent.

This makes the extent of regional integration in sub-Saharan Africa as high as in any other emerging and developing region in the world. This is the result of the region’s higher growth relative to the world, the reduction of tariffs, and stronger institutions and economic policy, relative to the past, throughout the continent.

The bulk of this trade, however, occurs within rather than between sub-regions – smaller groups of geographically close countries within sub-Saharan Africa. For example, the five countries that make up the Southern African Customs Union, Botswana, Lesotho, Namibia, South Africa and Swaziland, account for 50 percent of total sub-Saharan African trade.

Integration within the region has also increased thanks to the wages sent home by workers living in another country. In 2015, these amounted to about US$11.5 billion.