The Potential of Bilateral Trades Between South America and Africa

Why aren't there more bilateral trade deals between Africa and South America. Analysis with Cheikh Faye of Questar Holding.

Pangea, the Transatlantic Slave Trade, developing economies, post-colonial political systems, export of primary goods as main revenue, … Despite historical and geographical ties, the relations between Africa and South America are scarce. Trade agreements exist between countries, but no global framework of cooperation exists between the two continents.

Since 2006, the Africa-South America (ASA) Summit aims to boost bilateral cooperation, but its roadmap remains vague to this date. Are those continents complementary ? For what economic purpose ? We involved Cheikh Faye, head of investments at Questar Holding and expert in commodity-based finances, to bring some insight into our research.

Figuring out a purpose

Cheikh Faye: “Economic ties between Africa and South America are still an underrated topic. The leadership of Northern and East-Asian countries, and the profound social changes in Africa and South America of the 20th century all led to bounded international strategies. Today, with enough political autonomy and economic stability, both regions can dedicate resources on strategic international development. The ASA Summit best illustrates the will of those two regions to create a new pole of influence.

Since 2006, countries of Latin America and Africa have been getting together for the Africa-South America (ASA) Summit. The 1st edition of this triennial event was organized in 2006 in Nigeria. The Abuja Action Plan was adopted, engaging both regions to follow a closer cooperation scheme. Strategic projects were also suggested to spark the cooperation : the creation of the energy commission for South America and Africa, a South American-African bank, a network of universities, and the proposal of relating South America to Africa by means of communications. The permanent secretary of ASA was created to handle the logistics.

During the 2nd (Venezuela, 2009) and 3rd editions (Equatorial Guinea, 2013), the president of Venezuela Hugo Chavez encouraged the participating countries into joining forces to become a major pole of influence and a counterpower to the imperial ways of Northern countries.

Not much has been achieved so far in this partnership […] The partnership is inclined towards political solidarity, perhaps because of the shared historical background of the two sides. However, concrete projects could be realized and Africa needs to define its core interests and propel the partnership towards economic sustainability.

Statement from the African Union

This statement from Africa’s top representation is a sorry acknowledgement that both regions are inclined to work with each other, yet the how? and why? isn’t clear yet. When looking at the facts, the distance between Africa and South America is wider than it shows on the map : Routes between the two continents are scarce and moreover, they export a lot of the same primary goods. So what’s the point ?

Building the Africa-South America bridge

Cheikh Faye: “Transportation and communication routes between Africa and South America are scarce : Traditional sea routes go from South to North, from the mineral exporters to their buyers. Undersea telecommunications cables directly linking South America and Africa are almost non-existent. The same scarcity can be observed with airlines’ flights. A lot of intercontinental infrastructure is needed to guarantee full cooperation between the two regions.”

While ASA countries work on the logistics of their cooperation, infrastructures must be built between the two regions to pave the road for enhanced collaboration. In June 2015, Angola Cables announced the installation of telecom cables in the South Atlantic linking Angola and Brazil. That will merely be the third South Atlantic cable route, compared to the +20 North Atlantic cable routes :

The airline traffic is also way denser over the North Atlantic than in the South, with just a few airlines directly linking South America and Africa. A strong similarity between aviation and shipping networks clearly shows on the following maps:

Those maps illustrate the weak trade capacity between the two regions. The closest points between South America (Brazil) and Africa (Senegal) are 1600 miles apart, a shorter distance than the 2100 miles between the United States and Europe. If the ASA countries wish to reinforce their cooperation, multiplying the routes linking the two regions would be a big leap forward.

Trade opportunities

Cheikh Faye: “Africa and South America probably have the thinnest connections that exist between two continents. They compete on primary goods exports, thus very few routes (air, sea, telecoms) directly link the two continents. The dream of developing a South-South pole of influence is a bit ingenuous, as the work necessary to fulfill this ambition is pharaonic.”

In the past decade, trades between the two regions grew significantly, from $7.2 billion in 2002 to $39.4 in 2011. A major free trade agreement was established between the countries of MERCOSUR and SACU. Those facts do not weigh much in the trade balance of each regions: in 2013, South America exports to Africa represented 2.2% of its exports, and African exports to South America represented 3.6% of its exports.

On their own, Africa and South America are not major producers of metal/ore/hydrocarbon. They provide one third of the world’s bauxite and one half of the world’s copper, but for other minerals, they contribute to ⅕ or less of the world’s production (Worldbank, 2014). Even together, they do not represent an economic leader per say.

For agricultural goods, both regions’ top exports are coffee, cotton, tobacco, sugar, maize, wine and grapes. They also export products they may potentially trade : cocoa-based products from Africa, soy-based products and meat from South America. On the other hand, most South American countries are net exporters of agricultural goods while most African countries are net importers (a lead for enhanced cooperation ?).

While most of the world’s industrial centers are located in Northern and East-Asian countries, South America (with Brazil leading the way) is also heavily industrialized, way more than its African counterpart. Industrial technology transfers from South America to Africa could be another lead for enhanced cooperation…

Cheikh Faye: “The underlying issue is geopolitical”

Cheikh Faye: “Most assets of both continents are already allocated to their existing trading partners, who also control most of the technology, distribution networks and trading currencies. Any disruptive strategy led by the two continents would only distress international forces and activate their defense mechanisms. For the time being, Africa-South America will become a new pole of influence only if it finds a way to enhance the global economy altogether, instead of merely serving its own regional interests.”

The next edition of the ASA summit was scheduled in May 2016 in Ecuador, but it did not happen, and no official announcement explained it. No comment.