Promoting structural transformation through intra-African trade and migration

30 October 2018
  • Intra-African migration has a strong pro-trade effect. It contributes to greater intra-African trade in products and services, generates revenues for governments and regions, while addressing the continent’s broader development challenges.
  • Migration can be a catalyst for the continent’s socio-economic transformation. Besides boosting intra-African trade, intra-African migration also stimulates labour productivity and employment through trade.
  • African governments and regions can reap further gains from intra-African trade if they eliminate barriers to movement in countries and across regions, and align and build coherence in migration, trade, and investment policies.

 

The Global Compact on Migration (GCM) that will be adopted in Marrakesh in December 2018 is a step forward in managing migration. The United Nations Conference on Trade and Development (UNCTAD) 2018 Economic Development in Africa Report: Migration for Structural Transformation, highlights the economic potential that migration has for promoting structural transformation in Africa, including through trade and other mechanisms.

There are economic and trade channels through which international migration impacts on socioeconomic development in sending and receiving countries. The ensuing ripple effects of migration on labour movements across sectors and on productivity gains could benefit receiving countries. Similarly, emigration may benefit sending countries through improvements in their socioeconomic indicators. Such improvements may in turn constitute the foundations for structural transformation.

Migration-trade nexus

There is evidence that countries tend to trade and invest more with countries from which they have received migrants. Migration and trade can also work as complements, as trade is likely to increase with higher factor mobility. In addition, pro-trade effects are channelled through factors that include the dissemination of the preferences of migrants for goods from origin countries, the removal of informational barriers between origin and destination countries and improvements in the facilitation of contract enforcement in weak institutional environments.

Intra-African migration boosts trade primarily through two channels: demand for products from countries of origin (nostalgia trade), and for services that migrants demand such as tourism as well as through trade generated by Africa’s informal cross-border traders.

African migrants’ demand for food products from home stimulate food exports from their countries of origin. As is shown Figure 1 below, food imports from Zimbabwe, Sudan, the Democratic Republic of Congo (DRC), Somalia, and Mali are linked to immigration in destination countries elsewhere on the continent from these countries. Along with the rise in demand for food products, food export values in countries of origin have also increased in parallel. Emigration from the five countries corresponded to an increase in food imports to other African countries from the sending countries, with the value of Zimbabwe’s food exports to other African countries rising from US$100,000 in 2000 to US$1 million in 2013.

Figure 1. Top sending countries by (a) migrants from Africa and (b) food imports from Africa

Besides boosting food exports from countries of origin, intra-African migration has also contributed to the rise in food imports across Africa’s regional economic communities (RECs). Figure 2, which shows the three-year average in food imports from Africa to RECs, indicates that COMESA, CEN-SAD, and SADC had the largest increases in food imports, with the trade in food products generating substantial revenues for the RECs. Owing to migrants’ demand for food products from home, intra-African food imports have experienced the same upward trajectory as migration levels.

Figure 2. Three-year average food imports within Africa by regional economic community (Billions of dollars)

Intra-African migration creates significant demand for services such as tourism, which tend to rise during holidays and other festivities as migrants in the diaspora visit relatives and friends at home.

With the high levels of intra-African migration in recent years, the share of intra-regional tourism has increased, rising from 34 percent in 2010 to 40 percent in 2013.At the same time, intra-African migration creates demand for other trade services, which, in turn, generates employment. In South Africa, the continent’s top migration destination, trade in services have the largest share of employment, with the sector accounting for 20 percent of the country’s employment.

Intra-African migration, if properly harnessed, has the potential to contribute to intra-African trade and economic development. Since migrants tend to earn higher incomes in destination countries, countries of origin are likely to benefit further from increased exports and revenues derived from trade. In addition, given the high migration flows in African regions, intra-African migration is likely to generate greater demand for intra-regional tourism, and revenues for governments and regions.

As findings of our empirical analysis on migration and structural transformation show, trade positively influences labour productivity and employment in high productivity sectors in African countries. With services trade having a strong job absorption capacity in countries with high migration levels, well managed migration that allows for regular and orderly mobility to regional markets can result in further benefits for countries, including through increased labour productivity and growth in the services sector.

Policy considerations

Intra-African migration can contribute to intra-African trade if policy constraints are addressed, including by undertaking the following measures.

  • African countries can reap further benefits from intra-African migration by aligning their migration, trade, and investment policies with development objectives. By ensuring better coherence in trade, investment, and technology policies, countries and regions can create the conditions necessary to spur further economic growth and provide the impetus for structural transformation on the continent.
  • Eliminating barriers to movement can ensure greater intra-African trade and contribute to the continent’s development more broadly. Ensuring that people can move between and within regions in a safe, orderly, and regular fashion – a central element of the GCM, is critical. Regional protocols on free movement of persons and open visa regimes can play an important role in this regard. At the continental level, efforts should be made to expedite the operationalisation of the African passport and make the free movement of persons on the continent a reality.
  • The connections that migrants create between their origin and their destination countries have led to thriving diaspora communities. They have also opened new trade and investment opportunities that can help both destination countries and origin countries to diversify their economies and move into productive activities of greater added value. Therefore, policies aimed at better harnessing the diaspora for trade and investment in countries of origin need to be implemented.

Finally, with the launch of the Single African Air Transport Market earlier this year, and the adoption of the Africa Continental Free Trade Area (AfCFTA) Agreement by most countries on the continent, Africa is poised to reap further economic gains, including from migration and trade.

If well managed, intra-African migration could play an important part in contributing to the continent’s socio-economic development. African countries should seize the opportunity to better harness intra-African migration’s potential to set the continent on a more promising development trajectory.

 

Jane Muthumbi is Economic Affairs Officer, Division for Africa Least Developed Countries and Special programmes, UNCTAD.

Junior Davis is Chief, Africa Section, Division for Africa, Least Developed Countries and Special Programmes, UNCTAD.

The post is part of the ICTSD blog series on Understanding Trade and Migration in the Global Economy.