The Horn of Africa States International Trade and The Region

By Dr. Suleiman Walhad
December 2nd, 2024

As no person was ever able to meet all his needs alone, there was always an exchange of goods and services throughout most of human history. Exchanging goods and services, of course for a price, is called by different names. It is called trade, commerce or simply markets and this has grown from simple communities to regions and countries and, indeed, across vast spaces covering continents.

It is the international trade that involves this exchange of goods and services across countries and payments thereof that we will discuss in this article, including the payment systems involved and its impact thereof on the region. Trade or commerce is the purchase and sale of goods and services and may involve consumer goods, manufactured goods, raw materials, machinery, tourism, banking, insurance and other goods and services.

When such trade or commerce is across borders with other countries, it gets more complicated than going to the store or market in the neighborhood or even when buying and selling within the same country. In this article we shall deal mostly with international trade, which deals with the category of commerce across countries and across continents.

The market place is larger and the competition may be stiffer and it is why countries compete, selling their wares as far wide as is possible and buy raw materials from differing sources at cheaper or more reasonable prices.

This competition may lead, sometimes, to complications that can cause wars and conflicts and hence wise men have always laid down rules to follow to lessen the occurrences of such conflict situations.

There is the World Trade organization (“WTO”), the International Trade Centre (“ITC”), the International Chamber of Commerce (“ICC”), and a plethora of regional organizations like the United States Mexico and Canada (“USMCA”), the Asia-Pacific Economic Cooperation (APEC), the Common Market for Eastern and Southern Africa (“COMESA”) and many others.

Trade, more so, the international aspect of it, has contributed greatly to the growth of global economy, where the supply  and demand and hence prices impact and/or are impacted by global events. Different countries have differing advantages, where some countries may have cheaper labor costs than others,  or more capital or material resources  than others or even more and better skills and technologies than others. It is the basis of the exchanges they make among themselves and with others.

It is where international payment systems become essential for commercial, governmental, and non-governmental organizations, as well as for individuals to ease trade, investments and individual needs. The financial world has developed over the years processes and networks to ease and facilitate payments.

There was once the telegraphic transfer  or  “TT” system and there was the telex system and there was and still is the Clearing House Interbank Payment Systems (“CHIPS”), the Fedwire and Ripple, and others. But SWIFT or the Society for World-wide Financial Telecommunication appears to have absorbed most activities of international payments and currently dominates the field.

The SWIFT payment system was developed in the 1970s and is based in Belgium. It is a network that connects as of April 2023 some 11,000 financial institutions from over some two hundred countries and in effect handles some 40% of all international payment transfers.

International payments require certain procedures and protocols, which must be followed to avoid fraud, corruption, money-laundering and other evil activities. Other than information of payer and payee parties and accounts, it requires other important codes, namely the International Bank Account Number (the “IBAN”) and the Business Identifier Code (“BIC”) i.e., the SWIFT Code.

Now that we know how important world trade and payment systems are, one needs to explain why the Horn of Africa States region is so important in this matrix. For one, it is a poor region and does not contribute much to global trade and for two, it is full of its own idiosyncrasies of mismanagement and tribal/clannish approach to politics and political processes.

Despite the aforesaid, it is still part of the world and is involved in world politics such as Ethiopia moving away from its traditional alliances of the West to the currently growing BRICS Plus institution bent on moving away from the current trade and settlement issues, using new currencies as the main currencies of reserves in the place of the United States’ mighty dollar, which makes the United States the banker of many of the nations of the world.

Many of the current rules involve unwritten ones including the usage of the dominant United States Dollar whereas the BRICS Plus proposes to move to a new currency or usage of their own currencies to settle payments among themselves.

This would definitely affect the region as Ethiopia with the largest population appears to be moving onto to the BRICS Plus camp and away from the traditional financial protocols although the country recently signed conditioned arrangements with both the World Bank Group and the International Monetary Fund, perhaps playing what seems to be a dangerous double-dipping game.

The region also overlooks the western shores of the Gulf of Aden and the Red Sea and the Indian Ocean, a passage way for some 11 to 12 percent of international trade including the vital energy source of oil and gas from the Arabian Gulf countries on the other side of the same seas.

This makes the region a strategic energy transportation waterway and an equally significant global trade hub. One must note that it connects Asia, Africa and Europe and henceforth has links with the remaining continents.

The Horn of Africa States region is reported to enjoy abundant resources and henceforth an immense potential, which thus attracts not only the major powers of the world but also other regional powers. These include among others the Peoples Republic of China, the United States of America, the European Union, The Russian Federation, the GCC countries, Egypt, and Türkiye, among others.

The interest of all these parties is prompted by the potential exploitation opportunities of the resources of the region without putting in much in return. These may include safe passage of ships on the waterway connecting the Indian Ocean to the Suez Canal or investments in the agricultural potential of the region or accessing at cheap prices the enormous mineral resources of the region including the food stocks of its vast marine space.

It is where it becomes important for the countries of the region to revisit their strategies. Instead of being pawns in the game of others, the countries of the region should be putting their heads together to forge a new path for the region. They should be working on turning tables to take advantage of those interested parties to create not a self-competing and self-destroying region but a cooperating region.

The Horn of Africa States region would benefit more from this cooperation and economic integration to exploit the resources of the region for the mutual benefit of the countries of the region and for reducing the conflicts and the terror activities that is currently prevalent in the region.

Through joint efforts, the region can create a secure space where normal investments can be made not only by the locals of the region but also by others from beyond the region. The region, indeed, has much to offer. It can grow in peace and face together the corrupting foreign interests bent on keeping it “as is” backward and underdeveloped.