Africa remains on the margins of world trade. Regional trade agreements and domestic pro-poor policies could be the keys to trade growth, reports Jacqui Pile.
Lesotho, a small mountain kingdom in southern Africa, is known for its scenic vistas and a hydro-electric scheme, and little else. But in the past few years, the country has developed a reputation as a thriving exporter of clothing and apparel. It has not only trebled its exports to more than R3bn ($440m) a year in just five years, but has also diversified the types of products it exports from 70 to more than 150.
Under the Africa Growth and Opportunity Act, Lesotho, like many other African countries, is able to export certain products to the US, tariff-free. But as a spaghetti bowl of bilateral and multilateral trade deals develops across the globe, African countries need to work hard to win favourable terms with developed nations and a bigger share of global trade.
The continent remains on the margins of world trade and investment. Growth in African trade has been much less than the increase in trade in other developing regions. According to an International Finance Corporation (IFC) report on the region, Africa accounts for only 6% of world trade, only half of the share it had in the 1970s and 1980s. “Africa seems to have missed out on the massive increases of trade and investment that have occurred in other emerging markets,” says South Africa’s Trade Law Centre executive director, Trudi Hartzenberg.
At the same time, this marginalisation allowed Africa to escape many of the ravaging effects of the crisis in emerging markets that began in Asia in 1997. The IFC report observes improvements in macro-economic management, average deficit levels across the continent declined from 7% of GDP between 1990-1994 to 3.6% from 1995-1998 and inflation has largely been reined in. Micro-economic reforms, too, have been conducive to increased trade by freeing up domestic markets. Countries that previously had price controls, extensive subsidies and other interventions have mostly abandoned them.
As tariffs have been reduced and simplified and subsidies eliminated, African currencies are no longer overvalued and many are in tune with market forces. The IFC says that business regulation has also improved and countries are actively courting foreign investors by opening up and eliminating complex controls – only six of the 29 poorest countries maintain any form of restriction on remittances on foreign investment.
Stumbling block
Despite progress, the biggest stumbling block to Africa’s growth in trade was the failure to reach consensus at the World Trade Organization (WTO) talks in Cancún last September. As part of the Doha Development Round, it was hoped that the talks would achieve pro-poor, multilateral trade reform. But the talks stalled when developing nations challenged the EU and US on their protectionist agricultural policies, which hurt African exporters. Poorer nations also wanted to win concessions on the Singapore issues covering standards for competition policy, treatment of foreign investors, transparency about government procurement and simplification of trade facilitation procedures.
Although many developing countries have problems with one or more of the Singapore issues, it is the priority accorded to them in negotiations that is distracting from agricultural issues, says the UN High Representative for Least Developed Countries, Anwarul Karim Chowdhury.
Africa’s main exports are still primary products, especially agricultural goods. According to the World Bank, the sector continues to employ 68% of the work force. Yet agricultural exports from developing countries to rich countries grew at just half the rate they did to other developing countries in the past decade.
A World Bank report on the global prospects for developing countries shows that a pro-poor scenario outcome of the Doha Round would greatly improve growth and poverty reduction in developing countries.
Under this scenario export subsidies, tariffs, anti-dumping duties and sanctions would be eliminated. Rich countries would be subject to a maximum agricultural tariff of 10% and developing countries to 15%. The report says that agricultural trade would rise by 32% and the number of people living on $2 a day would fall by 66 million,in sub-Saharan Africa (see graph 1).
Progress has been made in niche agricultural markets in Africa – such as export of organic vegetables to Europe – but without movement on the issue of agricultural subsidies, the continent has little chance of improving its real terms of trade.
South Africa’s chief internal trade negotiator, Xavier Carim, says that his country has been pushing strongly for a resumption of the Doha Round of trade talks but can not afford to wait long for talks to be revived. “Just to maintain your competitive position you need to keep moving on bilateral negotiations,” he says.
Trade agreements
More than half of world trade will soon be covered by bilateral or regional agreements. But WTO chief Supachai Panitchpakdi worries that these will threaten multilateral liberalisation of trade. “If governments and their constituents lose faith in the ability of the Doha Development agenda to deliver results, we will see a growing imbalance between multilateral and bilateral deal making,” he says. “The poorest and most vulnerable countries would be the biggest losers from a focus on bilateral deals at the expense of multi-lateralism.”
Non-trade barriers
Some researchers argue that although African countries have managed to negotiate highly preferential trade agreements with a range of partners (including the EU, the Southern African Development Community and the US), the benefits of these agreements have accrued only slowly to the region, if at all. Though macro-economic factors may be one reason for the less than spectacular increase in trade, non-trade barriers, such as anti-dumping, technical barriers and import licensing play an important role.
“Southern Africa is negatively affected by non-trade measures but is able to offset this partially through its trade preferences with developed countries,” says Ron Sandrey, a research fellow at think-tank Trade and Industry Policy Strategies (Tips) in South Africa. “However, this is likely to be only a temporary respite and exporters will have to focus on building their competitiveness and applying pressure for non-trade barriers to be cut.”
The lack of capacity in poorer nations to implement resource-intensive WTO agreements is widely seen as a major impediment to trade. Developed nations may offer technical assistance and expand “aid for trade”, investing in projects that facilitate trade, such as developing infrastructure.
“Cancún suggests more work is needed to integrate development considerations into the trade policy process and to mobilise resources for trade-related investments and reforms,” says World Bank research manager Bernard Hoekman.
Regional action
The benefits of regional agreements have become evident in recent years. Renewed commitment at government level to south-south and intra-regional trade has led to the revival of a plethora of trade facilitation organisations in Africa: the Southern African Development Community (SADC); the Common Market for Eastern and Southern Africa (Comesa) and the Southern African Customs Union (SACU).
“SACU in particular, has been a major factor in the high level of trade between South Africa, Botswana, Lesotho, Namibia and Swaziland,” says Rhodes University senior economics lecturer Nicolette Cattaneo. “But trade is very skewed in South Africa’s favour.”
Though regional bodies like the SADC and Comesa are moving towards a free trade area, by lowering tariffs substantially, there is concern that it could lead to polarisation of the continent and trade imbalances between small and large countries.
“There is discussion about how larger African countries can offset these imbalances by investing in weaker countries,” says Ms Cattaneo.
Though there may not be clear short-term economic benefits for smaller countries from regional trade agreements, these trade blocs do give them the clout they need to participate in WTO negotiations. Most African countries, however, have realised the importance of complementary pro-poor polices at a domestic level. Without these, even a pro-poor conclusion to the Doha Round will have little trickle-down effect on the African poor.
