Session 10 Africa’s Benefits And Challenges To Regional And

session 10: africa’s benefits and challenges to regional and international trade ============================================================

Session 10: Africa’s benefits and challenges to regional and
international trade
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Sub theme II: The economic, political and technological factors
shaping world trade and the role of the rules based multilateral
trading system in contributing to the global economic recovery
Moderator
Dr Cyrus Rustomjee, Director, Economic Affairs Division, Commonwealth
Secretariat
Speakers
H.E. Dr Anthony M. Maruping, Permanent Representative of Lesotho to
the WTO
Ms Aileen Kwa, Coordinator, Trade for Development Programme, South
Centre
Dr Nichodemus Rudaheranwa, Economic Adviser, Commonwealth Secretariat
Organized by
The Commonwealth Secretariat
Report written by
Dr Nichodemus Rudaheranwa, Economic Adviser, Commonwealth Secretariat
Ms Yasmin Brainerd, Commonwealth Secretariat
Thursday, 16 September 2010 – 09.00-11.00
Abstract
The session aimed at increasing understanding of the ways in which
Africa could secure greater benefits from international trade. The
discussion focused on impediments to Africa’s trade growth and
measures for overcoming them and enhancing the benefits from
international trade, including through engagement with emerging
developing countries. Increased support was identified as one of the
critical components that would enable Africa to address trade growth
challenges such as transport, energy, standards and quality
management, with a view to increasing the productivity, quality,
volume and value of its export trade. Furthermore, adequate policy
space would enable Africa to bolster its industrial development,
increasing the diversification of its export trade from primary
products into high-value-adding activities.
1. Presentations by the panellists
(a) Cyrus Rustomjee, Director, Economic Affairs Division, Commonwealth
Secretariat
Dr Rustomjee, who moderated the session, welcomed participants and
informed them about the Commonwealth, which is an association of 54
independent states with one third of the world’s population and a
fifth of global trade. The Commonwealth attaches high priority to
supporting its members’ integration into the global economy by helping
them increase the competitiveness and resilience of their economies,
and take advantage of growth-enhancing opportunities from
international trade.
The majority of developing-country Commonwealth members, however, face
significant and unique challenges, including small domestic markets,
high transport and transit costs, low productivity levels, high
concentration of exports, and difficulties in attracting foreign
investment, all of which render them less competitive in global
markets. For example, Africa’s trade performance has been relatively
weak despite enormous domestic efforts and policy reforms undertaken
over the last three decades. Weak trade performance has been
attributed to a number of factors, including limited access to global
markets and supply-side constraints. He noted that for Africa to
realize the full benefits of international trade will require an
approach that simultaneously focuses both on national development
strategies and improvements in the international trade regime.
The extent to which Africa is benefiting from international trade and
ways in which it might secure more benefits need to be understood more
fully. A critical review of the factors shaping Africa’s trade
prospects would therefore be helpful, with a view to identifying
support and measures that would help Africa face its challenges and
enhance its benefits from international trade. In this context, the
Commonwealth Secretariat organized this session under the auspices of
the WTO Public Forum 2010 to enable such discussion.
(a) Anthony M. Maruping, Permanent Representative of Lesotho to the
WTO
Dr Maruping provided a brief profile of African countries and the
challenges faced in achieving their trade growth and development
goals. He observed that 33 of the 49 least-developed countries (LDCs)
are in Africa; many of these are landlocked and resource-rich
post-conflict countries, while others are small states – hence the
significance in regional economic groupings to enhance the size of
their domestic markets. Africa’s export trade has been growing, though
mostly as raw materials and natural resources. Services trade has also
grown. Most of the current investment flows into Africa are mainly in
extraction activities, and the challenge is for Africa to sustain and
increase productive and beneficial investment.
The potential for Africa’s trade relations with other developing
countries to contribute to Africa’s growth is tremendous, as some
African countries are members of the G33 and there have been increased
duty-free and quota-free (DFQF) market-access opportunities granted
from both developed and developing countries, particularly India and
China. However, Africa’s ability to exploit these trading
opportunities is hampered by other hurdles, including non-tariff
barriers, rules of origin, etc., preventing such opportunities from
translating into meaningful benefits. Dr Maruping argued for a
strategy to translate these opportunities into meaningful benefits,
for example through greater diversification and strengthening of value
chains to ensure greater linkages with the rest of the economy.
Furthermore, the potential for trade in tropical products through
vertical linkages is high, but tapping it requires greater capacity to
ensure that Africa competes (produces at low cost but high quality and
adequate quantities), complies with set rules and standards, and
connects to international markets and global supply chains.
Specific measures to enable African countries to exploit and benefit
from trading opportunities include enhanced productive capacities;
greater investment and transfer of technologies; and more research and
development for innovation. Conducive environments for foreign direct
investment (FDI) and domestic resource mobilization, sound legal and
stable macroeconomic frameworks are all critical to enhancing Africa’s
trade growth. Infrastructure development is fundamental to this
process, including working on transport corridors across Africa,
energy generation, telecommunications, connectivity and ensuring
functional institutions and resolving conflicts. Trade facilitation in
Africa is particularly critical for landlocked countries, and a
broader view should be taken to include all aspects of facilitating
trade. He noted the critical role that development assistance, such as
the aid for trade initiative, can play in this process. Observing that
the problem is not foreign aid per se, but the way it is used, Dr
Maruping argued for enhanced African ownership of the development
assistance. Paris Principles on aid effectiveness should be honoured
to enable Africans to take the lead and control their development
process.
(b) Nichodemus Rudaheranwa, Economic Adviser, Commonwealth Secretariat
Dr Rudaheranwa’s presentation expanded on issues raised in previous
presentations with detailed information and greater focus on Africa’s
engagement with emerging developing countries. Briefly, Africa’s trade
performance has generally improved since the 1990s after stagnation in
1980s, but its share in global trade remains small (about 3 per cent
of the global merchandise trade) with a highly concentrated trade
structure. A significant share of Africa’s export trade comprises
primary commodities largely destined to industrial country markets of
the European Union and North America, but also increasingly to
developing countries like China, India and to intraregional trade.
Given the nature of what is produced and exported, improvements in
Africa’s trade performance in recent years has been attributed partly
to high prices and high import demand, especially from emerging
countries.
One must look beyond this trade growth and focus on which countries
have been beneficial to it, which sectors have been growing and its
impact on the economy in terms of employment generation, incomes and
poverty reduction. FDI in Africa is predominantly resource-seeking,
reinforcing the commodity-dependent export profile and tending to be
enclave-like, resulting in capital-intensive investments –
particularly in extraction sectors – which do not have strong linkages
to the domestic economy. The high concentration of Africa’s export
trade and FDI in just a few sectors suggests that only a handful of
countries and sectors are beneficiaries of the recent trade growth.
Africa’s increased engagement with emerging economies provides more
opportunities to transform their production and trade structures.
First, there is potential for increasing and diversifying the sources
of development financing available, unlike traditional sources which
attach conditions. Second, it provides Africa an opportunity to
transform its trade structure through greater export diversification
and increased volumes. Third, it should complement rather than
substitute the economic relations with its traditional partners.
However, there are challenges associated with Africa’s engagement with
emerging developing economies. First, the engagements have mainly been
at government level, with less private sector participation. Second
and more importantly, there has been no articulated and coherent
regional strategy for harnessing and managing the partnerships with
emerging developing countries. Third, Africa is considered largely as
the main source of natural resources needed to support and sustain the
economic growth of developed and emerging developing countries and, as
noted above, the engagement is often concentrated in a few countries
particularly where they have strategic interests. Finally, African
countries do not have adequate capacity to individually engage
emerging developing economies.
Strategies for improving Africa’s trade growth include the removal of
the remaining market-access impediments, including tariff peaks,
tariff escalation and non-tariff barriers. It is critical to increase
investment in trade-supportive infrastructure (including energy,
transport, communication), and also trade-facilitating institutions
(including standards and quality management) to enable Africa to
produce exports in the quantities, value and quality required in the
market. However, increased support is critical both from traditional
partners and emerging developing countries that have shown an active
interest in the development of physical infrastructure. The Aid for
Trade initiative offers a good mechanism to provide such support.
Furthermore, African countries could maximize their engagement with
emerging developing economies by adopting coherent regional
strategies, particularly where cooperation involves the development of
regional infrastructure.
(c) Ms Aileen Kwa, Coordinator, Trade for Development Programme, South
Centre
Ms Kwa focused on how policy reforms, including trade policy, have
contributed to poverty-reducing efforts in Africa. Based on South
Centre’s experience and recent study reports, Ms Kwa observed that
Africa’s annual per capita income, which grew at 1.6 per cent in the
1960s and 70s, consistent with the current growth rate in developing
countries, on average stagnated at 0.7 per cent in the 1980s and 90s,
but slightly improved after 2000 largely due to the commodity boom.
Specifically, poverty levels in Africa have been high over the last 30
years, at 74 per cent and 73 per cent in 1981 and 2005 respectively,
despite policy reforms undertaken over that period. When translated
into absolute numbers, however, the number of people living on less
than US$ 2 per day increased from 295 million in 1981 to about 556
million in 2005.
She attributed Africa’s poor performance partly to structural
adjustment policies that emphasized more liberal policy regimes
through tariff reduction, market-opening, reduced support to
productive sectors like agriculture and public investment. In the
agriculture sector, evidence shows that a number of African countries
are increasingly dependent on food imports. There were high and
frequent import surges with an average of 30 per cent of tariff lines
every year between 2004 and 2007 for many African countries. She gave
some specific examples in agriculture and manufacturing, where imports
surges intensified following the liberal trade regime in Africa. More
and more African countries are becoming net food importers, which
increases food insecurity. Given that agriculture remains the major
employing sector in Africa, greater and careful consideration is
needed to adjust tariff and trade policy to support growth of domestic
production.
Policy reforms in Africa had anticipated trade growth and increased
export diversification, including into value-adding manufacturing
activities. However, Ms Kwa argued that the liberal trade regime
involving tariff cuts in 1980s might have contributed to
de-industrialization in Africa, with a loss of up to a third of
employment in Senegal and significant reduction or closure of
industrial activities in Côte d’Ivoire, Kenya, Sierra Leone, and
Tanzania, to mention but a few. The lack of increased manufacture
value-added (MVA) raises concerns about the sustainability of Africa’s
economic growth. She noted that these challenges are not likely to
improve with the anticipated economic partnership agreements (EPAs)
between Africa and European countries, in which the EU is seeking
tariff elimination on 80 per cent of all tariff lines, which goes
beyond WTO requirements and is above what the emerging countries are
prepared to do. This will increase food import surges beyond the
already critical situation, lead to further stagnation in
industrialization processes as countries will not be able to safeguard
these sectors from increased competition from EU imports.
2. Questions and comments by the audience
Participants argued for systems that enhance the economic linkages and
connect farmers to markets with greater emphasis on regional markets,
while mobilizing and organizing producers – particularly smallholder
farmers – to enable more efficient support, input distribution, and
access to credit and information on market conditions and
opportunities, for increased volume, quality and value of exports.
Participants observed that African countries are very active at all
levels but their economic status has not changed, and they wanted to
know what African countries are not doing right – and more importantly
what needs to be done for them to maximize growth and international
trade benefits. One cause of the current poor growth in some African
countries is lack of linkages between the producing and exporting
sectors and the rest of the economy (i.e. oil and minerals). Even in
those cases, better management of revenue and proceeds from these
sectors could make a difference if directed to support value-addition
production processes. Ms Kwa illustrated these issues by focusing on
EPAs and the EU’s Common Agricultural Policy, and observed that the EU
countries have safeguard measures including subsidies while, unlike
the EU, African subregions have common external tariffs (CETs) across
the board. Observing that comparative advantage is dynamic and can be
created, the need for policy space to enable African governments to
support their producers is critical.
Participants raised the challenges faced by African countries in
tapping into the opportunities from trade in services, particularly
Mode 4. Experience elsewhere has shown that well thought-out policies
and strategies for tapping into opportunities due to trade in services
lead to increased remittances to support and finance development.
There are more opportunities for African countries in this sector, but
the challenge remains of how to exploit them.
3. Conclusions and way forward
Clearly, adequate support is critical to enable Africa to increase its
capacity to trade by addressing both market access and supply-side
impediments with a view to increasing the productivity, quality,
volume and value of their export trade. Specifically, more resources
are needed, including in current initiatives such as Aid for Trade, to
enable African countries to deal with such trade impediments. Making
trade preferences more operational and effective would certainly
require addressing non-tariff measures, including simplifying the
rules of origin and reviewing the list of product exclusions. Regional
approaches for infrastructure development such as transport, energy,
standards and quality management would be more cost effective and
beneficial both to intra- and extra-regional trade in Africa. In
addition, bilateral trade deals, such as EPAs and multilateral trade
engagements, should provide for adequate policy space to enable Africa
to support their industrial development, otherwise Africa will remain
an exporter of primary products with little or no value added.