World trade begins at home

The long-awaited EU-Africa summit in Lisbon ended in deadlock, with Africans accusing Europeans of attempting to elbow into African markets. This is a missed opportunity for economic growth in Africa but the summit rhetoric obscures a far more important point: Africa is never going to get rich while its governments restrict trade between its own countries, EU deals or not.

The long-awaited EU-Africa summit in Lisbon ended in deadlock, with Africans accusing Europeans of attempting to elbow into African markets. This is a missed opportunity for economic growth in Africa but the summit rhetoric obscures a far more important point: Africa is never going to get rich while its governments restrict trade between its own countries, EU deals or not.


African exports account for just 2% of global trade but, according to WTO figures, only about 10% of these exports are within Africa. Yet 70% of the tariffs paid by Africans are imposed by governments in other African countries.

On top of that, Sub-Saharan governments are three times more likely to apply non-tariffs barriers than in wealthy countries, World Bank figures show.

As a result of grotesque trade distortions including corruption and tortuous bureaucracy, African countries cannot exploit their best potential markets: their own neighbours. Dropping those barriers could boost inter-African trade by more than 50%, according to World Bank figures.

The self-appointed spokesman for Africa, Bob Geldof, missed this point when he lamented before the summit that “international promises to make trade work for Africa have been lost in haggling, acronyms and inadequate will.” But if Geldof really wants the poor to “engage with the global economy fairly,” he should campaign against governments of poor countries that drive up prices and hinder growth with the world’s highest tariff barriers.

The disputed Economic Partnership Agreements with the EU do not challenge the trade barriers that prevent Africans from getting products they most need, like medicines or fertilisers. For instance, according to the World Health Organisation, Ethiopia imposes taxes totalling 20% to 40% on imported medicines, thus taxing the sick.

Similarly, cheaper imported fertiliser would yield more and cheaper food. If African governments are serious about meeting the Millennium Development Goals, freeing trade in these areas is not just an economic necessity but a moral imperative.

These barriers, however, will be difficult to dismantle while powerful domestic interest groups lobby for protectionism.

The Nigerian agricultural sector, under the pretext of “encouraging local substitutes,” has gained a ban on imports of wheat, rice, maize and vegetable oil, even though they would be far cheaper for the 11 million Nigerians who are undernourished.

But this giant country is still not self-sufficient in food after thirty years of pursuing this delusion.
While domestic protectionist groups are motivated purely by self-interest, they get ethical credibility from the global Trade Justice Movement (TJM), a coalition of “development” NGOs including Oxfam.

The TJM claims tariffs allow nascent local industries to grow, shielded from “unfair” international competition. But these “infant industries” rarely grow up to become efficient or innovative.  Protectionism makes them lazy and old-fashioned, and permanently reliant on taxpayer’s subsidies or consumers’ high prices.

Mobile telephones show what can happen without protectionism. In countries such as Kenya, mobile ‘phones have reached millions precisely because the government has not manipulated the market with protectionist tariffs and subsidies.

Foreign and domestic companies have therefore competed with each other to roll the network out even to rural areas.  Mobile ‘phones have empowered entrepreneurs, from farmers to taxis, using them to get real-time information on local markets and trading opportunities. A London Business School study recently discovered that for every 10 additional handsets (with reliable signal) per 100 people, GDP can increase by 0.6% annually.

But the Ethiopian government prefers the philosophy of the TJM. It thinks the state monopoly Ethiopian Telecommunications Corporation needs a few years’ more protection before liberalisation in 2010. This comes after decades of inefficiency and outright failure to provide fixed line connections or mobile coverage to more than 1.2% of the population, and mainly in cities.

It is ironic that African countries are now turning to China for investment. China spent decades pursuing economic self-sufficiency but its accelerating reforms and its massive unilateral tariff cuts have delivered growth around 9% a year, letting 400 million (and counting) people raise themselves out of poverty. China is now the second-largest economy on earth.

Global liberalisation would raise Africa’s GDP by US$120 billion a year, according to Oxford Economic Forecasting, but African politicians and vested interests are afraid of competing with developed economies. Yet intra-African liberalisation alone would yield a full third of those benefits, a study by the Cato Institute shows.

 If African countries want to emulate China’s growth, they should follow its lead, stop cossetting local industries and remove tariffs unilaterally. Once they do, Africans will demonstrate that their economies can grow as quickly as anyone else’s.

Alec van Gelder is Network Director at International Policy Network, a development think-tank in London.

 

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