ARTICLES
Trade in Africa and Civil Society's Responsibility in the 21st Century
AGOA: The NGO Perspective
Moka, Mauritius
January 13- 17, 2003
By: Thompson Ayodele, Coordinator
Institute of Public Policy Analysis
Lagos, Nigeria
Let me welcome you all to this forum. My function here is not to lecture you but to highlight some salient points on the best way to make Africa more prosperous and a region to be reckoned with in the global economy.
Since the passage of African Growth and Opportunity Act (AGOA), those with genuine concerns for Africa have seen it is as a veritable opportunity for Sub-Saharan African countries to be active participants in global trade. But whether Africa really wants to seize the opportunities offered by AGOA and to replicate the economic feats witnessed in most East Asian countries in the early 90s is largely to be seen.
The situation in Africa puzzles many. It is the richest of the seven continents in natural resources: 40 percent of the world's potential hydroelectric power supply, 50 percent of the world's gold and 12 percent of its natural gas. Nigeria, Angola, Gabon and Sudan have large oil reserves. Zimbabwe and South Africa are major exporters of coal. Ghana and Cote d'Ivoire are the world major cocoa exporters. In spite of these abundant resources, Africa remains mired in serious problems. Poverty still ravages the people. The number of those living with less than $1 per day increase from 55.8 percent to 64.9 percent between the late 60s and late 90s, representing 89.6 million to 233.5 million over the same period. Other problems, violence, hunger, disease, crisis in leadership, endemic corruption, gender discrimination, religious strife and illiteracy, continue to plague Africa. Compared to the rest of the world, economic development in Africa is largely unimpressive.
The entrepreneurial zeal among Africans is impressive. They are hard working and have astonishing ability to make profit out of practically nothing. Isn't it miraculous that people with such qualities and resources are poor? Lack of development in Africa is obviously not due to lack of resources, or lack of entrepreneurial spirit among Africans. If it is lack of entrepreneurship, then Africans once they leave the continent ought not to have excelled. African plight therefore is in fact due other factors.
This paper will attempt to x-ray why Africa is poor, examine various economic policies and trading patterns in Africa, and point out what is needed to make the region an active player in the global trade. It will also seek to highlight the importance of economic freedom and how civil society can help Africa in enhancing its ability to compete in the 21st century.
Poverty in Africa
Western colonization ended in most African countries three and half decades ago, yet the plight of the continent is attributed to colonization of Africa. Many African leaders, journalists, politicians, intellectuals and policy makers contended that whatever had gone wrong is the fault of Western colonialism. Colonialism is inhuman, unjust and degrading. It had some impacts on the people. However, whatever the gravity of these impacts are, that do not explain the continued poverty in Africa today. Western colonialism should not be an excuse for Africa to develop. Many countries experiencing economic prosperity and rising standard of living were once colonized. The U.S. is a good example. Britain was under Roman Empire. Estonia, one of the freest and fastest growing economies in the world, suffered from Swedish, Teutonic and Russian imperial ambitions. Hong Kong was also colonized. What is peculiar to these countries was policies that favored freedom were introduced after colonizers had left.
We should accept the blame for Africa's current economic quagmire rather laying the blame elsewhere. Since independence, most African countries have waged or experienced some form of war and/or conflict. In many respects, it seems the culture of violence has been entrenched as the only way to resolve conflicts. Aside from destruction of human and physical capital which warfare and conflict inflict, it also inhibits economic development and peaceful avenues to resolving conflicts. Under these kinds of conditions, the prospect for development is bleak. When conflicts reign, future planning is a mirage. Trusting anyone apart from those you know will be suicidal. Economic activities are reduced to the shortest of short terms.
The rate of corruption has continued to soar. Billions of dollars of public fund are stashed in foreign shores. Over $200 billion in capital has been siphoned out of Africa. One of the implications is it makes Africa unattractive to investors. The capital flight in Africa is also alarming. In 1999, the National Bureau of Economic Research reported that over half of Africa's wealth owners had relocated their wealth outside Africa. This is compare to 17 per cent in Latin America and 3 per cent in East Asia.
Trade Policies in Africa: Past and Current Trends
Trade policies in Africa are mostly tailored towards creating economically equal citizens. In furtherance of that, the state controlled the economy and allocated resources. State economic control was regarded as the only genuine path to rapid economic growth. The belief was that state-directed economic planning was superior to any other economic system and that progress and prosperity could be achieved with the elimination of market based economic activity. Many African governments then resorted to various types of interventionist measures. Some of them include:
" Controls on wages and prices
" Protecting local industries from competition
" Bailing out loss making firms and industries
" Tight foreign exchange controls
" State-directed programs in energy, telecommunication and transportation
" Strict import/export quotas
" High barriers to entry into banking and other strategic sectors
" Pegging of exchange rates
" Scheduling of many exports commodities under the commodity board
The consequences of these policies were: (1) It gave a poor level of economic development. (2) It drastically helped in perpetuating misery and poverty. (3) It sacrificed citizens and their interests for the benefits of the leaders. (4) It permitted politically powerful elite to use the state for their own purposes. (5) It stifled the discovery process of competitive market and consequently precipitated corruption. (6) It prevented countries from diversifying their export base. (7) Because of low price for farm produce, incentives to farm were destroyed. Instead of building market friendly institutions, African governments blindly opted for centralized control. The relics of those policies are still visibly noticeable in most part of the region at present. It can therefore be argued that the continent's plight is not only due to the rejection of free market economic policies but can also be attributed to inward looking policies it chose to pursue.
Improved in Trade: Key to the Future
Over the centuries, Africans were noted for trading. The people's trading capability predates the advent of Western colonization. African countries traded between themselves and beyond the continent. Great Zimbabwe's wealth was due to trade links with Asia. Cape Town's origin lay in its position on trading routes between Northwestern Europe and the Far East. The West Coast of Africa also became known for its vast resources and became trading routes for Europeans in search of raw materials and other economic activities. Therefore, Africans have a robust tradition of being traders. This helped in consolidating the great empires.
In spite of having a long trading tradition, Africa has not been able to compete in international trade. It continues to face tariff barriers that are more than those encountered by rich countries. According to Oxfam, those barriers cost the continent $100 billion. In Oxfam report, it is estimated that Africa would generate $70 billion if its shares of world export increases. Ultimately, export growth will be more efficient engine in poverty reduction than foreign aid because it will concentrate income directly in the hands of the poor, thus creating new opportunities for employment.
However, the benefit that ought to have been accrued to the continent is greatly distorted by trade barriers. Subsidies to farmers in industrialized countries are estimated to have worth $1 billion per day. The Assistant U.S Trade Representative for Africa, Ms. Rosa Whitaker, said the $300 billion in subsidies is an impediment to growth. Not only that, subsidies constitute barriers that impede the competitiveness of African exports. The rates of subsidies vary. The E.U. subsidies, according to Ms. Whitaker, are 26 times higher than the U.S. The U.S. agriculture tariff is 12 per cent, the E.U. 30 per cent and over 50 per cent for Japan.
Africa's problems are two-fold. Firstly, it experiences declining market for its major exports products; and secondly over the years it is unable to diversify its export base. The solution to the problems requires liberalizing industrial countries trade barriers. Inappropriate domestic policies that hinder competitiveness of the region need to be reformed. In respect of the former, a coherent policy that encourages and supports Africa's efforts to increase economic growth and competitiveness of its goods is desirable. The region is faced with harmful agricultural subsidies and tariff barriers Eliminating tariffs on good produced in Africa as well as reducing subsidies will help.
The U.S. government, through AGOA, has taken a bold step to advance this goal. AGOA represents an important step taken by the U.S. to allow African products into the U.S. market. It is to serve as a stimulus for African export sector. According to Ms Whitaker, AGOA has resulted in over $8 billion in African imports into the U.S. With its passage, clothing producing countries have been able to take the advantages offered by the legislation to boost export sales. In this league is Madagascar. In the first quarter of 2002, it earned $32 million from apparel.
The next country is South Africa. James Lennox of the South African Chamber of Business also catalogued AGOA's gains accrued to South Africa. According to him, in 2001, South Africa raked in $417 million in AGOA-related goods. In the first quarter of 2002, South Africa earned $162 million. Because of AGOA, Ghana is currently negotiating with a major retailer to begin producing chocolate bars with Ghanaian cocoa. In Lesotho, manufacturing sector surpasses public sector with respect to employment. Other countries that have benefited from AGOA include textile manufacturers in Lesotho, Mauritius, Kenya, Swaziland etc. Given the above benefits, whatever is remaining in the U.S. tariffs, AGOA should be a model to the E.U., Japan and other developed countries.
Irrespective of the benefits offered Africa by AGOA, to compete internationally, African countries need to discard domestic policies that constitute stumbling block. Countries with poor economic policies will not achieve economic growth. As a matter of urgency, liberalization of internal economic policies should rank high. African governments must implement drastic economic and social reforms. Reforms cannot be decreed from outside, it is the responsibility of the rulers as well as the ruled to be committed to reform.
Importance of Economic Freedom
Trade barrier removal is necessary. However, neither their removal nor trade encouraging legislation enacted by developed world is a guarantee that Africa will be able to compete in international trade or achieve economic growth. What is still desirable is for the region to embark on the twin purpose of reforming internal trade and economic policies. That is the first thing on the agenda. The question we need to ask is: Why are investment and trade volumes high in some regions but not in others? Studies have shown this can be explained with the degree with which property is secured, rule of law is strengthened and how individual is able to trade freely, unhindered by government regulations. Regions with effective property rights protection, rule of law, and competitive markets are prosperous.
Sub-Sahara is replete with countries with a complete absence of property right, the rule of law and ability of the individual to trade freely. What is prevalent is crony preferentialism, trade intervention, expropriation and wide spread market distortion. All these weaken trading potentials. Adherence to domestic policies that promote economic freedom should be priorities in Africa.
Economic freedom does not take place in vacuum. Its supporting institutions are property rights, the rule of law and free enterprise. These can make or mar a country's march to international trade competitiveness and economic prosperity.
Property Rights: The institution of private property rights give property owners incentive to invest in their land and it can be used as collateral to borrow, to invest or expand their opportunities so that they might become entrepreneurs. The basic ingredients of property rights are first, the exclusive rights of individuals to use their resources while respecting the rights of others. Second, the ability of individuals to transfer or exchange these rights on voluntary basis. This connotes economic freedom. Peruvian economist, Hernando de Soto, in Mystery of Capital, documented how tight regulations prevent people in the Third World from registering their property and therefore are left unable to appropriate the full economic benefits of their property. De Soto estimates the 'unusable' assets in the Third World is about $9.3 trillion. The assets are unusable because they cannot be used as collateral for loans. In most countries in the region, property rights protection is weak. Where nobody is sure whether government's next move is to expropriate property, individuals and firms will not embark on activities that will propel economic growth and trade. Secured property rights is an incentive to invest and trade. Where it is lacking, as the case in Africa, both local and foreign investors will vote with their feet.
The Rule of Law: Property rights are meaningless if they are not enforceable. Society requires just laws to protect person and property. Titled property should be a right for every citizen not just for the privileges. In the absence of a well functioning legal system, expropriation of other's property by government or greedy elements is high. A strong application of the rule of law means that there must be enforcement of whatever decisions that are made by courts. Lack of rule of law undermines a country's trading potentials.
Markets: Incentives to compete, improve and innovate are destroyed when governments fix prices. Through the interactions of forces of demand and supply, prices become 'signals' which tell investors what to produce and where to sell and consumers what to buy and how much to pay. Markets allows prices to act as feedback. The market is dynamic and performs these functions:
i. Spreads useful knowledge around
ii. Brings about the spontaneous correction of error
iii. Controls the concentration of economic power (monopoly)
A well functioning market system is good for managers to take risks, streamline their procedures and eradicate avoidable costs and corruption. But it is not welcomed in most countries in Africa.
The Heritage Foundation publishes annually the Index of Economic Freedom. The 2002 edition considers 10 independent factors in rating countries and of 156 countries ranked, 85 are "mostly unfree" or "repressed." A good number of them are in Africa. What the Index has shown is that policies that encourage economic freedom is either suppressed or half-committed to. Lack of economic freedom makes a country too vulnerable. It requires commitment and perseverance. What is noticeable in Africa is for a reform to be initiated today and abandoned next day. That aside, most countries in the region still cling on to protectionist policies. When the industries are not allowed to compete locally, the possibility of competing internationally is remote.
The Roles of Civil Society
Civil society is an important engine for growth. The institutions of rule of law, property rights and limited government cannot be decreed by leaders but can be established by civil society. These institutions curtail the power of African leaders. There will be conflict of interests if leaders are to establish them. Civil society must rededicate itself towards ensuring the enthronement of these institutions.
Civil society needs not only to vigorously campaign and expose unfair trading policy against Africa but proffer ways in which those unfavorable policies could be expunged or cushioned. It should point out the economic and social consequences that could ensue if trade barriers and subsidies are not abrogated. To be able to do this, it should monitor trade agreements or international trade related laws with a view to highlighting the implications for Africa, bearing in mind the region's inability to compete and increase its exports.
It can also create a forum to address specific issues that contribute to the region inability to compete or increase Africa's world market share. For example, African countries face huge cost due to distorted standards. Civil society can offer advice on how standards can be met. Studies have shown that if harmonized international standards were in place and Africa can meet them, exporters in the region will able to boost exports of dried fruits, nuts and cereals by $2.2 billion. It could act as information clearing house for local industries. Most companies in Africa are not familiar with the requirements and procedures under which their products could be best offered for sale in the international market. With lots of information at its disposal, it can advise industries and government officials about other exportable items aside primary commodities.
John P. Powerlson in Centuries of Economic Endeavor shows that countries have prospered where there is genuine diffusion of power and failed to prosper where power is concentrated in a small elite. Lack of diffusion of power in Africa explains why power is concentrated in few elite. African government elites have captured power and are unwilling to give it up. Power sharing and willingness to compromise involve value judgements by humans. Civil society could help in cultivating the culture of compromise and power sharing.
Transparency and good governance is lacking in Africa. This in turn breeds corruption and limits trade potentials. Good governance also translates to economic development. Without it, good things cannot happen. Civil Society should vigorously support and help in initiating policies that stem corruption and encourage transparency.
Sub-Saharan African countries insist they are not really integrated into the world economy given the failure of rich countries to open their markets to African exports. Civil society organizations can assist in influencing and negotiating better agreements under trade regimes like the WTO for improved access to developed world markets. In fact, it would be a greater help if they created outlets for African products and spent less time putting the cart before the horse and obsessing on environmental regulations and labor issues. Both of which are concerns that don't matter if there is no commerce in the first place.
Trade restriction, domestic policy intervention, unfair competition from imports, worsening terms of trade and lack of economic freedom prevent Africa from being able to compete in the world trade. If Africa is to reverse this ugly trend, developed countries must lower tariff to African exports and above all, the region must work to build and support free market institutions. While the former is dependent on happenings outside, the latter is important as internal reforms cannot be imposed from outside. It must evolve within. What remains to be is whether African governments will be able to introduce policies which can enhance the income and wealth of Africans and the region's ability to compete in trade in the 21st Century.