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Sunday, October 25, 2020

Africa in Globalization: How to explain Africa’s low share in world trade?

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World trade will continue to experience severe turbulence in 2019 and 2020 after weaker than expected growth in 2018, due to rising trade tensions and increased economic uncertainty. According to economists of the World Trade Organization, growth in the volume of merchandise trade is expected to fall to 2.6% in 2019, down from 3.0% in 2018, and down from 5.4% in 2017, as a result of headwinds in the face of global growth and the trade landscape. Trade growth could then rebound to 3.0% in 2020 — provided, however, that trade tensions ease.

The political context for world trade in 2018 was marked by a shift from protectionist rhetoric to unilateral action. The United States imposed tariffs on several of its major trading partners. The United Kingdom continues in its imminent exit from the European Union. The U.S.-Mexico-Canada agreement was signed by all three parties with a view to replacing the 1994 North American Free Trade Agreement.

Many governments have continued their efforts with bilateral and regional trade agreements. These include:

– The Comprehensive and Progressive Agreement for the Trans Pacific Partnership and a European Union-Japan Trade Agreement is about to enter into force and ratification by both parties by the end of the year;
– Negotiations on a comprehensive regional economic partnership involving many of Asia’s largest economies, namely China, India, Japan and Australia, as well as the Association of Southeast Asian Nations continue to make progress;

Does this panorama of the global context challenge us about what is happening in Africa? Is Africa forgotten or neglected? First of all, a current situationer of the African continent in international trade will allow us to note the weak role and place that this continent occupies in international trade. After that, it will be relevant to present the causes and consequences of this lack of attention. Following the above, we will be able to reflect on the elements necessary for the increase of Africa’s trade with the world.

I. CURRENT SITUATION OF AFRICAN COUNTRIES IN WORLD TRADE

Africa remains the most fragmented continent in the world, with 54 countries separated by many borders.

According to the WTO report, “Statistical Review of World Trade 2018,” Africa’s share of merchandise exports to the continent almost doubled from 10.3% of total exports (by value) in 2010 to 19.6% in 2017. At the same time, the continent has recorded a record growth in international tourism receipts, with a 25% increase in exports of travel services. Merchandise exports from the least developed countries increased by 13%. However, their share in world trade remains low at less than 1%. This increase has supported economic growth and poverty reduction and thus contributed to the achievement of the Sustainable Development Goals. It is clear, however, that much remains to be done, and clouds are gathering on the horizon.

With regard to merchandise trade volumes, all regions recorded an increase in 2017 except the Middle East, which recorded a decrease. Africa, for its part, recorded the lowest growth in trade volume of 3.1% almost equal to Europe which recorded 3% compared to the global growth of 4.7% and 8.1% for Asia (fig.1.1).

Africa’s trade is overly dependent on a small number of primary products. African oil exporters have seen their total exports increase for the first time since 2012, with the exception of Chad and Sudan, which are plagued by internal armed conflicts. Together, African oil exporters accounted for 35.0 percent of Africa’s exports in 2017, up from 31.9 percent in 2016.

II. CAUSES AND CONSEQUENCES OF THE LOW LEVEL OF TRADE BETWEEN AFRICA AND THE REST OF THE WORLD

1. Causes

Historical causes: The WTO Deputy Director General (2005-2013) Valentine Rugwabiza, in a speech delivered at the University of the Witwatersrand in Johannesburg, South Africa, on April 12, 2012, recalled that “during the colonial period, the economies of most African countries were designed to provide low-cost raw materials to companies located in the colonial powers.” For example, France developed the Senegalese economy around the cultivation of groundnuts for export, Ghana and Côte d’Ivoire produced cocoa, Zimbabwe and Malawi produced tobacco, Kenya and Tanzania produced coffee and tea. The colonial system was based on a rigid division of labor, with no specialization, no value addition and no development of a production chain between African countries. Once they gained independence, African countries were not able to solve this problem. Export products and export markets became very little diversified. Political independence was not accompanied by commercial or economic independence, and the trade structure inherited from the colonial era remained largely unchanged.

Non-Tariff Barriers: According to the International Trade Centre’s 2018 Annual Report, one of the main obstacles to exporting for businesses in developing countries is compliance with health and safety standards or technical regulations for products in potential foreign markets. Another challenge is obtaining certification that assures the authorities in importing countries that the imported goods actually comply with the relevant requirements.

In West Africa, where governments are working to promote trade between neighboring countries and with the rest of the world, International Trade Centre surveys indicate that 75% of enterprises encounter barriers to exporting or importing due to trade-related regulations or procedures in the region.

Discrimination and stigmatization of Africa: Major WTO agreements do not grant any privileges to Africa. It is marginalized and the world has a negative perception or plays the card of hypocrisy to take advantage of the weak situation of the African region to monopolize its raw materials. For example: the GATT (General Agreement on Tariffs and Trade) which no longer exists as an international organization, but is still in force. According to Jean-Maurice Djossou in his book L’Afrique, le Gatt et l’OMC: Between customs territories and trading regions, the relationship between Africa and the GATT-WTO system is determined by the statutory changes in African territories and the evolution of free international trade as the foundation of a world trade order. The raison d’être of this trade order and of an international organization such as the WTO lies in the premise that all participating nations benefit from progressive trade liberalization. The search for this benefit and the practice of African states challenge inter-stateism as the legal basis for effective participation in the regulation of world trade.

The proliferation of economic integration agreements reinforces this interpretation and justifies the proposal for institutional participation in the WTO. The same goes for:

– The General Agreement on Trade in Services (GATS) with respect to most-favoured-nation treatment and the conditional granting of market access and national treatment,
– Trade Related Aspects of Intellectual Property Rights (TRIPS): With regard to the conflict resolution process, it is not in the interest of the African region, especially poor countries, to file a complaint against another developed country, and vice versa for the world powers to poor countries because there is a big bias in terms of allies for lobbying, economic power and advantages and privileges.

Inadequate infrastructure: the infrastructure set up during the colonial period that Africa inherited from colonial powers was outward-looking and there was almost no internal network allowing exchanges between African countries. The maintenance of this infrastructure supported fairly strong economic growth from the early 1960s until the oil shocks of the 1970s. Between then and the mid-1990s, a prolonged economic slowdown, combined with growing interest in regional trade and other economic association agreements, accelerated the evolution of Africa’s economic structures. The good news is that infrastructure spending has begun to accelerate over the last two decades — for example in Senegal, where investments in the road infrastructure sub-sector are estimated at nearly CFAF 840 billion for the period 2012-2016 (5 years), or an average of CFAF 198 billion per year. For the period 2000-2011 (12 years), these investments were about CFAF 726 billion, or an average of CFAF 60.5 billion per year.

Intra-regional trade: According to Africa Renewal of August 2014, the problem is partly due to the mismatch between the political ambitions of African leaders and economic realities. When countries produce what their trading partners need, trade thrives. This is not really the case for Africa yet: what it produces, it does not consume; and it consumes what it does not produce. This equation explains the weakness of intra-regional trade, which accounts for only 10% to 12% of the continent’s total trade compared to 40% in North America and 60% in Western Europe. More than 80% of African exports go abroad, mainly to the European Union, China and the United States. Added to this are complex and contradictory trade rules, customs restrictions, and poor infrastructure. Not surprisingly, therefore, intra-African trade has barely increased in recent decades.

2. Consequences

The Commonwealth of Independent States and Africa have rebounded, with their services exports increasing by 14% and 13% respectively in 2017. Despite this recovery, Africa’s share in global services exports (1.9%) remained the lowest of all regions in 2017.

In Africa, regional trade agreements (RTAs) mainly concern the sub-Saharan region. With between 5 and 14 member economies, their composition tends to overlap. RTA member countries achieved double-digit growth in exports and imports in 2017 as a result of rising commodity prices. This is partly due to the contribution of fuels and mining products, which account for more than 50% of total exports for the Economic Community of West African States (ECOWAS) and the Economic and Monetary Community of Central Africa (CEMAC).

Intraregional trade is not well-developed among African RTAs. Intra-ACR trade accounts for between 2% and 11% of total exports, except in the case of the Southern African Development Community (SADC), where it accounts for 19%.

There are obstacles to increasing intraregional trade in Africa. Poor infrastructure and high export and import costs prevent African economies from taking full advantage of their proximity to markets. Compared to high-income economies, the cost of export customs formalities can be three times higher for members of the West African Economic and Monetary Union (WAEMU), where trade costs are the lowest among all African RTAs.

All this proves that Africa has been left behind by foreign investors, although several studies have shown that returns on investment are much higher in Africa than in Asia or Latin America.  Despite these difficulties, the African continent continues to suffer from external shocks. The overexposure to the European, American and Japanese markets is a visible example. Africa has suffered the consequences of the recession that hit these countries. Demand for its exports has fallen, harming its growth prospects. The current momentum of the ECO, the new West African currency, will certainly have a negative impact on the growth of the areas concerned, even going as far as devaluation.

This marginalization, lack of respect and attention, including the insufficient integration of African economies, is a direct result of the low participation of African companies in global value chains. The biggest consequence is that African countries are deprived of opportunities to increase their growth.

III. WHAT IS NEEDED TO INCREASE AFRICA’S TRADE TO THE WORLD

Relevance to Africa: Initiatives such as the African Continental Free Trade Area, which aims to create a single market for goods and services on the African continent, are expected to reduce the costs of intraregional trade, thereby encouraging the creation of regional value chains and the diversification of export products.

For African members, given the diversity of their relatively weaker economies, supporting a strong multilateral trade framework is critical. This also means that Africa has a special obligation to ensure the survival of this framework. More importantly, each country, each coalition, has an obligation to think about what it can contribute to safeguarding the system, rather than trying to dictate to others what they should do. African members (like all WTO members) should examine in depth what liberalization and multilateral rules mean to them. We need to view liberalization and domestic reform as something we do for ourselves, rather than as “concessions” offered to others. We should see the multilateral trading system as an instrument that best accompanies our own reforms, not as an instrument for reforming others. All economic studies show that the bulk of a country’s benefits from a successful Doha Round will come from the domestic reforms it entails rather than from opening new markets abroad. Second, Africa should critically examine what (within the existing legal framework) is most conducive to its sustainable development and what needs to be changed.

Political Economy in Africa under the MTS: The challenge for Africa is to diversify its industrial and service base, create jobs for its growing population, and enhance local value-added. An outward-looking industrial and services policy has been the basis for the development of all major developed and emerging countries. Most of these countries have used industrial policies and protections (many of which are now banned) to establish their national industrial and service infrastructure. They only used and joined free trade when they were sufficiently competitive and needed external markets to expand production.

It is legitimate to doubt that the current rules take into account the special difficulties encountered by newcomers to the international market. There is an urgent need to determine which international environment is best suited to facilitate their integration into the global production system and what this means for the multilateral regulatory framework. Such an approach would also require Africa to identify the internal reforms needed to ensure the diversification of its economies and the preservation of the benefits derived from transformation within national and/or regional borders.

CONCLUSION

According to the author of the article: “Africa in international trade: state of play, reasons for the marginality of the continent and solutions to consider”, “It can be said that, as things stand, international trade takes place without Africa. In any case its participation here is the lowest of all continents. The reasons for this weak insertion are mainly technical and economic. This is why priority action must be taken in these areas. In other words, it is a question of initially making Africa an emerging continent…”

Enhanced intra-African integration is essential for development, provided it is designed and implemented as part of a broader development strategy to promote:

– economic diversification,
– structural changes, and
– technological development, which can strengthen the productive capacities of African countries, enable economies of scale, improve competitiveness, and serve as a springboard for their effective participation in the global economy.

Bibliography:

https://www.wto.org/french/res_f/statis_f/wts2018_f/wts2018_f.pdf : STATISTICAL REVIEW OF WORLD TRADE 2018
http://www.intracen.org/uploadedFiles/intracenorg/Content/About_ITC/Corporate_Documents/Annual_Report/Annual%20Report%202018_French.pdf : Annual Report 2018
https://www.wto.org/french/news_f/news12_f/ddg_12apr12_f.htm : “Africa should trade more with Africa to ensure future growth
https://www.un.org/africarenewal/sites/www.un.org.africarenewal/files/Africa_Renewal_Aout_2014_FR.pdf : Africa Renewal _August 2014, Vol. 28 No. 2
1http://georepere.e-monsite.com/medias/files/afrique-et-commerce-international-1.pdf Article: Africa in International Trade: State of Play, Reasons for the Marginality of the Continent and Solutions to Consider

__________________

Ibrahima Yves Ghislain Tchouante is a student in Master2 AIDE à la Décision et Evaluation des Politiques Publiques (MASTER ADEPP) at the Ensae-Universite Paris Dauphine-IRD
Dakar Senegal. She can be reached through: ibrahima-yves.tchouante@dauphine.eu / yvespcj@gmail.com

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