Addis Fortune Home
Fortune News
News From Other Sources
Agenda
Editor's Note
Opinion
View Point
My Perspective
Life Matters
View From Arada
Restaurant Review
Business Opportunities
Cartoons and Comic Stripes
Gossip..
Archive..
 



 
 
 
 
             
 
 
 
 
 
 
 
 

 

ABDOULAYE BIO TCHANE, a director of the African Department at the International Monetary Fund (IMF), holds that the most important policies for poor African nations to focus on are the prevalent trade restricting regimes. The current policies, including some of the highest tariffs in the world, hurt not only imports, but make production inputs to strategic exports more expensive. The current regional trade agreements (RTAs) amongst many African nations are misguided, while the real benefits lie in establishing broad agreements with European nations where comparative advantages may be exploited.

What Drives Trade in Africa, Why It Matters?

 

 

 

 








 

Although economic growth in sub-Saharan Africa has exceeded five per cent in each of the past three years, that will not be enough for most countries in the region to reduce poverty as much as we all wish. And while governments have been doing a much better job of managing their economies in recent years - inflation is declining and budget deficits are lower - much of this encouraging turnaround is obviously due to rising world prices for the commodities Africa is rich in.

Commodity booms come and go. Domestic demand rises and falls. But international trade as a whole does not fluctuate - it just keeps growing. Yet in spite of its heady economic performance in recent years, Africa's share of world trade has been falling steadily: from four per cent in 1970 to barely two per cent today. Meanwhile, Asia's share of world trade shot up from just over five per cent to more than 20pc. What might be making the difference?
 

Among the factors that promote trade throughout the world are skills complemented by capital, reduced trade protection and reduced transport costs.
 

The greater the investment in education, the richer a country becomes in skills. But skills alone are not enough. A country needs capital. Some should certainly come from a domestic pool of saving, some from the private sector. That means well-run and properly supervised banks that the people can trust.
 

Some capital may come from foreign investment - but there will be very little of that unless foreign investors are confident that the expenses of investing in a country are not too high. That will only happen if barriers to doing business are minimal.
 

A country where the cost of doing business is high will attract few if any investors. Unfortunately, on the World Bank (WB) "Doing Business" indicators, most countries in sub-Saharan Africa rank very, very low.
 

One thing that keeps economies growing, so they can improve their people's standard of living, is being able to export a variety of products. And as Asian countries demonstrated, that means exporting more manufactured goods. But even when African countries have plenty of different products to export, they are not cost-conscious producers.
 

Oddly enough, this is where trade protection (and removing it) comes in. Most people think high tariffs and other non-tariff barriers only affect imports. But an import tax can also be a tax on exports, because it raises the costs of the materials and components manufacturers need to produce their products.
 

Average tariffs in Africa are high relative to other regions, and there are still too many trade licenses, road blocks and checkpoints throughout Africa. Shipping goods overseas is also made much more expensive because of poor roads, inefficient port facilities and complex customs procedures.
 

It is no good looking outside the country for trade salvation. The World Trade Organisation (WTO) efforts to liberalise trade are in limbo. And even if the Doha Round is revived soon, we need to be realistic about its likely benefits for Africa: Because most African countries have not offered to reduce their own tariffs, the terms of trade effect of a successful Doha negotiation are uncertain. African countries would do well to reduce tariffs against the rest of the world so that other countries do not take their trade elsewhere.
 

Whether or not the Doha Round is successful, African counties must undertake their own reforms. They need to make domestic production more efficient so they can respond to trade opportunities when they arise.
 

There are no substitutes for tough unilateral reforms. Well-designed regional trade arrangements (RTAs) may help increase the size of markets so members can exploit economies of scale and increase competition, but most African RTAs are simply too small to expand markets much and they often consist of countries that have similar resources.
 

For instance, the Central African Economic and Monetary Community (CEMAC) has six members. Five of them export oil, so there is virtually no market in CEMAC for their most valuable commodity. And most African countries are members of at least four RTAs, many of them with conflicting requirements. The need for simplification is becoming desperate.
 

The current negotiations for Economic Partnership Agreements (EPAs) with the European Union(CEU) provide an opportunity to streamline the RTAs by establishing four customs unions, which would then establish free trade agreements with the EU. Structured correctly, these could be very beneficial for African countries, but a great deal depends on how they are negotiated.

Although the factors driving trade are similar, there is no single route to increased trade. Countries as varied as Argentina, which is heavily dependent on agriculture, and Indonesia, which has triple the share of manufacturing in its exports, have been doing well. Ultimately, trade growth in Africa is Africa's responsibility. Each country in the region must drive its own trade. How well it does so ultimately affects how well its people live.