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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.
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