KEVIN TUTANI: Africa’s part in global trade: what we know and how to improve it
For nations that export more than they import, international trade is a vital foundation for job creation, maintaining the value of the domestic currency, economic growth and improved citizen welfare. The opposite generally holds true for net importers.
A net exporter position is therefore desirable in trade, and a progressive government is recognisable by its commitment to improving the trade statistics (and outcomes) so that they are in the country’s favour.
However, Africa’s participation in global trade leaves much room for improvement, as it is operating on an extremely low base. The continent’s contribution to global trade (exports of goods and services) was a mere 3% in 2022. For a continent endowed with vast natural resources this unimpressive trade statistic indicates a dearth of strategy on how to unlock value from the available abundant resources.
Yet some resource-poor economies, such as Japan, have no significant natural endowments and are still major participants in the global trading system. To understand the state of trade in Africa we need to interrogate the key challenges facing global agriculture, Africa’s trade relationship with its traditional partners (mainly the EU and US) and how to achieve significance in international trade negotiations.
Negative impact of agricultural subsidies
Traditionally, Africa had a competitive advantage in agriculture, including plenty of fertile land and conducive climatic conditions. If this advantage had been used and deepened, less competitive regions in farming, such as the EU, would have been importing far more African agricultural produce today. The benefits would have been limitless for the continent.
Nevertheless, even with the prevailing manipulated circumstances farming still occupies about 60% of Africa’s workforce and contributes more than 20% to the continent’s GDP. Since the sector is labour intensive, it also provides a clear avenue for reducing poverty and setting Africa on a path towards industrialisation.
But that’s not how it’s worked out. Northern economies have been subsidising their farmers relentlessly for the past several decades, driving prices of agricultural commodities down and limiting the need and motivation for Africa to expand production in the sector. The price of agricultural commodities is therefore artificially low, while the nations that previously did not have any competitive advantage have become some of the biggest exporters of agricultural goods to Africa.
Africa has become a net food importer, depending on previously disadvantaged markets to meet its needs. A look at data from the Organisation for Economic Co-operation & Development’s (OECD’s) agricultural policy monitoring & evaluation 2020 document clearly shows that Africa’s major trading partners are using state intervention in their markets to support their agricultural sectors. This, of course, is at the expense of Africa, its farmers and the continent’s economic development.
The report revealed that governments around the world were subsidising their agricultural sectors to the value of $700bn a year, with $536bn offered as direct payments to producers and the remainder ($164bn) directed towards consumer nutrition programmes, supportive infrastructure and research & development projects.
Norway, Iceland and Switzerland granted the most assistance to their agricultural sectors, with government contributions of 57.6%, 54.6% and 47.4% of gross farm revenues respectively. China, the EU and US also featured in the publication, with $185.9bn, $58.5bn and $48bn in domestic agricultural support respectively.
Relationship with traditional partners
The EU and US have trading arrangements with Africa, which are meant to improve growth of the continent’s exports into the developed region. However, there are foundational problems associated with these trade deals, which continue to stall African exports and undermine the purpose of the arrangements.
First, the EU market maintains complex and sometimes unrealistic health measures for agricultural imports. These conditions, known as sanitary & phytosanitary requirements, have kept out and discouraged a lot of African export potential. EU sanitary and phytosanitary (SPS) health standards are typically higher than for other global bodies, to the extent that they disregard World Health Organisation and UN thresholds.
For this reason SA had to initiate World Trade Organisation (WTO) dispute consultations with the EU in 2022 to counter unrealistic and sometimes unscientific regulations applied to SA’s citrus exports. Negotiations are continuing. For African companies that export manufactured goods it is also difficult to access the EU market if they use any components from developed countries in the final product. Convoluted rules govern many export categories, making them onerous to fulfil.
The US, on the other hand, unilaterally passed the African Growth & Opportunity Act (Agoa), which offers duty-free access to much African agricultural produce and many manufactured goods. However, the deal contains inhibiting “fine print”. For instance, a quota (maximum quantity allowable) is assigned to each country for most goods, and any exports above the quota are subject to heavy tariffs.
In addition, the US has a history of using Agoa as a weapon in both political and economic negotiations with African countries. In 2017 Uganda, Tanzania and Kenya were directed to revoke tariffs on second-hand clothes from the US if they wanted to be eligible for Agoa benefits. SA has also been pressured to accept US poultry products despite a bird flu outbreak in the US (2014), accept unfair US tariffs on SA steel and aluminium products (2018), and accept “dumped” (cheap) US poultry imports (2015).
Refusal to yield to US demands is typically interpreted as putting Agoa benefits at risk. The use of unachievable SPS standards also characterises the US market. These standards remove duty-free benefits, sustainably raising the cost and price of African exports. Failing to address the aforementioned foundational issues impeding African exports will make it difficult to achieve any meaningful trade reform that could benefit the continent.
Redesigning trade conditions
There is an urgent need for the continent to manage trade negotiations as one unit at the WTO headquarters in Geneva. This should yield better outcomes than individual African countries representing themselves. The goals of a consolidated African trade mission to Geneva should be to focus on a number of priority areas, including removing northern agricultural subsidies, harmonising SPS standards under one international body, and eliminating quotas (tariff rate quotas) for Africa and other least developed countries.
It is also imperative to invest in African “think-tanks” that can assist in the interpretation of WTO initiatives and trade negotiations. The AU, which already has an office in Geneva to monitor deliberations at other Geneva-based international organisations, should be tasked to attract suitable talent to oversee the activities of independent African states, draft proposals, interpret statutes and provide advisory services.
• Tutani is a political economy analyst.
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