21 C
Harare
Friday, May 24, 2024
spot_img

Africa’s part in global trade: what we know and how to improve it

Article by Kevin Tutani

FOR nations which export more than they import, international trade is a vital foundation for job creation, domestic currency strengthening, economic growth and improved citizen welfare. The opposite generally holds true for net importers. Thus, a net exporter position is desirable in trade and a progressive government is recognizable by its commitment towards improving trade statistics (and outcomes) so that they are in the country’s favour. Africa’s participation in global trade, however, leaves much room for improvement, as it is operating on an extremely low base. The continent’s contribution in global trade (exports of goods and services) was a mere 3%, In 2022. For a continent endowed with vast natural resources, the unimpressive trade statistics indicate a dearth of strategy on how to unlock value out of the available abundant resources. Resource-poor economies such as Japan, for instance, have no significant natural endowments but are major participants in the global trading system. In order to understand the state of trade in Africa, this commentary provides an ample interrogation of the following; key challenges facing global agriculture, Africa’s trade relationship with its traditional partners (E.U., U.S.) and propositions on how to achieve significance in international trade negotiations.

Traditionally, Africa had competitive advantage in agriculture. If the advantage had been utilized and deepened, less competitive regions in farming, such as the EU, would have been importing African agricultural produce to this day. The benefits would have been limitless for the continent. Nevertheless, even with the prevailing manipulated circumstances, farming still accommodates about 60% of Africa’s workforce and  contributes over 20% to continental GDP. Since the sector is labour intensive, it also provides a clear avenue for reducing poverty and setting Africa on a path towards major industrialisation. However, the situation has not been so. Northern economies have been subsidizing their farmers relentlessly for the past decades, driving prices of agricultural commodities downwards and limiting the need and motivation for Africa to expand production in the sector. The price of agricultural commodities is therefore, artificially low, whilst the nations which previously did not have competitive advantage, have become the ones exporting agricultural goods to Africa. Subsequently, Africa has become a net food importer, depending on previously disadvantaged markets to meet its needs.

A look at data from the OECD’s “Agricultural Policy Monitoring and Evaluation, 2020”, clearly shows that Africa’s major trading partners are using massive government intervention in their markets to support their agricultural sectors, which of course, is at the expense of Africa, its farmers and its economic development.

The report outlined that governments around the world, were subsidizing their agricultural sectors to the value of, a massive $700 billion, yearly. $536 billion was offered as direct payments to producers, whilst the remainder ($164 billion) was directed towards consumer nutrition programs, supportive infrastructure and R&D projects.

In the USA, the OECD data revealed that $48 billion was assigned to support local agricultural value chains, in 2019. This comprised, $22 billion in direct support to farmers and $26 billion in nutrition assistance programs to consumers. This goes beyond the country’s WTO (World Trade Organisation) commitments to limit, market distorting, direct support to $19 billion, which is still an already huge intervention.

The EU is also notorious for massive agricultural subsidies, which are administered using their Common Agricultural Policy (CAP) framework. The CAP is the largest budget item, of the EU’s yearly budget. It made up 40%, of the total budget value, in 2019 and was constituted as, €38.2 billion in direct payments to farmers, with an additional €13.8 billion assigned to rural development. A further €2.4 billion, was released to support the market for agricultural products. Interestingly, the CAP budget is grossly associated with opacity, corruption, government manipulation through populism and cronyism, in some EU member states.

China started significant intervention in domestic agricultural markets, around 2004. This was initially meant to protect rural workers from foreign competition (agricultural imports). Although the country has evolved from agricultural dependence, to a manufacturing economy, half of the labour force is still employed in agriculture. Therefore, subsidies continue to be provided to rural farmers, to prevent political instability, ensure food security and respond to competing agricultural imports. Beijing is the largest global spender, on subsidies, in absolute terms ($185.9 billion, in 2019), although it’s spending as a value of gross farm revenues (relative spending), is much less than other regions.

Norway, Iceland and Switzerland, offer much more relative assistance to their agricultural sector, with government contributions of, 57.6%, 54.6%, and 47.4%  of gross farm revenues, according to the OECD report.

Unfortunately, African countries are not capacitated to support their farmers as the more sophisticated economies described above. Nevertheless, understanding the state of government intervention in agricultural markets around the world, will assist towards creating suitable responses to these activities which have thrust the African continent into a cycle of poverty.

The EU and USA, share trading arrangements with Africa, which are meant to improve growth of the continent’s exports into the developed region. However, a deeper analysis shows that, foundational problems associated with the trade deals, continue to stall African exports and offset the purpose of the arrangements.

The EU maintains Economic Partnership Agreements (EPAs), with various African nations (Zimbabwe included), whilst other least developed economies can access their market using the Everything But Arms (EBA) framework. With the European Union’s EPAs, African goods and services can access the EU market, duty-free and mostly, quota-free. This seems a great opportunity but it is not necessarily so. There are two fundamental problems with EU market access which need to be renegotiated, if African nations are to utilize their full export capacity.

Firstly, the EU market maintains complex and sometimes unrealistic health measures for agricultural products. The conditions, known as Sanitary and Phytosanitary (SPS) requirements, have kept out and discouraged a lot of African export potential. European Union SPS (health) standards are typically higher than for other global bodies, to the extent that, theirs’ disregard World Health Organisation (WHO) and United Nations’ thresholds. Their tolerance for herbicide and insecticide residues in crops, is at times, unachievable. Meat and other food products from Africa, are also unable to enter the market, due to the exceedingly high and sometimes unachievable standards. In 2022, South Africa had to initiate WTO dispute consultations with the EU, due to such unrealistic and sometimes unscientific regulations, for SA’s citrus exports. Negotiations are ongoing. Failure to negotiate lower SPS measures, means that the trade deals shared between EU and Africa are largely symbolic and cannot be utilized to their full potential.

Secondly, for African companies which export manufactured goods, it is difficult for them to access the EU market, if they use some components from developed countries in their final product. The complex and winding rules, which govern such exports are mostly onerous to fulfil.

On the other hand, the USA has established the African Growth and Opportunity Act (AGOA), which is meant to offer duty-free access to African agricultural produce and manufactured goods. However,  the deal contains limiting “fine print”. For instance, a quota is assigned (maximum quantity allowable) to each country for most goods. Exports above the quota, are subject to heavy tariffs. Additionally, 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, in order for them to remain eligible for the program. They complied and were retained. Rwanda refused, and its AGOA benefits were restricted. South Africa has also been pressured to; accept US poultry products despite a bird flu outbreak in the US (2014), accept unfair U.S. tariffs on SA steel and aluminium products (2018), accept “dumped” (cheap) US poultry imports (2015). Refusal to accept US demands is typically communicated as, tantamount to losing AGOA benefits. Regarding Zimbabwe, the country seems unfit to meet AGOA entry requirements. It will also not be surprising if it is manipulated to maintain the relationship, if it does qualify, at a later stage.

The use of unachievable SPS (health) standards also characterize the US market. These standards remove the duty-free benefits, through unsustainably raising the cost and price of African exports.

Without addressing the mentioned foundational issues impeding African exports, it will be difficult to achieve any meaningful reform in trade, which will benefit the continent.

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. An African group already exists but it does not handle continental matters as though they were for one unit. Due to the cost and organisational ability needed to manage trade initiatives, several African countries have not been able to participate in a number of key WTO negotiations. Resultantly,  when such trade negotiations are concluded, such countries will be on the “short end of the stick” and have to work with whatever is decided.

The goals of the consolidated African mission in Geneva, should be focused on the following priority areas; removal of northern agricultural subsidies, harmonization of SPS standards under one international body, elimination of quotas (tariff rate quotas) for Africa and other least developed countries.

Africa’s full participation in smaller WTO initiatives or negotiations, will also be necessary in order to achieve suitable and impermeable global trading terms. In this regard, ongoing WTO, Joint Statement Initiatives (JSIs) on; investment facilitation, services regulation, micro and small and medium enterprises (MSMEs), e-commerce, plastics pollution and environmental sustainability, need to be fully attended with robust representation for the continent’s interest. Currently, as stated before, a number of African countries have been skipping some of the JSIs (negotiations), due to incapacitation of representatives and shortage of funds to support the required diplomatic skills.

Apart from expense, there are also challenges such as, the fear of retaliation by donor countries and limited capacity to ensure the compliance of a trading partner who loses a case or dispute, at the WTO. Additionally, it can be more difficult to drive reform as a single African country, which already enjoys preferential trade agreements (EPA, AGOA, etc), with developed countries. Consolidating negotiations through using one seat for Sub-Saharan Africa, should address the challenges  associated  with such problems. In the worst case scenario, regional economic blocs (SADC, COMESA, EAC) should steer the negotiations of African countries at the organisation.

Furthermore, it is imperative to invest in African “think tanks”, which can assist in the interpretation of WTO initiatives and drafting negotiations. Moreover,  the African Union (AU), which already has an office in Geneva, which monitors deliberations at Geneva-based international organizations, may be tasked to attract suitable talent, which can assist to oversee the activities of independent African states, draft proposals, interpret statutes and provide an advisory role.

Therefore, in order to effect changes to the international trade “rulebook”, Africa should consolidate its position so as to leverage the most value. 

Kevin Tutani is a political economy analyst, he can be contacted at tutanikevin@gmail.com

Related Articles

[td_block_social_counter facebook="tagdiv" twitter="tagdivofficial" youtube="tagdiv" style="style8 td-social-boxed td-social-font-icons" tdc_css="eyJhbGwiOnsibWFyZ2luLWJvdHRvbSI6IjM4IiwiZGlzcGxheSI6IiJ9LCJwb3J0cmFpdCI6eyJtYXJnaW4tYm90dG9tIjoiMzAiLCJkaXNwbGF5IjoiIn0sInBvcnRyYWl0X21heF93aWR0aCI6MTAxOCwicG9ydHJhaXRfbWluX3dpZHRoIjo3Njh9" custom_title="Stay Connected" block_template_id="td_block_template_8" f_header_font_family="712" f_header_font_transform="uppercase" f_header_font_weight="500" f_header_font_size="17" border_color="#dd3333"]
- Advertisement -spot_img

Latest Articles