Sunday, February 22, 2015

Free Trade ? Fair Trade?

After 50-odd years of independence and despite having abundant natural resources, the global trade regime continues to be twisted against sub-Saharan African countries. The slogan ‘fair trade’ means different things to different people, but Africans can confidently claim it has not happening for them. Africans still provide the wealthier nations with the raw materials from which they gain substantially higher value in the form of manufactured goods. Hence the need for aid. Worse still, raw commodity prices for such things as coffee beans, cotton, copper and tea fluctuate far more than finished items like canned food, computers and vehicles.

In 1980, sub-Saharan Africa had a 3.8% share of world exports. By 1998, this share had dropped to just 1.3% but in 2012, it had increased to 2.3%. Latest figures put this share at 3% today. In its 2014 report, the Geneva-based World Trade Organisation states that in 2013, the value of world merchandise exports topped $18.8 trillion. Africa contributed only $600 billion to this.  

Most African nations are finding it difficult to climb up the global value chain, because their range of exports are both basic and unprocessed. Generally what we are selling is on the lower end of the international market. That means for most African countries, their terms of trade will stay unfavourable until more is done in diversification and better access to lucrative markets for their value-added items. Instability caused by wayward politics and often accompanied by citizens having to dodge bullets, does not make for high productivity or inspire new investment in infrastructure.

African nations are not trading enough among themselves. Mutual distrust is holding back mutual gain. The borders created by the former colonialists seem to act like a psychological block, even though informal trade rooted in necessity tends to flourish.  Faced with a serious sugar deficit, one country’s government would prefer to order supplies from distant Brazil than buy from their neighbours who have a surplus to spare.

Developed countries have shown a deep reluctance to open up their markets to those products in which Africans have a comparative advantage; specifically agricultural produce.  The sophisticated use of Sanitary and Phytosanitary (SPS) measures locks out most African produce. Kenyan researcher, Hezron Nyangito concluded that many African countries find it difficult to meet the standards because of technical and resource-capacity constraints.  ‘Studies in Kenya show that to comply with high EU standards, farmers would have to spend 10 times more than they currently do. Uganda would need to spend $300 million upgrading its honey-processing plants and coffee producers would spend 200% more to produce coffee at the required standard,’ he wrote.

Africa’s agricultural exports accounted for 3.3 percent of world agricultural trade in 2009-2013, up from 1.2 percent in 1996-2000. However, the Americans, Europeans and Japanese have not significantly budged on reducing the nearly $300 billion used to subsidise their dwindling farming populations.

Mo Ibrahim, the Sudanese billionaire who founded and sold the cellular phone network multinational, Celtel says, “If African products are forced to compete in markets that are skewed towards European and American producers, Africans are not being given a fair chance to develop. The fiercely debated issue of trade barriers speaks directly to the question of whether there is a genuine international commitment to Africa’s development.”

In other words, the industrialised countries don’t mind buying your cotton, but usually have no interest in your locally made shirts. To add insult to injury, African demand for secondhand clothes has decimated local garment industries.

Former South African finance minister, Trevor Manuel said, “The problem is not that international trade is inherently opposed to the needs and interests of the poor, but that the rules that govern it are rigged in favour of the rich. The international trading system is not a force of nature. It is a system of exchange, managed by rules and institutions that reflect political choices.”

In 2005, the Commission for Africa stated, ‘First, Africa’s collapse in share of world trade has been partly due to its low capacity to produce and trade – in commodities, manufactured goods and services – and to do this competitively. In other words there are key problems in what economists would call the ‘supply side’, rather than the ‘demand-side’ issues of market access. Such capacity constraints have been reinforced by the disgraceful protectionism facing it in the markets of the developed world, and the need to compete with heavily subsidised developed country exports. Those barriers and subsidies are absolutely unacceptable; they are politically antiquated, economically illiterate, environmentally destructive, and ethically indefensible.’

A subsequent report in 2010 revealed that nothing much has changed.

Many commentators propose changes to the economic policies of both the African nations and those it wishes to trade with in the Americas, Asia and Europe. They hope salvation will be with becoming more competitive. It is blind faith only. Socialist Banner suggests that it is a utopian aspiration that the condition and standard of the African people will ever improve on the theory of trickle-down economics…even if that growth is achievable, a suspect assumption when the world faces new trade pacts favouring the transnational corporations than sovereign nations. World socialism is the only alternative.

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