Trade liberalisation kicked away African development ladder

Ahave long been promised trade liberalisation would accelerate growth and structural transformation. Instead, it has cut its modest production capacities, industry and food security.

Berg helped sink Africa

The 1981 Berg Report was the World Bank’s blueprint for African economic reform.

Despite lacking support in theory and experience, Africa’s comparative advantage was supposedly in export agriculture.

Once obstructionist government interventions were gone, farmers’ previously repressed productive potential would spontaneously achieve export-led growth.

But there has been no sustained African agricultural export boom since.

Instead, Africa has been transformed from a net food exporter in the 1970s into a net importer.

Over the next two decades, its share of world non-oil exports fell by more than half from the early 1980s.

Sub-Saharan Africa (SSA) export growth from the late 20th century has mainly been due to foreign direct investment from Asia, especially China and India.

Nevertheless, Africa’s share of world exports has declined.

High growth in Asian economies contributed most to raising primary commodity prices, especially for minerals, until they collapsed in 2014.

Underdeveloped agriculture

African agriculture has been undermined by decades of low investment, stagnation and neglect.

Public spending cuts under structural adjustment programmes (SAP) have also depleted infrastructure (roads, water supply, etc), undermining output.

SAP’s neglect of infrastructure and agriculture left many developing nations unable to respond to new agricultural export opportunities.

Meanwhile, projections ignored the fate of African food security.

SAP undermined the already poor competitiveness of African smallholder agriculture.

Unsurprisingly, most of the poorest and least developed African countries were projected to be net losers in the

Bank’s more “realistic” World Trade Organisation (WTO) Doha Round trade liberalisation scenarios.

Uneven partial trade liberalisation and subsidy reduction have mixed implications.

These vary with the food shares of national imports and household spending.

Wishful development thinking

World Bank research claimed African countries would gain US$16 billion (RM75.8 billion) from “complete” trade liberalisation.

But this scenario was never envisaged for the Doha Round negotiations – virtually abandoned two decades ago.

Nonetheless, the Bank claimed SSA would gain considerably because “farm employment, the real value of agricultural output and exports, the real returns to farm land and unskilled labor, and real net farm incomes would all rise substantially in capital scarce SSA countries with a move to free merchandise trade”.

Total welfare gains envisaged for SSA minus South Africa were slightly over half of one per cent.

But World Bank projections for the overall effects of multilateral agricultural trade liberalisation expected significant losses for SSA.

Gains worldwide would mainly accrue to major food exporters, primarily from the Cairns Group, largely from rich countries.

The rich world has long dominated food agricultural exports with indirectly subsidised farming.

Lowering agricultural subsidies in the North has thus raised some imported food prices in developing countries.

Also, most African governments cannot easily substitute lost tariff revenue with other new or higher taxes.

After years of trying, developing countries have virtually given up trying to “level the playing field” by cutting Organisation for Economic Co-operation and Development governments’ agricultural subsidies, import tariffs and non-tariff barriers.

Gains from liberalisation?

Greater trade liberalisation in manufactures, enhanced by the WTO non-agricultural market access agreement, has also undermined African industrialisation.

Limited African market access to affluent country markets has been secured through preferential market access agreements rather than trade liberalisation.

A Malawian economist and public intellectual, who was African development chair and professor of African development at the London School of Economics, Thandika Mkandawire, noted trade liberalisation would entail losses for Africa with the end of European Union preferential treatment under the Lome Convention.

Hence, the likely overall impacts of trade liberalisation on Africa were recognised as mixed and uneven.

The economic welfare of SSA – without Zambia, South Africa and members of the Southern African Customs Union – was supposed to rise after a decade by threefifths of one per cent by 2015.

The Doha agreement envisaged then emphasised manufacturing trade liberalisation.

Despite gains for some developing countries, SSA minus South Africa would lose US$122 billion as SAP accelerate deindustrialisation.

SSA minus South Africa would lose US$106 billion to agricultural trade liberalisation due to poor infrastructure, export capacities, and “competitiveness”.

Hence, partial trade liberalisation – and subsidy reduction – have uneven and mixed implications.

Fraudulent policy advice

With more realistic assumptions, SSA gains from trade liberalisation would be more modest.

As economic growth generally precedes export expansion, trade could help foster virtuous circles but cannot enhance productive capacities and capabilities on its own.

The United Nations Conference on Trade and Development has long emphasised the importance of growth for trade expansion, especially the weak investment-export nexus.

This accounts for the failure of many countries to expand and diversify their exports.

Rapid resource reallocation is much more difficult without high growth and investment rates.

For University of Toronto, Department of Economics professor emeritus Gerry Helleiner, who is also Munk Centre for International Studies distinguished research fellow, “Africa’s failures have been developmental, not export failure per se”.

Turkish economist Dani Rodrik, who is also Ford Foundation professor of international political economy at the Harvard University John F. Kennedy School of Government, argued Africa’s marginalisation is not due to trade performance.

Africa’s export collapse in the 1980s and 1990s involved “a staggering annual income loss of US$68 billion or 21% of regional GDP”.

Former World Bank economist Bill Easterly blamed these lost decades on SAP. Nonetheless, “Africa overtrades compared with other developing regions in the sense that its trade is higher than would be expected from the various determinants of bilateral trade”.

Trade liberalisation has significantly reduced trade, industrial, technology and investment policy space for developing countries.

Unsurprisingly, food security and manufacturing have been especially badly hit. – IPS

“As economic growth generally precedes export expansion, trade could help foster virtuous circles but cannot enhance productive capacities and capabilities on its own.