Africans must enable ways to get bigger slice of world trade

The importance of trade as an engine of economic growth was highlighted by the deputy director-general of the World Trade Organisation (WTO), Alan Wolff, at the University of Western Cape on Friday.

He underlined the need for African governments to create an enabling domestic environment for the continent to thrive in an increasingly open world economy.

“The importance of the rules-based multilateral trading system cannot be overestimated. It has made a positive contribution to the expansion of the global economy and in the process lifted several million people out of poverty. Since its establishment on January 1 1948, world trade has expanded by 20 times, and world GDP has grown by 15 times,” said Wolff.

“Despite negative headlines about the imposition of trade restrictions and increased tariffs, which bombard us almost daily, in fact, most world trade continues to take place in accordance with agreed multilateral rules.

“These rules have made a valuable contribution over seven decades, and recently proved their worth in the severe economic test of the financial crisis and recession beginning in 2008.”

Wolff said countries willing to go through rigorous domestic reform do so not just to gain better access to world markets but to reduce poverty, foster domestic growth and attract foreign direct investment.

But he said notwithstanding the engagement of African countries, their share of world trade has fallen, not least because of commodity dependence and unfavourable price movements. But it is also due to failure to create a domestic environment that enables their societies to thrive in a more open world economy.

“The African Continental Free Trade Agreement is expected to create an integrated market with harmonised customs and trade rules, facilitating the cross-border flow of goods and services and making Africa more attractive to foreign investors. Trade costs in Africa are among the highest in the world. This has a negative effect on the competitiveness of firms and also deters domestic and foreign investment.

“The continent is also in need of greatly improved infrastructure to enhance connectedness. Investments in this area are beginning to make a difference, but there is a long way to go. Connectedness needs to exist not simply in a physical dimension. In an increasingly digitalised world, information technology will determine the extent of participation of countries in the global economy.

“There is already evidence of technological progress in this respect. Africa is a pioneer in the use of mobile phones to conduct financial transactions. This has benefited farmers and small businesses who have to contend with information asymmetries.” Wolff said there is reason for optimism that the present challenges to international trade can be overcome. However, a positive result cannot be achieved through drift and indecision. It will take an enormous conscious effort on the part of all WTO members, including African countries, to ensure a positive outcome.

He reported that a recent article by two analysts Robert Kagan and Ivo Daalder sets out a conclusion that the strategies to sustain the present international order are much the same as the strategies that created it.

“They need to be adapted and updated to meet new challenges and take advantage of new opportunities.”

Wolf identified the present challenges as:

The rise of a major new economic power creates trade friction. In the last quarter of the last century, this was Japan. This time it is an even larger nation, China, that has rapidly become a major factor in world trade.

The discontent with, and consequent threatened disruption of the WTO dispute settlement system by a major trading country, the US.

The growing recognition of the need for an updating of the existing rules by the four largest trading entities the EU, the US, Japan and China and a number of midsized and smaller economies.

The dissatisfaction of many developing countries, particularly African countries, with the progress that has been made to spur development through trade.

“African countries should have the opportunity to take advantage of the rules-based multilateral trading system to achieve robust economic growth and sustainable development. This would not only be equitable but would also greatly benefit the world at large,” said Wolff.

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THE CONTINENT IS ALSO IN NEED OF GREATLY IMPROVED INFRASTRUCTURE TO ENHANCE CONNECTEDNESS