Africa seiz­ing his­toric devel­op­ment op­por­tu­nity

China Daily - - VIEWS - The au­thor is vice-pres­i­dent and chief econ­o­mist of the African Devel­op­ment Bank Group. Project Syn­di­cate

The year 2018 was marked by tremen­dous eco­nomic and po­lit­i­cal tur­bu­lence around the world. Yet, for fu­ture his­to­ri­ans, it may well be the year when Africa started to claim its in­tel­lec­tual and eco­nomic pol­icy in­de­pen­dence.

The un­likely trig­ger for what could turn out to be a con­ti­nent-wide strate­gic shift was Rwanda’s de­ci­sion to in­crease tar­iffs on im­ported sec­ond­hand clothes and footwear in sup­port of its do­mes­tic gar­ment in­dus­try. This pro­voked an im­me­di­ate hos­tile re­sponse from the United States, which sus­pended duty-free sta­tus for Rwan­dan tex­tile ex­ports un­der the African Growth and Op­por­tu­nity Act, the US’ flag­ship trade leg­is­la­tion for the con­ti­nent.

For a small, land­locked African coun­try that re­lies heav­ily on trade, this was a big blow. But the fact that Rwanda held its ground con­firmed that times have changed. If Rwanda is will­ing to risk pref­er­en­tial ac­cess to the US mar­ket in order to de­velop its do­mes­tic gar­ment in­dus­try, then it must be con­fi­dent of find­ing al­ter­na­tive mar­kets for its ex­ports.

African na­tions have stronger say in trade

Other African coun­tries have also adopted a more in­de­pen­dent at­ti­tude vis-à-vis their ma­jor trad­ing pow­ers. African gov­ern­ments have in­creas­ingly been tak­ing a stand on a wide range of po­ten­tially con­tro­ver­sial is­sues, in­clud­ing trade pol­icy in East Africa, land re­dis­tri­bu­tion in South­ern Africa, and macroe­co­nomic and debt-man­age­ment poli­cies in North Africa.

African gov­ern­ments’ mo­tive for step­ping up now is not only eco­nomic; it is also about dig­nity, in­tel­lec­tual free­dom, and a will­ing­ness to risk chart­ing one’s own course. More broadly, African lead­ers rec­og­nize that the on­go­ing trans­for­ma­tion of the global econ­omy means that no coun­try will have enough power to im­pose its strate­gic pref­er­ences on oth­ers, even when they are much smaller, as in the case of Rwanda and the US.

Em­pir­i­cal re­search from the World Eco­nomic Fo­rum shows that tar­iff re­duc­tions and mar­ket ac­cess have be­come much less rel­e­vant for eco­nomic growth than was the case a gen­er­a­tion ago. Trade is no longer about man­u­fac­tur­ing a prod­uct in one coun­try and sell­ing it else­where; rather, it is about co­op­er­at­ing across bor­ders and time zones to min­i­mize pro­duc­tion costs and max­i­mize mar­ket cov­er­age.

The WEF es­ti­mates that, “Re­duc­ing sup­ply chain bar­ri­ers to trade could in­crease (global) GDP up to six times more than re­mov­ing tar­iffs.” If all coun­tries could bring the per­for­mance of border ad­min­is­tra­tion, to­gether with trans­port and com­mu­ni­ca­tions in­fra­struc­ture, up to just half the level of global best prac­tices, global GDP would grow by $2.6 tril­lion (4.7 per­cent), and to­tal ex­ports would in­crease by $1.6 tril­lion (14.5 per­cent). By com­par­i­son, the com­plete elim­i­na­tion of all tar­iffs world­wide would boost global GDP by only $400 bil­lion (0.7 per­cent), and ex­ports by $1.1 tril­lion (10.1 per­cent).

Us­ing strate­gies to fa­cil­i­tate trade

Clearly, global value chains are now the dom­i­nant frame­work for trade. And, as we have seen, African coun­tries such as Rwanda (as well as Ethiopia and Mo­rocco) are al­ready tak­ing ad­van­tage of this par­a­digm shift. Rather than wast­ing time in un­pro­duc­tive pol­icy dis­cus­sions over tar­iffs, they are redi­rect­ing their strate­gies to fo­cus on trade fa­cil­i­ta­tion.

True, to­day’s trade fric­tions have dis­rupted in­ter­na­tional sup­ply chains, and will con­tinue to do so. But new con­straints will also stim­u­late cre­ativ­ity and in­no­va­tion. For ex­am­ple, as Megh­nad De­sai of the Lon­don School of Eco­nomics says, “In the light of ad­vances in tech­nolo­gies such as 3D print­ing and ar­ti­fi­cial in­tel­li­gence, it is not far-fetched to imag­ine that busi­nesses could man­u­fac­ture do­mes­ti­cally the in­ter­me­di­ate prod­ucts that they cur­rently im­port.” In this case, trade would con­tinue apace, “but the prod­uct mix would shift from in­ter­me­di­ate to fi­nal prod­ucts”.

More­over, in an in­creas­ingly mul­ti­po­lar world, low-in­come coun­tries will not have to rely solely on the West for fi­nanc­ing and pol­icy ideas (though they will have to be mind­ful of the risks of in­debt­ed­ness and pre­car­i­ous gov­er­nance frame­works). Even as global com­merce has un­der­gone a tec­tonic shift, tra­di­tional devel­op­ment think­ing, poli­cies and prac­tices have not.

No longer the pre­serve of ad­vanced economies

And as the ma­jor emerg­ing economies pur­sue tech­no­log­i­cal and in­dus­trial devel­op­ment to es­cape the “mid­dle-in­come trap”, they are al­ter­ing the dis­tri­bu­tion of roles and re­spon­si­bil­i­ties across the global pro­duc­tion sys­tem. Ow­ing to the eco­nomic suc­cess of coun­tries such as China, Viet­nam and In­done­sia, other low-in­come economies in Africa and else­where now have sub­stan­tial op­por­tu­ni­ties to boost em­ploy­ment in la­bor-in­ten­sive in­dus­tries. Af­ter all, China now pro­duces many of the high-value-added goods that once were the ex­clu­sive pre­serve of ad­vanced economies.

As China and other coun­tries con­tinue climb­ing up the in­dus­trial and tech­no­log­i­cal lad­der, the nec­es­sary re­lo­ca­tion of large parts of their sup­ply chains to lower-cost coun­tries will af­fect the cost­ing and pric­ing of goods and la­bor ev­ery­where. But de­vel­op­ing coun­tries can ac­tu­ally use their late­comer sta­tus to reap sub­stan­tial eco­nomic ben­e­fits. De­spite the wildly ex­ag­ger­ated threat of au­to­ma­tion, African coun­tries, in par­tic­u­lar, can ex­ploit their lower fac­tor costs to pro­mote suc­cess­ful la­bor-in­ten­sive in­dus­tries in which they have a com­par­a­tive ad­van­tage.

For ex­am­ple, African coun­tries can lower the cost of do­ing busi­ness by build­ing strate­gi­cally lo­cated pro­duc­tion clus­ters and in­dus­trial parks (in­clud­ing for green in­dus­tries). They are also in a strong po­si­tion to at­tract for­eign di­rect in­vest­ment, which brings the pos­i­tive ex­ter­nal­i­ties of tech­nol­ogy and know-how trans­fer, man­age­rial best prac­tices, state-of-the-art learn­ing, and ac­cess to large global mar­kets.

Cre­at­ing con­di­tions for long-term pros­per­ity

If man­aged prop­erly, this two-pronged ap­proach could pro­vide am­ple em­ploy­ment for a low-skilled la­bor force, while rapidly in­creas­ing fis­cal rev­enues. This, in turn, would al­low for im­prove­ments to in­fra­struc­ture in other ar­eas, thus cre­at­ing the con­di­tions for long-term pros­per­ity and so­cial sta­bil­ity.

While trade agree­ments are still very im­por­tant to African coun­tries, broader eco­nomic and tech­no­log­i­cal changes are open­ing up new op­por­tu­ni­ties, and smart pol­i­cy­mak­ers are seiz­ing them. This is a piv­otal mo­ment in North-South re­la­tions. Af­ter cen­turies of be­ing po­lit­i­cally and in­tel­lec­tu­ally teth­ered to the ad­vanced economies with lit­tle to show for it, Africa is strik­ing out on a new path of self-af­fir­ma­tion.

In this quest for pros­per­ity, African lead­ers and pol­i­cy­mak­ers have proved ready to with­stand sanc­tions, threats, and set­backs. They may not all have read Ni­et­zsche, but they know that what “does not kill us, makes us stronger”.

Clearly, global value chains are now the dom­i­nant frame­work for trade. And, as we have seen, African coun­tries such as Rwanda ... are al­ready tak­ing ad­van­tage of this par­a­digm shift. Rather than wast­ing time in un­pro­duc­tive pol­icy dis­cus­sions over tar­iffs, they are redi­rect­ing their strate­gies to fo­cus on trade fa­cil­i­ta­tion.

Newspapers in English

Newspapers from Hong Kong

© PressReader. All rights reserved.