Achieving economic sovereignty

The self-confessed investor and contrarian has shied away from textbook economics to teach what he calls business economics. Dr Howard Nicholas achieved notoriety for a lecture back in 2015 where he cited the reasons Africa’s development had been held back by Western practices. In a lecture during the Annual Meetings, he set out his vision on how Africa needs to leverage the AfFCTA. His thesis: focus on high value export goods.

As the African Continental Free Trade Area (AfCFTA) becomes operational, African countries are hoping that it will be the long-sought answer to decades of under-development, increase intra-continental trade and value addition and turbo-charge regional economic integration.

However, Dr Howard Nicholas, a Sri Lankan economist and senior lecturer at the International Institute for Social Studies at the Erasmus University of Rotterdam says the initiative may not achieve its aims if the continent does not shift to high value manufacturing. In a presentation at the 29th Annual Meetings of the Africa ExportImport Bank, Dr Nicholas advised African countries to focus on export-oriented industrialisation to be able to take full advantage of the AfCTFA.

Dr Nicholas said like African countries, Sri Lanka has been prevented from industrialisation, which has resulted in periodic crises, including a foreign exchange crunch that it is currently going through. For the European and the United States of America, the AfCTFA is merely an opportunity for their companies to access African markets, while African countries intend for it to correct deindustrialisation. However, switching to high value products will encourage rapid technological change, force producers to pay higher wages and boost foreign exchange reserves.

According to Dr Nicholas, China only started to develop when it moved to high value manufacturing. Similarly, Vietnam, with the help of foreign capital, began to focus on high value manufacturing in 2012 and has since seen a growth in reserve and a trade surplus. This also helped protect them from the effects of Covid, during which the Vietnamese economy actually recorded growth, unlike most of the world. The export value of goods from Vietnam, he said, now surpasses India, which has a much larger economy. Africa can take a cue from the Vietnamese example and ask foreign investors to partner local companies in high value manufacturing. Investors can be offered tax breaks and other incentives to take up these offers.

Dr Nicholas also argued that industrialisation will not be possible without food and energy security. African countries need to renegotiate trade deals at the World Trade Organisation as one bloc and in particular, seek an end to the agreement on agriculture to enable it subsidise food production on the continent. It must also join other developing countries to place non-tariff barriers on the table for renegotiation at the WTO.

Finally, Dr Nicholas said Africa needs to have greater economic and monetary integration, set up its on monetary fund to assist countries in distress, including twenty-three who are on the verge of applying for structural adjustment, which he argued will allow the multilateral funding agencies to undermine industrialisation in those countries. He said African countries must wake up to the fact their interests are not aligned to those of Western nations and pursue their own interests.

Africa should engage world as single bloc

In a discussion with Omar Ben Yedder, publisher and managing director of African Business magazine, Dr Nicholas explained that despite the present crisis, Sri Lanka is now in a better position than before.

It has recognised the need to press its geopolitical advantages and is attracting interest, in terms of debt refinancing following its default, from India, China, Europe and the United States. Japan, he said, had offered $5bn to the country but it had chosen to rather have assistance in boosting local production. He said Africa could do similar and as a single bloc, engage with the rest of the world on terms that are favourable to it.

In response to a question about the role of state-owned banks in pursuing a development agenda, Dr Nicholas said while privately run banks are necessary for commercial and trade finance, development banking requires the intervention of the state. This way, they can extend long term loans at concessionary rates to innovators and entrepreneurs. He said Chinese entrepreneurs had benefitted from this, while in Sri Lanka, the development bank was privatised on the advice of the International Monetary Fund and is now only able to advance loans for shorter periods and at higher interest rates. He called that privatisation criminal, as those banks were critical to the country’s development.

African countries must wake up to the fact their interests are not aligned to those of Western nations and pursue their own interests