Give Africa policy space for structural transformation

Give Africa policy space for structural transformation
Photo credit: UN

09 Nov 2017

The World Trade Organisation (WTO) may have celebrated its 20th anniversary in 2015 with an African-flavoured “Nairobi package”, but has the continent really benefited from current trade negotiations?

The policy debate in Africa has centred over the last few years on the exact policy mix required for structural transformation. Many argue that industrialisation should be at the heart of such a process, while others nuance this ambition with warnings about the threatening clouds gathering over the future of manufacturing and the continent’s lateness for such a venture. Beyond the conceptual discussion, the political realities of the continent may rather call for a choice between rent-seeking behaviour versus more ambitious strategic state intervention. We may think that in a post-Washington-Consensus world the role of the state in creating the conditions for real structural transformation is uncontested. Nothing is further from the truth.

African economies may be emerging and demonstrating greater ambition, but the recent few years have demonstrated the quality and the limits of their growth model, as observed since the turn of the century. Thanks to reduced debt, better macro-economic management, and higher demand and prices for commodities, the last decade and a half has certainly positioned the debate beyond restrictive policies. More than any factor, demographic shifts, and with them growing internal demand, have been the key driver of growth. But commodity dependence continues to drive fiscal policies, investment perceptions, and trade negotiations.

Preferential schemes have not helped industrialisation

It is true that Africa already produces the equivalent of half a trillion US$ of manufactured goods a year. The continent is not a desert dreaming of a 19th century Manchester-like industrial makeover. What is needed is an acceleration of industrial change that will only be viable with grounded policies. Policies that should protect Africa’s infant industries in a context that has only deteriorated since the industrial revolution. Every other region has benefited from conditions for their industrialisation that are no longer there.

The common wisdom sustains that a system of preferences, as championed by many at the WTO, will address Africa’s lateness. The evidence is proving the opposite. Preferential schemes have not helped industrialisation for several reasons. They tend to frame trade relations on current unfavourable patterns, partly because Africa has not been able to take advantage of what is offered, with difficult rules of origin imposing minimum levels of local production.

Trade preferences cannot build regional value chains, a fundamental step to integrate complex global production systems, dominated by skewed intellectual property regimes. Little attention to backward and forward linkages, increased worker productivity, upgraded skills, as well as to the development of reliable infrastructure networks are amongst the most illustrative examples of why preferences alone are unlikely to produce results. The quicker African countries realise their narrow windows of opportunity, the faster their industrialisation acceleration may occur.

Boosting intra-Africa trade

Africans have been talking about regional integration for a long while, without conclusive outcomes.[1] The current efforts for the establishment of a Continental Free Trade Area (CFTA) may change the picture. The CFTA would create the single market with the largest country membership in the world, within the fastest-growing region both in terms of population and consumption. If it comprehends ambitious reforms, synchronised infrastructure development, particularly in the areas of transport and energy, and trade facilitation favouring cross-border exchanges, the CFTA will easily offset the expected declines in country-specific tariff revenues produced by such liberalisation.

Because Africa’s demand for processed food, low-value manufactured goods and less complex consumption necessities is booming, the potential to increase industrial output responding to those needs will be significant. The road to more sophisticated knowledge-intensive industrial production may be distant, but what is needed now is within reach.

The main obstacle for such an industrial drive may well be the straightjacket Africa finds itself in when it negotiates trade agreements. The CFTA is constantly being placed at the back of a multitude of bilateral and multilateral agreements pressured on Africa, such as the EU-led Economic Partnership Agreements (EPAs). These agreements fragment Africa, divide it in different parcels with diverse conditions and preferences, undermining the continental intra-Africa trade prospects requiring harmonisation. The right sequencing for pursuing Africa’s major interests is constantly disturbed by such interferences.

Africa needs to take cognizance of the asymmetric protection structures that influence the positions taken by its trading partners. Uneven trade gains are being overlooked because of constant pressure, or apparently nice temptations. Financial compensations, for instance, may look good in the short term, but they are a devil that hides its tail.

WTO relevance

The saga around the Doha Round and the public plea by some WTO members that it may require a rethink are the best demonstrations of how little the WTO has delivered on the promise to approach trade as a means for development, rather than an end in itself – a lack of results often camouflaged with unchecked spectacular projections about the benefits brought by trade liberalisation.

Becoming a WTO member automatically restricts a country’s policy space, although for least developed countries there is room to manoeuvre. It is true that proposals for agricultural and non-agricultural market access do not imply any cuts to be made by the latter in the near future. However, the story is definitely very different for African countries in the middle-income category. The impacts of current WTO rules on trade-related investment measures and intellectual property rights are also uncertain.

If EPAs are considered, the limitations increase. Although WTO rules do not preclude import taxes, the EPAs will monitor and restrict them. Any concession made by African countries to other major trading partners would automatically be applicable to the EU, limiting the freedom allowed by WTO rules. The typical demonstration of these policy constraints is the popular contracts African countries negotiate with the likes of China and India for furnishing them with natural resources against favourable investment and aid packages. That type of deal will no longer be treated the same way after EPAs are implemented. The EU will have the right to request, against vague (non-committal) aid promises, the same treatment.

So far, many WTO members pay lip-service support to the CFTA, without demonstrating their commitment for the creation of the conditions that would protect Africa’s policy space, which is indispensable for the continent to pursue vigorous industrialisation. With just a few more weeks left before the end-of-the-year deadline established by the African Union to conclude the CFTA agreement, time is evaporating fast. Whoever believes in a stronger African performance as a sign of valuing global public goods better rush. Africans first, to protect what is left of their policy space in trade negotiations.

Carlos Lopes is Professor, Graduate School of Development Policy and Practice, University of Cape Town, and Visiting Fellow, Oxford Martin School, Oxford University.

This article is published under Bridges Africa, Volume 6 - Number 8, by the ICTSD.

[1] Lopes, Carlos. 2016. Inching toward Integration, Finance & Develoment, IMF, June, Vol. 53, No. 2.