Exclusive interview “Future of African trade” by K.Y. AMOAKO
K.Y. Amoako is President and founder of the African Center for Economic Transformation (ACET), a policy research and advisory institution based in Ghana focused on working with African governments to deliver long-term economic growth. He is also a board member of ICTSD. Previously he served as Under Secretary General of the UN and Executive Secretary of the Economic Commission for Africa (ECA) from 1995-2005.
African Center for Economic Transformation (ACET) is an organization focused on the promotion of long-term growth and economic transformation of African countries. Can trade contribute to structural economic transformation in Africa and what are the main challenges ahead?
At ACET, we see export diversification as one of the main drivers of transformation. But, as you know, exports from African countries continue to be dominated by raw materials - more than 90 percent in some countries making African countries highly vulnerable to shocks.
Trade can contribute to structural transformation to the extent that it facilitates the push by African countries to diversify and upgrade the value of their exports, thereby making their economies more resilient, creating jobs, and reducing poverty.
But the constraints are enormous. Internally: inadequate infrastructure, high financing and regulatory costs, low skills and low technology are top of my list. Externally, the biggest constraint is the trade regime.
The WTO and trade partners can help secure Africa on the path to transformation through trade by increasing market access, removing export subsidies and trade distorting subsidies, extending non-reciprocal market access, particularly to LDCs, and continuing to provide capacity support for trade.
What can African countries do to get out of the Doha impasse?
We went into Doha with a lot of hope because it promised to be a springboard for transformation through trade. It was supposed to provide the framework that would open up markets to African goods and help build the internal capacity to produce those goods - and that would have addressed the main challenges to trade.
But the reality is that Doha is at a standstill and the moral impetus for living up to its developmental agenda is not entirely within our control.
Still, it is important for us to continue fighting for better market access and policy space, as I have previously mentioned. We should maximize our use of the preferential provisions that exist. Then, when we go back to the negotiation table, we can make the case that having extra policy space works: it's transforming economies, it's providing jobs, and it's lifting people out of poverty.
Second, we can continue expanding and strengthening regional economic communities and promoting intra-African trade.
EPAs have been taking place for several years and recently the EU renewed pressure on African countries to conclude their EPAs by withdrawing the Market Access regulation as of 1 January 2014 for countries that have not ratified their EPAs. What should be African countries' position toward EPAs, bearing in mind that internal trade is still low but growing quickly?
In my view, rather than putting pressure on African countries to ratify it, the EU should work with its African partners to address the outstanding issues. In this context, the former President of Tanzania, Benjamin Mkapa, in a recent keynote address at the East African Legislative Assembly, posed a number of key issues that come to the heart of the matter in discussing the EPAs and their impact on Africa. He asks: Do they help African countries increase domestic production capacities? Do they encourage diversification and industrialization? Do they increase food security? Do they provide quality employment? Will they support our move from being largely raw natural resource exporters, towards being producers of more sophisticated products?
It is very clear that the answer to almost all of these questions is no. A particularly vexing issue is the potentially negative impact the EPAs will have on the regional integration agenda of Africa, including the adverse effects on intra-Africa trade which has grown at five times the rate of trade with the EU market in the last 30 years. And more importantly, while the EU is Africa's largest market for primary products, Africa is the biggest market for Africa's manufactured exports.
Africa already has numerous regional and sub-regional institutions, with limited results. What needs to change to make regional integration more of a reality? Do you think that the setting up of a Continental Free Trade Area by 2017 as envisaged by the African Union is realistic?
First, we need to rationalize the multiplicity of regional integration arrangements. Countries tend to belong to several regional economic communities with often competing and conflicting procedures and trade policies. One result is that businesses struggle to abide by all the rules and procedures, thereby raising the cost of doing business.
Second, we can strengthen the soft infrastructure of trade by building capability, streamlining regulation and seriously tackling corruption that impede cross-border trade while finding innovative ways of financing and maintaining the hard infrastructure - the transportation, energy supply, etc.
Third, political will to implement agreed actions is critical. In the past the tendency has been signing protocols but never implementing them. This must change. On the positive side, the recent trends in the East African Economic Community towards deeper integration augur well for the future.
About the setting up of a Continental Free Trade Area by 2017: it is good to set ambitious targets allowing us to monitor our progress and galvanizing us to action.
China's role in Africa is the subject of intense debate on the continent. Some analysts says because of China's role on the continent, Africa might become more commodities dependant and be at risk of deindustrialization, but this at the same time may represent a good alternative to conditional European aid. How should African governments engage with China to suit their own strategic interests? Do you think that the export led growth model of East Asian countries could be replicated in Africa?
At ACET, our advice to African governments is that, since China, in its engagements with Africa, has a strategic view of what it wants, African governments both individually and collectively should also design their strategies for engaging with China in ways that will allow for speedy economic transformation.
Engagements with China are particularly attractive to African governments because they often yield quick results (roads, dams, buildings) and are flexible enough in their structure to allow African countries to pay in ways that are suitable for them (concessional loans or payment in raw materials being a key example). But they come with some costs including poor labour standards, lack of transparency in negotiating and implementing deals, the tying of loans to Chinese firms which crowds out African firms in key sectors, and environmental costs.
African governments can use the differences between China and the West to ensure that we get the best deal possible in the areas we choose for our long-term development. That's the beauty of competition, isn't it?
On the other hand, we should also acknowledge that whereas very few African countries have the capacity to engage directly with China (South Africa being a prime example), most countries need to think in regional terms as a means of increasing their bargaining power and increasing the benefit from Chinese engagement. As such, regional economic communities (RECs) and organizations such as the AU have a role to play in ensuring the strategic interests of African countries are not brushed aside when dealing with China.
On the question of the applicability of the East Asian export-led model to Africa, though the world has changed since the 1960s, export promotion is still a potential driver of economic transformation in Africa. The harder part is the how? That's what keeps us up at night at ACET, sometime literally.
ACET's vision is that by 2025 all African countries will drive their own growth, with transformation agendas being led by the private sector and supported by states with strong institutions. What do you think governments should do in Africa in order for the private sector to be able to drive such process?
Some of the main responsibilities of the state are well documented and uncontroversial: for example guaranteeing property rights and enforcing contracts; maintaining macroeconomic stability; maintaining a business-friendly environment; protecting territorial integrity; and delivering services.
But beyond these, we have found that it is crucial for the state to establish a working relationship so business realities inform government policies.
Is liberalized trade a solution to food insecurity in Africa? What could be the role of agriculture in the economic transformation in Africa?
Liberalized trade is but one piece of a comprehensive solution to food insecurity. Trade can help by making food cheaper and the supply more stable for consumers, especially as most African countries are net food importers. But it can also reduce agricultural employment and shift African countries' incentives away from self-sufficiency. So the first step to food security is to modernize agriculture in order to raise production capacity, ease distribution and prevent wastage. Agriculture can also boost transformation by becoming a stepping stone for agricultural marketing, agro- processing, other forms of manufacturing, and services
What will determine the future of African trade in the next decade? What are Africa's various possible growth paths?
As I said at the beginning, we can't talk about transformation without talking about exports. African trade will depend on three pillars: implementing policies to dismantle the supply-side constraints; taking the next step in intra-African trade by removing non-tariff barriers; and the direction of global trade regimes such as the WTO, EPAs and AGOA.
Exports continue hold growth potential for Africa. Agro-processing and labor-intensive, low wage assembly could be the next steps in adding value to our exports and expanding our manufacturing base.
Services such as tourism and Business Process Outsourcing also offer high-potential paths.