How Can Trade Help Africa Achieve the Sustainable Development Goals?
Beyond its effect on incomes, trade can also have significant developmental impacts through its influence on the price, quantity, and quality of goods available within markets. How can African countries use trade policy to improve their population’s access to products that are important from a sustainable development perspective?
The UN Sustainable Development Goals (SDGs) commit developed and developing countries alike to an ambitious agenda of progress across the full spectrum of development issues. Rightly, there is no trade goal: trade is a means to an end, not an end in itself. But it is recognised as an important “means of implementation,” although subsequent work on targets and indicators has left much to be desired from the perspective of trade economists.
Trade and development: An alternative perspective
The standard argument long put forward by economists linking trade with development runs through the channel of income. Trade openness promotes specialisation by comparative advantage and supports productivity gains at an economy-wide level. To the extent that these gains translate into higher incomes, they provide countries with the necessary means to move forward on other aspects of development, such as health and education.
However, the literature linking trade and income growth is highly controversial. On balance, most trade economists agree that openness is a necessary but not sufficient condition for development gains. Some development specialists in other fields are skeptical even of that claim.
That is why in a new book on trade and the SDGs, Ben Shepherd and I have chosen to focus on the non-income linkages between trade and development. In other words, we look for instances where trade can help reduce the prices and increase the availability of goods or services that are important from a sustainable development perspective. The book brings together a group of leading trade experts to discuss in what ways good trade policy, which supports efficiency in resource allocation, can also be good development policy. As African countries integrate further into the world economy, such an alternative approach to exploring the trade and development nexus is important, as it suggests that in addition to promoting income growth and structural change, trade can also create important development benefits in a range of other areas.
Trade is good for your health
One issue that deserves particular attention is health. Trade in health products, has been increasing over time, but Africa remains marginalised (Figure 1). Interestingly, this marginalisation is true even though Africa’s tariffs on health products have been falling, to now only a few percent ad valorem on average. However, this average masks important variation. When looking at the data in more detail, we find that some countries place high rates of tariff protection on particular health products. For instance, 54 countries have a tariff rate above 10 percent on cameras for medical or surgical examination, while 30 have tariffs above 10 percent on surgical gloves. While many countries have zero or low tariffs on imported pharmaceuticals, that is not always the case. In Africa, for example, Djibouti applies a rate of 11 percent.
Figure 1: Trade in health products, 2002-2014, by region (billion US$)
Source: Helble and Shepherd (2017)
Traditionally, many countries have justified high rates of protection either as ways of promoting local infant industries, or as “pro-poor” taxes on imported luxuries. These two justifications are hard to maintain in the case of health products. First, many countries have no or very little domestic production capacity for health products, particularly technologically sophisticated ones like specialised cameras, or pharmaceuticals. Second, it is quite inappropriate from a development perspective to classify health products as “luxuries” that should be taxed: they are necessities of life, which should be made available as widely as possible and at as little cost as possible. Clearly, there is much that developing countries, including African countries, can do to liberalise their trade regimes in relation to some health products. We could expect those reforms to produce concrete gains in terms of health outcomes domestically, which is a vital part of the overall SDG agenda.
Of course, tariffs are not the only policies that matter for trade, or for health. Non-tariff measures also play an important role. In some cases, regulations affecting trade in health products are absolutely necessary and appropriate: for instance, to protect consumers and ensure a certain level of quality. But in other cases, broader obstacles to trade integration have particular implications for health. For instance, poor trade facilitation – which increases border crossing times and results in sometimes lengthy delays – affects products like vaccines and some pharmaceuticals, which need to be kept in controlled environments and moved rapidly to the final user. Figure 2 shows that there is a robust correlation between logistics performance, which is a comprehensive measure of trade facilitation, and vaccination rates around the world. Moving beyond the figure, an econometric model shows that the association continues to be significant even after controlling for factors like per capita income, health spending, and government effectiveness. Again, moving forward on trade can help increase the availability and reduce the cost of important health products.
Figure 2: Correlation between logistics performance and DPT immunisation rate
Source: Helble and Shepherd (2017)
Trade and women’s empowerment
Development is fundamentally about enabling all people to realise their full potential. Nevertheless, there is a clear need for special measures to empower historically marginalised populations, including women. Women interact with the international economy in a variety of ways: as consumers, as workers, and as business owners. Can international trade do anything to support women’s empowerment in Africa?
As we did for health products, we can again start by looking at how trade policies affect female consumers. Relatively little is known about the different consumption patterns of men and women in Africa or in most other parts of the developing world – indeed, the need for new and better data is patent in this area. However, it is widely known among development professionals that women spend their income relatively more on basic necessities, particularly food, than men do. But Figure 3 shows that tariff rates of protection on agricultural goods are much higher than for non-agricultural goods, a difference of close to 50 percent in Africa. Combining this information with different spending patterns reveals that the burden of trade policy falls particularly heavily on women in this case. A more liberal approach would enable women to purchase food more easily, thus not only empowering them but also bringing ancillary development benefits in areas like health, nutrition, and education. Of course, liberalising agricultural trade policies in Africa is complex, as activist trade policies tend to redistribute purchasing power from consumers, including women, to farmers, many of whom are poor. It therefore needs to be considered carefully in all its dimensions, but from a gender perspective, there is likely scope for reforms that both improve allocative efficiency and give women greater control over their economic lives.
Figure 3: Tariff rates of protection on agricultural versus non-agricultural goods, by region
Source: Shepherd and Stone (2017)
To make the point even more clearly, we can consider a subset of products that are essentially consumed only by women: sanitary products. Countries in Sub-Saharan Africa applied an average tariff of 15 percent to these products in 2016, which was about 50 percent higher than the average tariff for all non-agricultural goods. At the country level, both Angola and the Central African Republic applied tariffs about twice as high, even though their domestic manufacturing capacities are likely very limited, if there is any at all. Even more clearly than in the case of agriculture, these trade policy measures not only redistribute income away from women, but also disempower them economically and socially. There is clear scope to implement policies that could both boost trade and improve women’s purchasing power, thus advancing the gender equality aim within the SDGs.
We have addressed just two areas in which trade can, through non-traditional mechanisms, help promote the SDGs. There are many more, from education to water use, which are explored in detail in our new book. What can policymakers take away from this discussion?
First, although some in the development community are skeptical of trade benefits, we would emphasise that this skepticism is typically due to the process of result and counter-result that played out in the now superseded literature on openness and growth. Before it affects incomes, trade influences prices, quantities, and quality of goods available within markets. As such, there is scope to use trade liberalisation to improve these variables in areas that matter for development, such as health and education (trade in services). We believe there is a strong case for individual countries to identify lists of development products – those that are consumed relatively intensively by the poor or historically marginalised communities, as well as those with direct application in sectors like health and education – and to liberalise them unilaterally. Doing so will increase availability and reduce prices for consumers. In some cases, this process will need to be done carefully, especially when poor local producers may stand to lose out. So it is not a simple process, but the analysis is worthwhile undertaking.
Second, although policymakers focus on the gains that can come from exporting, trade economists often emphasise the virtues of importing. Indeed, the indicators assembled by the UN to track progress on the SDGs are quite mercantilist in their treatment of trade, in the sense that they focus on export growth, but say nothing about import growth. In reality, these two margins move together: large exporters are also large importers. But more fundamentally, it is important for policymakers in Africa and elsewhere to realise that tariff barriers and unnecessary non-tariff measures restrict the ability of the people they serve to access sometimes vital goods – such as food and products used in the health sector. As far as these products are concerned, there is a clear case for reform.
African countries have done much over recent years to liberalise their import regimes, and this stands to their credit. Nevertheless, increased attention to the non-income effects of trade policy can help inform their continued moves towards leveraging trade to support development. Trade can not only help promote structural change and income growth, but also support development in a very immediate, human sense.
Author: Matthias Helble, Senior Economist and Co-Chair of the Research Department, Asian Development Bank Institute.
 Helble, Matthias and Ben Shepherd. Win-Win: How International Trade Can Help Meet the Sustainable Development Goals. Tokyo: Asian Development Bank Institute, 2017.