African Development Bank - Making sense of free trade in poverty

A GNA Feature by Gideon Sackitey

Accra, Aug. 9, GNA - In the last week of May this year, the picturesque lakeshore resort of Speke Resort Munyonyo in Kampala, Uganda, hosted more than 400 African Finance Ministers; Governors of the African Development Bank Group; Officials of the World Bank and International Monetary Fund; Financial Experts: Rating Agencies and Financial Journalists from across the world.

The occasion was the Annual Meetings of the African Development Bank Group, the Continent's premier development finance institution, which for the second year running was held back-to-back with the meeting of the Addis Ababa-based Economic Commission for Africa.

The subject? Trade. Indeed, free trade. The Meeting of the African Ministers of Finance, Planning and Development earlier in the week discussed strategies for mainstreaming trade for national development. The meeting went ahead to discuss why Africa with such tremendous wealth and people, still had one of the most unattractive brand names in world trade. The Continent is on record as having been the worst performer in terms of development over the last decade.

Africa actually backtracked with the entire 54 African economies recording a growth rate of just 3.7 per cent last year, the highest in four years, according to the African Development Report and the African Economic Outlook launched during the Annual Meetings.

In fact, Africa is the only Continent not on course to meet the Millennium Development Goals (MDG) by 2015.

In annual terms Africa's total merchandise revenue was made up of just one per cent of all the goods traded in the world. By implication every 100 dollars worth of goods that exchanged hands, Africa, especially Sub-Saharan Africa, earned only one dollar.

This is a situation, which experts call "a pittance" considering the Continent's vast natural resources when compared with the success of other less resourced regions and economies in other parts of the world. Yearly, Foreign Direct Investment (FDI) to Africa likewise is just one per cent of the trillions of dollars that are usually available to other regions for wealth creation.

Regrettably too, the Africa Region on a continued basis is touted at many international forums as having the highest number of people living on less than a dollar a day. Many are those who have come to terms that it is just a way of patronising Africans into believing something, which actually did not exist.

Similarly, many are those who are torn between putting the blame squarely on policymakers on the Continent or the small points that only make a mockery of the expression -"free trade".

President Yoweri Museveni of Uganda, a former rebel soldier, had come to terms with the realism of free trade and was most concerned. He said he was optimistic about what good trading practices could do for Africa and was clear when he told the Meetings that Africa's dependence on primary commodities also meant that Africa would remain vulnerable to market imperfections and severe unfavourable weather conditions, which were fast becoming Africa's cup of tea.

Commenting on the subject of fair trade, which a member of Uganda's delegation said had become his favourite subject, President Museveni argued that rapid and sustained economic growth were key to poverty reduction in Africa.

"But this will only be possible if developing countries improve market for developing countries' exports by reducing trade-distorted subsidies, which increase poverty.

"We must be given real chance to trade our way out of poverty," President Museveni said.

"The free flow of trade must be accompanied by a steady stream of technology transfer from developing countries."

The technology gap between the two worlds is astonishingly growing wider, a situation that denies developing countries the opportunity to participate fully in the global market economy.

Africa by all intents and purposes needs to create a domestic climate more conducive to private sector activity to be able to attract higher levels of FDI.

While increased private sector investment and productivity would accelerate growth and promote the attainment of the Millennium Development Goals, many like the Ugandan Leader, believe that the investment climate for both domestic and foreign investors still needed improvement in many countries on the Continent.

The onus in many respects has fallen on the Africa Development Bank Group to get more involved by ensuring that the investment climate improved in Africa.

Museveni said: "Africa needs the ADB to help it meet the challenges the Bank and governments face in reducing poverty. The areas they should be in - providing sound legal and regulatory framework for enterprises that promote higher competition, strengthening public and private governance and improving access to key utilities, financial and infrastructure services."

In an interview wit the Ghana News Agency, Mr Kingsley Y. Amoako, Executive Secretary of the Economic Commission for Africa (ECA), said the situation was not lost on African Leaders when viewed against the background that their preoccupation over the past year had been the issue of how to fashion out a trade policy and boost negotiation capacities of their experts.

He said emerging evidence suggested that although Africa had liberalized extensively, this openness had not translated into growth. It is absolutely clear that Sub-Saharan Africa is sadly caught up in one of the most deplorable relationships with her trading partners where she has to continue exporting raw materials for the developed world to add value. Africa then goes on to import these goods at ridiculously high prices for her people.

Where African countries try to add value through processing, the harder it is to enter the lucrative European and American markets. Do not talk of trading between African states because it just does not happen.

As Mr Yaw Osafo-Maafo, Minister of Finance and Economic Planning and his Ugandan counterpart Mr Gerald Ssendaula said, Africa must marshal all its efforts to negotiate better terms of trade with all trading partner. To achieve this there is the need for concerted negotiations with trading partners in the developed world.

African Leaders must begin to see the need to generate concerted negotiations on the constraints to trade policy that the World Trade Organisation entails.

A collective voice on trade, economic and other major social issues, no doubt, would send the strongest signal to the developed world as well as other private sector investors about Africa's commitment to liberal trade policies.

It is in this direction that the call of Omar Kabbaj of ADB Bank Group, for Africa to take the lead in drawing up and implementing its own reform programmes is most welcomed.

He said enhanced support was critical to Africa's success if it were to work in partnership with the objectives of the New Partnership of Africa's Development (NEPAD) Initiative in 2001.

"Concerted action by the international donor community, including arrears clearance schemes, will therefore be required to help these countries rehabilitate their economies and create conditions for economic growth," he said.

This year, Africa is estimated to grow by 4.3 per cent, following the anticipated recovery of the global economy, higher primary commodity prices and moderate oil costs. But already the third parameter has been jolted, thus raising doubts about the projected target.

The issue of trade is at the heart of the debate on Africa's debt, the Highly Indebted Poor Countries (HIPC) Initiative and the sustainability of debt in the Continent's quest for accelerated growth and poverty reduction.

The future of Africa would be determined virtually by its trade performance. As stated in the Report, Africa's share in the world's exports declined to three per cent in 2003, compared to three per cent in 1990 and six per cent in 1980.

Africa must reverse its poor performance in international trade and pursue a strategy of export-oriented industrialisation if things were to change.

This process has to begin with the rationalisation of the agrarian style and the creation of linkages with the urban industrial sector that would generate new synergies in terms of export diversification. The role of a vibrant private sector in Africa economies is needed to evolve within effective institutions for sound public management and development. 9 Aug. 04