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Africa’s Historic Pivot

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By Célestin Monga, Vice President and Chief Economist of the African Development Bank Group.

It might not be obvious to the casual observer, but Africa is undergoing something of a revolution when it comes to economic policymaking. Risking recrimination and worse from their traditional Western patrons, the continent’s governments are finally demonstrating a willingness to chart their own course.

The year 2018 was marked by tremendous economic and political turbulence around the world. And yet, for future historians, it may well be the year when Africa started to claim its intellectual and economic-policy independence.

The unlikely trigger for what could turn out to be a continent-wide strategic shift was Rwanda’s decision to increase tariffs on imported secondhand clothes and footwear in support of its local garment industry. This provoked an immediate hostile response from the United States, which suspended duty-free status for Rwandan textile exports under the African Growth and Opportunity Act (AGOA), America’s flagship trade legislation for the continent.

For a small, landlocked African country that relies heavily on trade, this was a big deal. But the fact that Rwanda held its ground confirmed that times have changed. If Rwanda is willing to risk preferential access to the US market in order to develop its domestic garment industry, then it must be confident that it will find alternative markets for its exports.

Meanwhile, other African countries have also adopted a more independent attitude vis-à-vis the major trading powers. African governments have increasingly been taking a stand on a wide range of potentially controversial issues, including trade policy in East Africa, land redistribution in Southern Africa, and macroeconomic and debt-management policies in North Africa.

African governments’ motive for stepping up now is not only economic; it is also about dignity, intellectual freedom, and a willingness to risk charting one’s own course. And, more broadly, African leaders recognize that the ongoing transformation of the global economy means that no country will have enough power to impose its strategic preferences on others, even when they are much smaller, as in the case of Rwanda and the US.

Empirical research from the World Economic Forum (WEF) shows that tariff reductions and market access have become much less relevant for economic growth than was the case a generation ago. Trade is no longer about manufacturing a product in one country and selling it elsewhere; rather, it is about cooperating across borders and time zones to minimize production costs and maximize market coverage.

The WEF estimates that, “Reducing supply chain barriers to trade could increase [global] GDP up to six times more than removing tariffs.” If all countries could bring the performance of border administration, together with transport and communications infrastructure, up to just half the level of global best practice, global GDP would grow by $2.6 trillion (4.7%), and total exports would increase by $1.6 trillion (14.5%). By comparison, the complete elimination of all tariffs worldwide would boost global GDP by only $400 billion (0.7%), and exports by $1.1 trillion (10.1%).

Clearly, global value chains are now the dominant framework for trade. And, as we have seen, African countries such as Rwanda (as well as Ethiopia and Morocco) are already taking advantage of this paradigm shift. Rather than wasting time in unproductive policy discussions over tariffs, they are redirecting their strategies to focus on trade facilitation.

True, today’s trade wars have disrupted international supply chains, and will continue to do so. But new constraints will also stimulate creativity and innovation. For example, as Meghnad Desai of the London School of Economics points out, “In the light of advances in technologies such as 3D printing and artificial intelligence, it is not far-fetched to imagine that businesses could manufacture domestically the intermediate products that they currently import.” In this case, trade would continue apace, “but the product mix would shift from intermediate to final products.”

Moreover, in an increasingly multipolar world, low-income countries will not have to rely solely on the West for financing and policy ideas (though they will have to be mindful of the risks of indebtedness and precarious governance frameworks). Even as global commerce has undergone a tectonic shift, traditional development thinking, policies, and practices have not.

Meanwhile, as the major emerging economies pursue technological and industrial development to escape the “middle-income trap,” they are altering the distribution of roles and responsibilities across the global production system. Owing to the economic success of countries such as China, Vietnam, and Indonesia, other low-income economies in Africa and elsewhere now have substantial opportunities to boost employment in labor-intensive industries. After all, China now produces many of the high-value-added goods that once were the exclusive preserve of advanced economies.

As China and others continue climbing the industrial and technological ladder, the necessary relocation of large parts of their supply chains to lower-cost countries will affect the costing and pricing of goods and labor everywhere. But developing countries can actually use their latecomer status to reap substantial economic benefits. Despite the wildly exaggerated threat of automation, African countries, in particular, can exploit their lower factor costs to promote successful labor-intensive industries in which they have a comparative advantage.

For example, African countries can lower the cost of doing business by building strategically located production clusters and industrial parks (including for green industries). They are also in a strong position to attract foreign direct investment, which brings the positive externalities of technology and know-how transfer, managerial best practices, state-of-the-art learning, and access to large global markets.

If managed properly, this two-pronged approach could provide ample employment for a low-skilled labor force, while rapidly increasing fiscal revenues. And this, in turn, would allow for improvements to infrastructure in other areas, thus creating the conditions for long-term prosperity and social stability.

While trade agreements such as the AGOA are still very important to African countries, broader economic and technological changes are opening up new opportunities, and smart policymakers are seizing them. This is a pivotal moment in North-South relations. After centuries of being politically and intellectually tethered to advanced economies with little to show for it, Africa is striking out on a new path of self-affirmation.

In this quest for prosperity, African leaders and policymakers have proved ready to withstand sanctions, threats, and setbacks. They may not all have read Nietzsche, but they know that what “does not kill us, makes us stronger.”

This article was originally published in the Project Syndicate.


Aliyu Siise Abdullah Bamba - Ghana 31/01/2019 12:54
Thanks for the article. I enjoyed reading. I sincerely hope with the right kind of policy direction, Africa can come out of the current underdevelopment. I wish to make the following comments;

Within the context of West Africa (where I am 'much familiar' with), the colonial powers (mainly interested in raw materials for shipment to their countries) left us with a huge legacy of unbalanced infrastructure. Mainly development of the coaster (southern sector) sector, while the norther sector largely remain underdeveloped. Post-independent, also because of realities then (lack of efficient high speed transportation technologies), most of the industrialization drives (with the accompanying infrastructure upgrade) of governments in West Africa also concentrated in the coaster/southern sectors. The result is that the 'north-south' infrastructure deficits were further increased, with the northern largely underdeveloped. I am sure similar scenarios could be found in other part of Africa.

The various recent interventions (including decentralization initiatives in countries) to bridge this gap has NOT yielded much. Issues of corruption, mismanagement, nepotism, etc. have rendered those interventions 'ineffective'. For this reason, there is continues movement of people from north to south (already over-populated with inefficient services in these cities) looking for for economic opportunities. To make it worse, if such opportunities never materialize, the youth end up on those perilous journey through the Saharan, to Mediterranean, then to Europe.

I honestly believe one of the most effective ways to end this cycle is to create opportunities for people where they are (especially in the north) so that they will NOT be forced to move down south looking for survival opportunities.

In these regards, specifically with respect to the 'production clusters and industrial parks' that the article made mentioned of, here is my take.

I am looking forward to investment in infrastructure, specifically efficient train line network (if speed train, then better), from all four coaster corners of the continent (north, south, east west), that will link key land lock countries (if not all countries) to the major ports in the coast. I don't know the best economic model to adopt, but I really do not wish for huge increase in the continent indebtedness. With these infrastructure in place, we can strategically cite some of this industrial 'parks and hubs' in the north, which will create economic opportunities for the residents and open up the place for serious commence and business. We would then concentrate on improving services in the major cities, which also will create jobs and employment.

Best wishes from me.


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