Table 28.1Sub-Saharan African countries’ trade orientation
Source: UNCTAD 2010b; World Bank 2007, 2008, 2009, 2010.
Africa and the Global Economy
What happens in the rest of the world affects Africa, directly or indirectly. For centuries Africa has been part of the global economy. Rural people today may seem concerned only with their personal daily needs and those of their immediate communities, yet most of them are just as closely connected to the world economy as those who work in the mining industries and those in the cities who work in the service and manufacturing sectors. Cotton produced by subsistence farmers in West Africa is mainly for export. Over 90 per cent of coffee produced by small farmers in East Africa is for export. Many pharmaceutical products come to Africa from developed countries, as do used clothes, which compete with the domestic textile and apparel industry in Africa. This chapter provides an overview of Africa’s place in the global economy. It presents some key trade features of African countries and examines these countries’ capacity to negotiate in the World Trade Organization (WTO). In addition, it provides a brief discussion of ‘aid for trade’ and agricultural policies in developed countries.1
Some anti-globalization activists describe African and other poor and/or developing countries as unable to compete and, thus, exploited by trade. What this viewpoint overlooks is that trade is mutually beneficial to trading partners in several respects. Most importantly, trade allows trading partners to increase their production according to their comparative advantage. Although a country may not have an absolute advantage in producing anything, it always has a comparative advantage in producing some things. For example, if, on average, a farmer in Senegal can produce 5 tonnes of cotton or 4 tonnes of peanuts, and a farmer in the United States can produce 10 tonnes of cotton or 15 tonnes of peanuts, the United States has an absolute advantage in producing both products. However, Senegal has a comparative advantage in producing cotton. That is, the opportunity cost of producing a tonne of cotton in Senegal is only 0.8 tonnes of peanuts, while the opportunity cost of producing a tonne of cotton in the United States is 1.5 tonnes of peanuts. Thus, both countries would benefit if Senegal exports cotton to the United States and the United States exports peanuts to Senegal.
Other benefits of trade include increased competition and increased varieties of products available to consumers. Trade also allows countries, especially small countries, to take advantage of economies of scale. Economies of scale are achieved when the average cost of production decreases as production increases. Some countries’ markets are so small that they need access to the world market in order to take advantage of economies of scale. Thus, trade is an important tool for economic growth. Although economic growth does not guarantee development, it is certainly a prerequisite for it.
There is no doubt that African economies are small. Sub-Saharan Africa’s gross domestic product (GDP) is only 1.5 per cent of world GDP. Sub-Saharan Africa’s share of merchandise exports is only 2 per cent of world merchandise exports, with South Africa, Nigeria, and Angola contributing almost two-thirds of that share. Other countries’ shares of world exports are negligible in size, as shown in Table 28.1. The small shares are directly related to the small size of the economies of African countries.
Table 28.1Sub-Saharan African countries’ trade orientation
Source: UNCTAD 2010b; World Bank 2007, 2008, 2009, 2010.
The level of Africa’s integration in the world economy, however, is high. The level of a country’s integration into the global economy is determined by the country’s trade ratio, which is the sum value of exports and imports as a percentage of a country’s GDP. It is a measure of a country’s trade orientation, and these ratios are high for most sub-Saharan African countries. This is not surprising given that their major commodities, such as cocoa, coffee, fuels, and various minerals, are produced primarily for export. At the same time, Africa depends on the rest of the world for inputs, machinery, pharmaceuticals, and other manufactured goods. This dependence on trade is typical of small economies, developed and developing alike.
Table 28.1 shows that there is wide variation in the level of each country’s trade with other sub-Saharan African countries.2 A simple average would suggest that intra-regional exports in sub-Saharan Africa were as high as 20 per cent in 2009, but the weighted average, which takes into account the magnitude of each country’s exports, is lower: about 12 per cent in the 2004–09 period. This is mainly because important exporters of oil, such as Angola, Equatorial Guinea, and Sudan, have very low intra-regional exports. While this is noticeably lower than the level of intra-regional exports for Asian countries, which is about 50 per cent, it is important to remember that increasing intra-regional trade is not an objective in itself. If it were, it could be achieved quite easily by shutting off trade with other parts of the world. Such trade diversion, which would blatantly neglect the dictates of comparative advantage, would make African countries worse off. Since regional economic integration is covered elsewhere (Khadiagala, this volume), it will be mentioned only in passing that intra-regional trade in sub-Saharan Africa is limited due to the high costs associated with trade in Africa, including transportation costs, inefficient border procedures, corruption, lack of transparency and predictability, and trade barriers (UNCTAD 2009).
Trade Composition and Patterns
The general trade composition and patterns developed and entrenched during the colonial era continue today, with African countries exporting unprocessed raw materials and importing manufactured products. Table 28.2 illustrates that African countries’ major exports are still agricultural raw commodities, fuels, ores, and metals. Their main trading partners are still the European countries, as shown in Table 28.3. Most sub-Saharan African countries are still heavily dependent on one or only a few commodities for their export revenue, making their economies quite vulnerable. Table 28.4 shows the export concentration (Herfindahl) index for sub-Saharan African countries. The concentration index ranges from 0 to 1, with higher values indicating higher levels of concentration. About 80 per cent of sub-Saharan African countries had an export concentration index higher than 0.3 in 2000–09, while the average index was less than 0.15 for all developing countries and less than 0.08 for the world.
Table 28.2African export and import structure, 2004–09
Product type |
Exports (%) |
Imports (%) |
Manufactured goods |
18 |
69 |
Ores, metals, precious stones, and non-monetary gold |
12 |
3 |
Fuels |
58 |
13 |
Agricultural raw materials and food items |
12 |
15 |
Total |
100 |
100 |
Source: UNCTAD 2010b.
Table 28.3Africa’s exports and imports by destination and source
Source: UNCTAD 2010b.
Notes: ‘Asia’ refers to Eastern, Southern, and South-Eastern Asia. Total percentages do not add up to 100 because trade with countries of the former Soviet Union is not included.
Table 28.4Export concentration index (Herfindahl*)
Country/region |
2000 |
2009 |
World |
0.07 |
0.07 |
Developing economies |
0.13 |
0.12 |
Developing economies – Africa |
0.35 |
0.40 |
Developing economies – Americas |
0.11 |
0.11 |
Developing economies – Asia |
0.13 |
0.11 |
Africa |
|
|
Nigeria |
0.93 |
0.83 |
São Tomé and Príncipe |
0.90 |
0.70 |
Angola |
0.89 |
0.96 |
Botswana |
0.81 |
0.45 |
Equatorial Guinea |
0.81 |
0.73 |
Comoros |
0.77 |
0.51 |
Chad |
0.74 |
0.87 |
Gabon |
0.74 |
0.72 |
Burundi |
0.70 |
0.59 |
Congo, Rep. of |
0.69 |
0.71 |
Somalia |
0.67 |
0.47 |
Mali |
0.65 |
0.75 |
Central African Republic |
0.64 |
0.40 |
Seychelles |
0.64 |
0.52 |
Guinea-Bissau |
0.62 |
0.93 |
Sudan |
0.61 |
0.77 |
Congo, Dem. Rep. of |
0.61 |
0.35 |
Malawi |
0.59 |
0.63 |
Mayotte |
0.58 |
0.23 |
Benin |
0.58 |
0.35 |
Liberia |
0.57 |
0.60 |
Guinea |
0.57 |
0.49 |
Burkina Faso |
0.56 |
0.34 |
Ethiopia |
0.54 |
0.34 |
Zambia |
0.52 |
0.66 |
Cape Verde |
0.51 |
0.44 |
Sierra Leone |
0.51 |
0.27 |
Mauritania |
0.50 |
0.49 |
Cameroon |
0.48 |
0.48 |
Lesotho |
0.48 |
0.50 |
Gambia |
0.46 |
0.26 |
Rwanda |
0.46 |
0.40 |
Namibia |
0.40 |
0.31 |
Niger |
0.40 |
0.51 |
Mauritius |
0.34 |
0.26 |
Uganda |
0.33 |
0.23 |
Côte d’Ivoire |
0.32 |
0.36 |
Ghana |
0.31 |
0.44 |
Eritrea |
0.31 |
0.22 |
Mozambique |
0.31 |
0.32 |
Kenya |
0.30 |
0.22 |
Zimbabwe |
0.27 |
0.19 |
Tanzania |
0.26 |
0.29 |
Madagascar |
0.26 |
0.22 |
Swaziland |
0.23 |
0.24 |
South Africa |
0.14 |
0.15 |
Djibouti |
0.13 |
0.33 |
Source: UNCTAD 2010b.
Notes: * The Herfindahl index ranges from 0 to 1, with higher values indicating higher levels of concentration.
In the last 10 years there has been a steady, albeit slow diversification of exports by African countries that are not dependent on exports of oil and minerals. There has also been noticeable diversification in their trading partners. The explanations for the ongoing diversification in exports vary from country to country, but in broad terms they include reductions in trade barriers by trading partners and reforms in domestic policies. For example, the growth of the textile industry in Kenya, Madagascar, Mauritius, Swaziland, and especially Lesotho, is explained largely by the African Growth and Opportunity Act (AGOA) (Seyoum 2007). AGOA is a 2000 US trade law that gives preferential tariff treatment to goods originating from sub-Saharan Africa. Lesotho has taken full advantage of AGOA by encouraging an inflow of foreign direct investment and increasing its production of apparel. It is currently the largest exporter of garments to the United States from sub-Saharan Africa, accounting for about 30 per cent of sub-Saharan African exports of garments to the United States in 2009 (USITC 2009). Between 2000 and 2009 Lesotho’s exports of clothing to the United States increased by an annual average of about 13 per cent (UNCTAD 2010a). Of course, it is important for Lesotho not to rely heavily on AGOA for the growth of its textile industry, since the preferential treatment provided by AGOA will decrease over time.
Ironically, the rapid growth of the textile industry in Lesotho, relative to the growth in other sectors, has actually increased its export concentration index slightly, as shown in Table 28.4. This should underscore the importance of carefully examining the composition of a country’s exports over an extended period of time, before drawing conclusions based on the export concentration index. A high index may indicate a country’s vulnerability to production and price fluctuations of its major export product(s), as an increase in the value of the index may simply mean that the country has improved production of its major export product or that the world price of that product has increased. In fact, given that the Herfindahl index is calculated on the basis of an aggregated level of products, the index may not reflect increased diversification that has taken place within an industry, such as an increase in the variety of garments that a country exports. The same logic should follow that a decrease in the export concentrationindex may not necessarily imply that exports are more diversified. One would need to know the cause of the decrease in the index and other details to make an informed determination.
In the late 1980s, many African countries started implementing programmes that were outward oriented and, more generally, market oriented, reducing some of the bottlenecks to diversification. There has also been a growing awareness in Africa of the need for an integrated approach in coordinating and implementing various diversification programmes. A programme to diversify agricultural exports, for example, which concentrates solely on obtaining aid and giving investment incentives to increase production, would not be successful without reliable infrastructure, property rights, and macroeconomic stability.
Consider the case of cut flowers in Tanzania. There was always suitable land for the production of cut flowers in Tanzania and a profitable foreign market for them in Europe. Nonetheless, actual production and exports did not take place until the early 1990s, after the following conditions were in place: producers had access to Nairobi International Airport in Kenya, an ordinance prohibiting the uprooting of coffee trees (in areas where cut flowers could be grown) was removed, export taxes were reduced, the foreign currency market was liberalized, and investment rules began to encourage direct foreign investment. These were changes that involved various government ministries, local governments, and a neighbouring country – changes that enabled Tanzania to take advantage of its difference with European countries in terms of climate, land, and labour costs. An important feature of the cut-flower industry is that 90 per cent of the employees are women. This is significant because women in general, for a variety of reasons, have fewer job opportunities. Tanzania’s export revenue generated from cut flowers increased from US$500,000 in 1990 to over $33 million in 2007 (Golub and McManus 2009).
While diversification of products has been slow, diversification of markets has been growing relatively quickly. African countries in general continue to rely heavily on markets in developed countries. In addition, about 50 per cent of African countries’ imports still come from developed countries. However, there has been a clear increase in African countries’ exports to and imports from developing countries since the early 1990s, especially to and from Eastern, Southern, and Southeastern Asia, as shown in Table 28.3. This reflects economic reforms in Asia (China since 1978 and India since 1991) and also in African countries themselves. Those reforms have also been strengthened by trade agreements under the WTO.
Africa and the WTO
African countries’ navigation in the global economy can be considered from various viewpoints. However, it is becoming increasingly important to examine Africa in the context of the WTO for several reasons. First, the WTO plays a pivotal role in setting trade rules and will continue to do so. Second, trade is and will continue to be a key source of economic growth in Africa. Third, African countries, especially in sub-Saharan Africa, have unique challenges which often call for special consideration by the WTO, separate from the consideration given to other developing countries. Fourth, African countries are continually gaining experience and confidence in negotiating in the WTO.
The WTO was born out of the General Agreement on Tariffs and Trade (GATT), which was established in 1947 when 23 countries signed the original treaty. In addition, participation in GATT was extended to colonies of GATT members, under Article XXVI: 5. GATT contracting countries applied this provision to all their colonies in Africa with the sole exception of Morocco, which was not sponsored by France to participate in GATT (Tomz et al. 2005). Thus, nearly all African countries were, by extension, part of GATT from its very inception.3 To the extent that colonialism was, by design, fundamentally an exploitative political and economic system, the extension of GATT’s rights and obligations to the colonies was also seen as a means for exploitation. When independence came, a colony to which GATT benefits and obligations were applied had three options: join GATT immediately as a full contracting party; establish de facto participation status while deciding about its future domestic trade policy; or simply end its participation in GATT.
While GATT was technically only a provisional treaty throughout its 48 years of existence, over time it actually amounted to an increasing number of complex agreements, administered and enforced by its operating body. These agreements were designed to reduce barriers to trade. There were eight rounds of multilateral trade negotiations under GATT, including the Uruguay Round (1986–93), from which the WTO was born. As of January 2011 the WTO had 153 members, including 42 African countries. In addition, 31 countries are observers, including nine African countries. Only two African countries – Eritrea and Somalia – had neither membership nor observer status.
The WTO (like its predecessor) strives to provide a more predictable trade environment and plays an important role in facilitating negotiations among many diverse countries. It is no secret or surprise that a country’s economic strength is important in determining its leverage in negotiating agreements. Of course, this phenomenon is not unique to the WTO. Individual African countries do not have much economic leverage, given the small size of their economies, so African countries in the WTO have formed a coalition called the African Group, which affords them greater influence in negotiations. Many of them also belong to several other coalitions, including the African, Caribbean, and Pacific countries (ACP) Group, the Least-Developed Countries (LDC) Group, the G77, and the G33. The African Group, the ACP Group, and the LDC Group also coordinate under an umbrella group called the G90 (see Table 28.5).
Table 28.5African countries’ membership of the WTO, ACP group, LDC group, and G33, December 2007
Source: Table 1.1 (updated) from Mshomba 2009.
Simply considering membership numbers, African countries enjoy significant representation in the WTO through various coalitions, as suggested by Table 28.6. All sub-Saharan African countries are members of the ACP Group. The G77 is a coalition of developing countries founded in 1964 to promote their interests in multilateral negotiations at various forums. The membership of the G77 grew from 77 countries when it was founded, to 130 countries in 2007. All 53 African countries are members of the G77. The G33 is a coalition of a subset of developing countries in the WTO that has focused on negotiations on agriculture, particularly on so-called ‘special products’, and a special safeguard mechanism.
Table 28.6African countries’ relative membership in various groups, December 2007
Source: Table 1.2 (updated) from Mshomba 2009.
The practice of belonging to these and other coalitions is explained by history, geography, common broad economic interests, and the efficiency of sharing information and scarce resources. More importantly, it is necessitated by the desire to have some leverage in the WTO negotiations, as leverage for African countries usually comes from their sheer number and the merits of their arguments rather than their economic strength.
The amendment of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) to address concerns of African countries is a good example of what can be achieved through coalitions. TRIPS was among the agreements that became effective at the establishment of the WTO in 1995. The Agreement sets a minimum uniform standard to protect intellectual property rights. The signing of the TRIPS Agreement was an achievement celebrated by developed countries, the main producers of technological knowledge. African and other developing countries, on the other hand, had all along been opposed to and wary of an agreement that might adversely affect their access to generic and cheaper medicines and hamper their adoption of new technology.
Certain provisions were included in the agreement to give governments, especially those in developing countries, some discretion to refuse to grant patents for public health reasons. Parallel importing, which is permitted by Article 6 of the TRIPS Agreement, refers to the practice of a third party reselling products without the approval of the patent holder. For example, suppose Profitmax pharmaceutical company sells a patented drug in Uganda and Zimbabwe, but sells it at a lower price in Uganda. If another company buys it in Uganda and sells it in Zimbabwe at a price lower than the price charged by Profitmax, such action would constitute parallel importing. Another example is compulsory licensing, permitted by Article 31 of TRIPS, which ‘allows for other use of the subject matter of a patent without the authorization of the right holder’. Compulsory licensing takes place when a government allows a third party to produce a patented product without the consent of the patent holder.
Nonetheless, parallel importing and compulsory licensing are of little direct importance to most African countries. While drug prices in these countries are still high relative to purchasing ability, these prices tend to be lower, in absolute terms, than prices in other countries. Any parallel importing is likely to be from, rather than to, these countries. In fact, to help ensure the flow of relatively cheap drugs to African countries, these countries should be assuring pharmaceutical companies that they will not be party to parallel exporting and that they will work diligently to prevent the smuggling of drugs from Africa.
Compulsory licensing is a viable option if a country has the capacity to produce and market generic drugs, but most African countries do not have that capacity. For many African countries, this provision is thus useful only if they can import from other countries, such as India and Brazil, which can themselves take advantage of compulsory licensing to produce generic drugs. However, Article 31(f) of the TRIPS Agreement stipulates that any use of compulsory licensing ‘shall be authorized predominantly for the supply of the market of the Member authorizing such use’. That is, compulsory licensing was to be authorized primarily for the domestic market. This has posed a significant problem for countries that lack production capacity.
At the same time, the TRIPS Agreement gave developing countries until 1 January 2006 to comply with its provisions. In 2002 the WTO extended the deadline, to 1 January 2016 for least-developed countries to begin to provide patent protection for pharmaceuticals. Other developing countries, however, were still bound by the original deadline. That meant that although India, for example, could still utilize the compulsory licensing provision to produce generic drugs, as of 1 January 2006 it could not export them. Although a country like Tanzania (still under the extended transitional period) would theoretically have been allowed to import generic drugs from India, India would have been bound by the TRIPS Agreement not to export the drugs. Tanzania would either have had to produce the drugs itself or find another least-developed country that produced the drugs.
Aware of what this predicament meant for Africa, the African Group in the WTO pushed for changes that produced what is referred to as the August 2003 Decision – a waiver of Article 31(f) of the TRIPS Agreement. This meant that countries that utilized compulsory licensing to produce generic drugs were no longer constrained to their domestic markets; they could now export them to eligible importing countries or regional trading blocs. However, the waiver was agreed to only on a temporary basis. The African Group pushed to make the waiver permanent.
On 6 December 2005 WTO members gave their approval to make the August 2003 decision a permanent amendment to the TRIPS Agreement. To become a permanent amendment, two-thirds of the WTO members must ratify the changes. Initially the WTO gave itself a deadline of 1 December 2007 for ratification. By December 2007, with only 13 out of 152 countries having ratified the amendment, the WTO extended the deadline to the end of 2009. On 6 December 2005, WTO members gave their approval to make the August 2003 decision a permanent amendment to the TRIPS Agreement. To become a permanent amendment, two-thirds of the WTO members must ratify the changes. Initially the WTO gave itself a deadline of 1 December 2007 for ratification. By December 2007, with only 13 out of 152 countries having ratified the amendment, the WTO extended the deadline to the end of 2009. The deadline was pushed back again to December 2011 and later to December 2013. As of September 2012, only 44 countries had ratified the amendment so it is likely that the December 2013 deadline will be pushed back as well. Despite the delays in ratifying the waiver, the fact that the process has gotten this far must be considered a victory for the African Group, which clearly demonstrated its tenacity and ingenuity in the WTO TRIPS Council. If the waiver does become a permanent amendment, it will be the first time a core WTO Agreement has been amended.
In 2007 Rwanda became the first country to notify the WTO that it was going to apply the compulsory licensing provision to import HIV/AIDS generic drugs from Canada (ICTSD 2007). However, given the administrative and legal procedures involved, it took more than a year before the export of generic drugs from Canada to Rwanda actually began. In addition, the fact that Rwanda was already receiving some assistance for HIV/AIDS drugs through other initiatives reduced the urgency of the Canada-Rwanda deal.
It is unfortunate that African countries have had to expend so many of their meagre diplomatic resources fighting for access to cheap medicines. Nonetheless, the approval to amend the TRIPS Agreement is a victory, albeit modest, for the African Group. While the outcome shows how slow the WTO can be in making genuine changes, it also shows how important it is for African countries to be persistent with justifiable demands.
WTO agreements cannot be amended on a whim if they are to guide long-term trade policies and be applied to the filing and settlement of trade disputes. However, the WTO’s rigidity in making corrections even in a case as clear as the one involving compulsory licensing, discussed above, makes African countries instinctively and, perhaps, justifiably hesitant about any proposed new agreements.
Most African countries are in an awkward situation because the constraints imposed by various agreements are often not aimed directly at them. The constraints usually target large developing countries, such as Argentina, Brazil, China, India, and South Africa, which are typically capable of taking advantage of any available loopholes. Of course, South Africa is in the African Group, and for various strategic, historical, and institutional reasons, the African Group tends to be in coalitions with other developing countries, even if their interests are not completely in harmony.
The TRIPS Agreement gave the African Group a unique opportunity to show its maturity and shrewdness in negotiations at the WTO. The experience the African Group acquired and the coalitions it forged in the process are assets transferable to other endeavours. Nonetheless, the capacity of African countries to negotiate will continue to be compromised so long as they are dependent on aid and special or preferential treatment.
Dependency on aid – in a direct form or in the form of preferential treatment – often undermines whatever leverage African countries might have in negotiating in the WTO. African countries, the leverage of which is typically small to begin with due to their small economies (notwithstanding the various coalitions to which they belong), negotiate from an even weaker position with donors and preference-giving countries. Only a naïve diplomat would approach WTO negotiations single-mindedly, without considering his or her country’s aid dependency. In 2010 sub-Saharan Africa received 35 per cent of the world’s total net official development assistance (ODA). Net ODA as a percentage of gross national income was highest in sub-Saharan Africa, at 4.3 per cent, followed by the Middle East and North Africa region at a distant second, with 0.9 per cent.
Given the declaration that the Doha Round was to be a development round, it was only a matter of time before aid became a central issue in the WTO negotiations. An Aid for Trade initiative was formally launched in December 2005 at the WTO Ministerial Conference in Hong Kong. The merit in the Aid for Trade initiative comes from the fact it can help to reduce supply-side constraints, thus improving production capacity and helping countries to diversify and add value to their exports.
In addition, African countries also want to be given aid for diminished preference margins. A basic principle of the WTO and its predecessor, GATT, is non-differentiated treatment, commonly called the most favoured nation (MFN) principle. The MFN principle means a member country must treat all other members equally in respect to trade policy. If a member country lowers the tariff rate on a commodity entering from one member country, for example, it must likewise lower the tariff rate on that commodity from all other member countries. Exceptions to the MFN rule are made for preferential tariff treatment for developing and least-developed countries, and for free trade areas and other levels of economic integration. Developing countries, and even more so least-developed countries, are accorded special and preferential treatment. However, their margin of preference erodes whenever MFN tariffs are lowered for goods covered by preferential programmes.
While the erosion of the preference margins seems to be a legitimate concern, it is interesting that a handful of countries that have been able to utilize preferential treatment, as well as those that have failed to take advantage of it, are asking for additional aid to help them adjust to reduced preferential margins.4 Financial assistance for adjustment costs is to come from the same countries that have offered preferential treatment to African countries in the first place. In a way, countries that offer preferential treatment are held hostage by their preferential openness. Preferential treatment, which by its very design is meant to be temporary, is portrayed in the aid for trade initiative as if it were a perpetual entitlement for developing countries. What is even more ironic is that African countries that, for one reason or another, are not able to take advantage of preferential treatment stand a chance to benefit by receiving financial aid when the preferential treatment that they were not able to utilize erodes or expires. Whatever the reasons for requesting aid might be, however, dependence on aid and lobbying for preferential treatment reduces African countries’ leverage in negotiations in the WTO (on aid and dependency see Williams, this volume).
Developed Countries’ Agricultural Policies
In general, developed countries have been generous to African countries and maintain lower trade barriers than African countries. However, their promises cannot always be taken at face value. Developed countries often make aid pledges that they do not always honour. Moreover, they still have some trade barriers and market distortions, especially in the agricultural sector, which hurt African countries.
It should be noted that the agricultural sector is a very important economic sector in most African countries. In 2010 it contributed 13 per cent of GDP in sub-Saharan Africa and 30 per cent in non-oil-exporting countries (World Bank 2012). Agricultural exports are the most important export sector for many African countries, contributing more than 60 per cent of export revenue in Benin, Burkina Faso, Burundi, Cape Verde, Djibouti, Ethiopia, Ghana, Guinea-Bissau, Kenya, Malawi, Seychelles, and Uganda in 2009 (UNCTAD 2010b). The importance of agriculture in Africa is even more pronounced when one considers that the sector employs 65 per cent of the labour force, most of whom are women.
The agricultural sector was brought under the WTO in 1995 when the Agreement on Agriculture took effect. The agreement’s objectives are ostensibly to increase market access and to reduce domestic support and export subsidies in developed countries. Given how much leeway countries were given, it was clear early on that no significant liberalization could be expected. Further negotiations were needed to set the agricultural sector en route to more meaningful liberalization.
The Doha Round of negotiations was launched at the WTO Ministerial Conference in 2001 with this in mind. It was launched with the hope of bringing the agricultural sector into greater harmony with the development objectives of developing countries. The Doha Round was declared to be a development round and was acceptable to African countries because of its uniquely explicit development agenda and its attention to agriculture. However, the Doha Round has reached an impasse, partly due to the resistance of developed countries to making meaningful cuts in agricultural subsidies. These subsidies cause increases in production and decreases in world prices, hurting developing countries that depend on agricultural exports.
US cotton subsidies have come to symbolize the inconsistency of developed countries’ policies (see the case study, ‘Cotton producers in Benin squeezed by domestic policies and OECD subsidies’, in Mshomba 2009). While the United States and other developed countries have found it politically difficult to remove cotton subsidies, they agreed to support the development and production of cotton in West African countries that have suffered the most due to those subsidies through its West Africa Cotton Improvement Program launched in 2006 (USAID 2006). This assistance provided by developed countries and multilateral agencies can have a positive impact on West African countries. However, elimination of subsidies will have a far greater positive impact on producer prices for African farmers, unlike financial aid, which may not even get to the capital city, let alone to the rural areas. Studies have shown that the removal of cotton subsidies worldwide would increase cotton export earnings in West Africa by 15 per cent to 36 per cent (Badiane et al. 2002; Gillson et al. 2004).
Conclusion
Globalization is an ongoing process whereby countries increasingly interact with each other, either by choice or circumstance. It is a dynamic process that will continue to change in magnitude and form. Because African countries are highly integrated into the global economy, external factors can affect them significantly, and all the more so since African economies are very specialized.
It is encouraging that the WTO has become more sensitive to the salient features and needs of developing countries, especially LDCs. If aid for trade is given and spent effectively and provisions for special and preferential treatment are used strategically, they can contribute to development in African countries. To make sure that aid is well targeted, aid should be determined by what needs to be done, rather than aid determining what should be done. It is important, for example, to evaluate the impact of liberalization on its own merit. Short of that, hasty adjustments and unexamined projects could be carried out only because aid was made available for that purpose. Likewise, trade- and growth-enhancing adjustments could be put off just because aid was not available. Aid should facilitate trade reforms; it should not be the reason for reforms.
As developing countries, African countries have ample policy space. This is especially true for the least-developed countries. The African Group in the WTO will continue to protect their policy space, which is meant to allow them to liberalize at a pace that they determine to be in harmony with their overall development strategies. Of course, external factors still matter. The elimination of developed country agricultural subsidies, especially for cotton, and increased market access for LDCs’ products into developed countries, will boost sub-Saharan African exports and enhance their potential to develop.
Notes
1Some of the discussion in this chapter is drawn from Mshomba (2000, 2009).
2These data fluctuate from year to year, but major differences between countries are a common phenomenon.
3South Africa and Southern Rhodesia (Zimbabwe) were among the original contracting countries of GATT. However, at the time each of these countries was under a white minority rule that was notoriously repressive of the majority black Africans.
4See Brenton and Ikezuki (2005) and Hoekman et al. (2006) for utilization of preferential market access by African countries.
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