The place of Sub-Saharan Africa in the emerging international trading system is of concern to both policymakers in Africa and their development partners. Such concern, and fears that Africa could be further marginalized in the emerging globalized trading and financial system, are justified, given the regions relatively poor past performance in world trade. It is possible that this trend may persist into the future unless radical measures are taken, in view of Africas lack of effective participation in international trade negotiations, including the recently completed Uruguay Round of multilateral trade negotiations.
This paper raises some of the key issues in international trade that are of relevance to African countries. After a brief review of recent trends in Africa's trade performance, it presents an overview of current international trade issues. The paper then proposes actions and measures that should be taken by African countries themselves, as well as the support required from the international community, in order to revitalize exports and improve the international competitiveness of African countries.
Africa's Export Performance to Date
During the last 15 years, both the volume and value of world merchandise trade has expanded rapidly. However, Africa did not participate in this virtually global trade expansion, in large part because of the structure of Africas exports and the policies pursued by individual countries.
World merchandise trade recovered from a one percent annual average decline over the 1980-85 period to record impressive annual average growth rates of twelve percent over 1985-90 and 7.5 percent during 1990-95. Asian exports grew faster than the world average over the whole 1980-95 period. Although Latin American exports recorded no growth during the 1980-85 period, the region achieved average annual growth rates of 6 and 9 percent over 1985-1990 and 1990-1995 respectively. In contrast, Africa not only experienced a much deeper decline of an average 8 percent per annum 1980-85, but recorded a more modest 5 percent annual growth rate over the 1985-90 period and fell back to a zero percent annual average growth rate over the next five years. It should, however, be noted that African countries that have liberalized foreign trade and generally adopted outward-oriented policies have had respectable growth in trade. In addition, over the last two years Africa's trade performance appears to have improved. Nevertheless, the overall disappointing performance of the region and its significant and continued loss of market share remain issues to be addressed.
Africas share of total world merchandise exports fell approximately two-thirds from almost 6 percent in 1980 to about 2 percent in 1995. In comparison, Latin America was able to maintain its share of roughly 5 percent throughout, while Asia almost doubled its share from about 16 percent to 27 percent. While Africa dominated the markets in commodities such as cocoa, coffee, rubber, spices and tin only three decades ago, Latin American, and in particular, Asian countries now hold significant market shares. During the period 1965-1990, Africa lost market shares in 31 out of 43 primary exports, while for cash crops the market share fell in 22 out of 33 cases.
Despite losing their market share, most African countries continue to rely on a few primary commodities for the bulk of their export earnings. In 1970, primary commodities accounted for 70 percent of Africas exports. By 1995, they still accounted for 65 percent. The low price and income elasticity of these commodities, along with the volatility of commodity prices and their decline in real terms, mean that African countries that heavily depend on them have been subjected to greater negative terms of trade shocks than other countries.
Given this dependence on primary products, Africa suffered from the sluggish growth of the world market for primary commodities -- the share of these primary commodities in world exports fell by almost 50 percent over the last 15 years, from just over 42 percent in 1980 to only 22 percent in 1995. However, Africas declining share of world exports is also, and more importantly, due to the regions failure to develop and expand alternative export products, such as manufactures, and its inability to even maintain its share of the primary commodities market. Inappropriate policy and regulatory environment, lack of public and private sector capacities, and inadequacies with respect to infrastructure and support services, were among the key underlying reasons for the poor export performance of many African countries. In contrast to East Asian countries where export-oriented policies were aggressively implemented, many African governments overtaxed primary export commodities and failed to provide adequate support for the agricultural export sector. Thus, critical avenues for significantly reducing the regions production and transactions costs were not pursued, and African countries lost their export competitiveness. In some Asian countries, for example, production costs of coffee are about half that of African countries.
Empirical evidence suggests that the growth of total exports, and the contribution of export growth to real income growth, tend to be higher when manufactured exports make up a larger share of total exports. However, the dominant import-substitution industrialization strategies pursued in most African countries in the 1960s and 1970s meant that production for the domestic market was more attractive than exports. Neither effective export promotion efforts nor supportive measures to eliminate or compensate for this inherent anti-export bias were pursued, with the result that Africa's manufactured export capacity remains insignificant in comparison to Asia and Latin America.
Africa and the International Trading Environment
Among the most important features and elements of the current international trading environment that African countries need to evaluate and respond to are the impending negotiations on the future status of the Lomé Convention, the new post-Uruguay trading regime and issues relating to globalization and regionalism.
A. Special Preferences and African Trade
Historically, trade preferences have been fairly common features of the global trading system. At present, almost 50 percent of world trade in manufactures occurs under various types of preferential trade schemes. The significance of preferences for African trade is due to the overall importance of OECD countries as major markets, and their particular importance as markets for Africa's exports. Within the OECD, the market of the European Union (EU) is very significant. Developing and least developed countries, including those in Sub-Saharan Africa, receive significant trade preferences either under the generalized system of preference (GSP) schemes of the OECD countries or through the preferential trade arrangements of the ACP-EU Lomé Convention. The EU accounts for over 45 percent of all Sub-Saharan Africa's exports, while North America takes over 20 percent of African exports and the Japanese market absorbs less than 3 percent of these exports.
1. Lomé Convention and Other Trade Preferences
Since 1975, trade relations between the EU and Sub-Saharan African countries, excluding South Africa, have been governed mainly by preferential arrangements in the framework of the Lomé Convention. In terms of both the range of products covered and the tariff preferences granted, the Lomé Convention provides a more favorable system of preferences for African countries than the other preferential trade schemes available to them. Lomé preferences are contractual in the sense of being mutually agreed between the EU and its African, Caribbean and Pacific (ACP) partners, and cannot be unilaterally modified or abrogated. The Lomé trade preferences are also non-reciprocal. Thus, while ACP countries are granted at duty-free or low preferential tariffs treatment in the EU market, the recipient ACP countries are not required to extend the same preferential access to EU exports.
Lomé trade provisions also include special mechanisms for stabilizing ACP export revenues for certain primary products. Of these special mechanisms, STABEX caters for agricultural commodities, and SYSMIN for minerals. In addition, Lomé preferences provide exemption from the quantitative restrictions into the EU market for textiles and clothing which non-ACP developing countries face under the multi-fibre agreement (MFA). This exemption has enabled a few African exporters of textiles and clothing, such as Mauritius, to rapidly expand and diversify their exports. Furthermore, Lomé preferences offer generous prices and guaranteed access for specific export quantities within the commodity protocols covering bananas, sugar, beef, veal, and rum. Botswanas meat and Mauritius sugar exports have benefited from these.
Most Sub-Saharan African countries receive important benefits from the GSP schemes of OECD countries, particularly those of the United States and Japan. Several GSP schemes extend even lower preferential tariffs to the least developed countries than those granted to other developing countries under "standard" GSP schemes. However, GSP schemes differ in significant respects from the Lomé trade preferences. For example, many schemes exclude a wide range of agricultural and manufactured products. In general, GSP treatment is autonomous, in that each granting country may unilaterally determine the beneficiary countries, the products covered, and the conditions of access. Such schemes are non-contractual, implying that they may be withdrawn in part or in whole. Furthermore, GSP schemes are temporary and non-contractual, and also frequently place restrictions on and specify criteria for granting preferences.
As a result of Lomé preferences, the average tariff facing African and other ACP exporters in the EU is quite low and does not exceed 0.3 percent. These tariff levels provide ACP countries with advantages, in the EU market, over other developing countries which face average import duty rates in the 2-4 percent range. African exporters also benefit from GSP preferences in the American and Japanese markets, although the tariffs they face in these markets are often higher than in the EU. However, the impact of various trade preferences on Africas past trade performance has been limited. Despite Lomé preferences, ACP countries share of EU imports declined from 6.7 percent in 1976 to 2.8 percent in 1994. Asia's share more than tripled from 4.2 percent to 13.1 percent over the same period, while Latin American and Mediterranean countries maintained their respective shares of 5.3 percent and 6.1 percent.
2. Erosion of Preferences
When fully implemented, the Uruguay Round Agreements will significantly reduce trade barriers. Tariff concessions will reduce import tariffs on agricultural products by an average of 43 percent and on manufactured products by an average of 37 percent. As general trade barriers fall, they will come closer and closer to the low preferential tariffs that apply to African exports in the OECD. Hence, the preferential tariff margin (i.e. the difference between preferential tariffs and normal tariffs) will be reduced or eroded, and Sub-Saharan African countries will lose part of the special price advantages currently enjoyed by their exports in the OECD markets.
Estimates of Africas potential loss in exports as a result of the Uruguay Round agreements vary. Based on the assumption that the Uruguay Round Agreements are fully implemented, that differences in tariff rates are the only factor affecting export growth, and that the supply response of African exporters remains unchanged, one set of estimates suggests that Sub-Saharan African would suffer annual trade loss of over $500 million as a result of the erosion of preferences under the Uruguay Round. These estimates indicate that for the 30 largest Sub-Saharan African exporters, the losses would represent as much as 2 percent of their current export earnings, with significant losses being incurred by Cote dIvoire, Mauritius and Kenya. Preference erosion in the US and Japan as a result of the Uruguay Round would also markedly influence African exports.
Another set of estimates suggests much smaller trade losses. It assumes that preferential gains derivable from the agricultural protocols, fishing Agreements, and exemptions from the EUs MFA disciplines for textiles, will still be available. Based on these considerations, it is estimated that African countries would face a trade loss of $7.5 million as a result of the erosion of their preferential tariff margin in OECD markets (over 70 percent of this loss will be incurred in the EU market). It should be noted, however, that the potential trade losses that African countries would suffer as a result of the erosion of their preferential tariff margins could be much larger, particularly if Lomé preferences are significantly reduced under a successor arrangement.
A number of African countries are now implementing the sort of policies which would allow them to more effectively utilize preferential market access opportunities. Continued preferential arrangements could therefore play an extremely important role in helping those countries that are following sound macroeconomic policies and properly addressing their capacity constraints to realize their export potentials. The experience of some African countries that have derived significant gains from special trade preferences supports this argument. Mauritius, Kenya and Zimbabwe, which have diversified into non-traditional exports such as clothing and horticultural products, have achieved significant gains that can be closely associated with the Lomé trade preferences. In the same way, Botswana has derived gains from its export of beef to the EU under the beef and veal protocol, while Mauritius benefited from the price support and guaranteed market access provided by the sugar protocol.
3. Future Trade Relations with the EU
The EU has historically been the primary destination of African exports and the major source of its imports, and this trade pattern currently continues to hold. The colonial and historical links, perceived mutual economic benefits, and geo-political considerations, which gave birth to the Lomé Convention and its preferential trading arrangements, have sustained it until recently. However, the current Convention will expire in 2000, and there are concerns that these issues no longer have the same significance.
Two important considerations are the apparent shift in Europes geo-political interest, and the perception in Europe that the ACP, including Africa, does not constitute an attractive market for the EU. The EU now attaches greater importance to relations with the countries of Eastern and Central Europe, as well as the Mediterranean, in part to forestall massive immigration from them into the EU countries. In addition, certain members of the EU favor extending Lomé preferences and concessions to other, non-ACP, developing countries.
If a longer-term view is taken, there are compelling reasons to maintain Europe-ACP preferential trading arrangements. Many African countries have considerable potential in terms of their untapped natural and human resources. Investing in this potential now will yield benefits to all concerned in the future. In order to do so, however, the economic structure and current level of development of African countries have to be taken into account. Because most of the countries will need time to shift from trade taxes to other sources of revenue and to remove existing capacity constraints to export growth, trade arrangements with either the EU or other trading blocs would have to be asymmetrical over an agreed period of time.
Various parties, including some developing countries, have raised questions regarding the compatibility of the contractual system of special and non-reciprocal trade preferences of the Lomé Convention with the new, post-Uruguay Round multilateral trading system. Meanwhile, a waiver has been granted for the trade package of the Convention until the end of Lomé IV, that is, until 29 February 2000. However, there is an on-going legal challenge in the WTO to the EU's banana regime lodged by Ecuador, Guatemala, Honduras, Mexico and the US. The outcome will likely have significant implications for the other preferential provisions of the Convention.
Against the backdrop of these developments, in its Green Paper on the follow-up to Lomé IV, the EU presents several possible scenarios:
i) Status Quo, which preserves the current non-reciprocal, contractual, preferential scheme complemented with cooperation and further trade liberalization;
ii) Integration into the GSP, which would reduce Lomé to an aid package by transferring the trade arrangement component to OECD GSP schemes;
iii) Uniform Reciprocity, which would require all ACP countries to extend reciprocity to EU exports after an agreed transition period;
iv) Differentiated Reciprocity, which retains the key elements of reciprocity in (iii) above but permits the ACP group to be divided into regional groups and/or groups based on differences in levels of economic development.
It is clear that African and other ACP countries need an adequate transitional period before entering into fully reciprocal trade agreements with developed countries. In this context, such an approach could comprise the following steps:
i) maintenance of the current status-quo for a reasonable period during which the basis of differentiation, both by region and level of economic development, are worked out;
ii) establishment of a framework of trade arrangements that creates regional trading arrangements between ACP regions, including Sub-Saharan Africa or its sub-regions, on one side, and the EU and other trading blocs on the other. The framework would be asymmetrically reciprocal, by obliging ACP countries to gradually open their markets to EU exports while immediately granting full and free access to the EU market for the exports of ACP countries, including those of Sub-Saharan Africa; and
iii) maturation into full and symmetrical free trade arrangements following an adequate and mutually agreed transition period.
The transition period would have to take into account various limitations of countries at different levels of development. Using criteria such as per capita income and the proportion of manufactures in total exports, ACP countries could be split into two broad groups. Those countries in which per capita income is below $1,000 per annum and where manufactures constitute less than 20 percent of total exports would probably need a transition period of 20-25 years. Those with development indicators above these thresholds could have an adjustment period of perhaps 10-15 years. In both cases, however, policy credibility would be enhanced if tariff schedules, including the proposed reductions, are WTO-bound over the agreed transition period and beyond.
B. African Trade in the WTO Framework
Various factors are usually considered when assessing the results of multilateral trade negotiations for any country or region. These include the extent to which the country or region's access to other markets has been improved, in comparison with the extent to which domestic market access has to be increased. Other considerations are the new obligations that must be met as a result of the new rules generated, including the new or increased constraints on domestic policy autonomy.
Among the significant results of the Uruguay Round is the creation of the World Trade Organization (WTO). This is, in effect, a new and stronger institutional framework for a permanent negotiation process aimed at expanding the frontiers of multilateral trade law and its enforcement. As such, the WTO framework will increasingly influence the overall trade policies of African countries and their integration into the global economy, and set the boundaries of their trade and development policies.
1. Implications of Uruguay Round Agreements for African Trade
Sub-Saharan Africa is the region which stands to gain least -- and the only one which may even lose -- from the agreements reached under the Uruguay Round. Estimates of the overall impact of Uruguay Round agreements on Africa's trade in goods vary. Expressed as a change in gross domestic product, these estimates range from -0.2 to -0.73 percent on the negative side, and from 0.8 to 1.4 percent on the positive side. These poor prospects are ascribed to the fact that the majority of African countries are net importers of food products, beneficiaries of trade preferences, and overly dependent on exports of primary commodities for which no new markets were opened by the Round.
The Uruguay Round negotiations focused on three main sectors -- agriculture, industry, and services -- in addition to various systemic issues. The results in each of these areas have market access implications for Africa.
In summary, the Round agreed that 100 percent of all agricultural products will be covered by tariff bindings by both developed and developing countries. In addition, all quantitative restrictions will be eliminated and converted to tariffs, while both export and production subsidies will be reduced by developed and developing countries over differing time spans. In the end, tariff reductions achieved in the Round averaged 37 percent on agricultural products as a group. However, African countries will not derive much benefit from these reductions, as most of their agricultural exports already faced few and generally low tariff barriers.
On the other hand, the agreement to reduce subsidies and eliminate quantitative restrictions on temperate crops is likely to have a negative impact on Africa's net food-importing countries by significantly raising their annual import bill. This has generated considerable concern, and the WTO made a commitment to assist low-income net food-importers. However, although the Singapore Ministerial Conference of the WTO reconfirmed this commitment, no clear-cut operational mechanism for its implementation has been specified. In addition, the agreement on agriculture could also negatively affect those African countries which currently benefit from commodity protocols under the Lomé Convention, to the extent that it restricts and limits the possibilities for the EU to grant ACP countries market access for agreed quantities at guaranteed prices.
Industrial tariff reductions achieved in the Uruguay Round averaged 43 percent with respect to manufactured products. African industrial exports that derive the most benefits from the Uruguay Round include wood and wood products, chemicals, and mineral products. Several countries also potentially stand to derive considerable benefits from the scaling down of tariff escalation with regard to product groups such as wood and paper products, leather goods, and tobacco products.
On the negative side, a significant degree of tariff escalation remains with respect to beverages and fruits, while tariff escalation actually increased in the case of cocoa (due to the elimination of tariffs on cocoa beans) to the detriment of processing activities in Africa. Moreover, several products of particular export interest to African countries, including fish and fish products, textiles and clothing, and leather and rubber goods, received only small tariff reductions and thus continue to retain fairly high tariff duties.
The Uruguay Round agreements will sharply reduce non-tariff barriers facing African exports in the OECD markets. In aggregate terms, the share of Sub-Saharan African exports facing these barriers will decline from 13.1 percent to 8 percent. Major potential beneficiaries include Mauritius, Cape Verde, Congo, Malawi, Senegal, and Burkina Faso. African exporters of petroleum and fish products are excluded from these benefits.
With regard to textiles and clothing, the Uruguay Round agreements will sharply reduce non-tariff barriers in the OECD markets due to the phase-out of the MFA. A number of African countries have developed export markets for textiles and clothing manufactures over the past two decades, while many more are potential exporters. As African exporters currently benefit from duty-free treatment in the EU market and are exempt from EU MFA quotas, the phase-out of MFA restrictions in the EU's market will increase the competitive challenge for African exporters from other suppliers to the EU although in the short-run African exporters will retain their preferential tariff advantage in the EU market.
Services constitute a dynamic and growing part of international transactions, accounting for 25 percent of global trade and 60 percent of foreign direct investment flows. Most African countries have not significantly liberalized their service sectors to date, although some have made commitments in tourism and travel related services, as well as in business, communication, financial, transport, and construction and engineering services.
Liberalization could attract foreign direct investment and improve efficiency in finance, insurance, transportation, and communication services that are so crucial for private sector and export development. The general reluctance to do so, however, is probably due to concerns that, as services account for a third of the region's current account deficits, further liberalization could lead to substantial growth in these deficits in the short to medium term, as well as exposing Africas domestic service providers to severe competitive pressures.
(d) Other Aspects
The Uruguay Round agreements contain numerous new or strengthened rules which have raised considerable concern among African countries. Key among these are the tighter disciplines on the use of subsidies in support of production and export of agricultural and industrial products as well as the use of certain trade-related investment measures for promoting industrial development. Concerning subsidies, two types are prohibited -- export subsidies and subsidies to promote the use of domestic over imported products. With regard to export subsidies, most Sub-Saharan African countries are either exempted from the disciplines because they are least developed countries or have per capita income below $1000, or they have eight years to eliminate the subsidies. With respect to other rules and disciplines, the provision of transition periods offer affected African countries an opportunity to review and where necessary adjust their policies and legal instruments to ensure compliance.
The provision of transition periods does not, however, mean that the new rules would not impose significant costs on African countries. New rules on patent protection and intellectual property rights, for example, mean that African countries will eventually face higher prices for technology, books, medicines and other pharmaceutical products, as well as increased foreign exchange costs of larger royalty payments.
2. New and Emerging Issues on the Multilateral Trade Agenda
Labor standards and environmental protection are among the "new" issues on the trade agenda that have implications for African countries. The comparative advantage of many African countries lies in products which use unskilled labor and natural resources. This comparative advantage would effectively be lost if WTO rules enforced uneconomically high labor and environmental standards. In recognition of this, the Singapore WTO Ministerial Conference agreed that "the comparative advantage of low-wage developing countries must in no way be put into question", and that the International Labor Organization, rather than the WTO, should remain the competent body for setting and dealing with core labor standards. The question of environmental standards needs to be similarly resolved to ensure that "eco-labelling" does not over-emphasize the protection of natural resources at the expense of the development and export of African raw materials and processed products.
The Singapore Ministerial Conference of the WTO set in motion various mechanisms for examining other new issues such as investment, competition policy, transparency in government procurement, and trade facilitation. These may constitute the basis of future negotiations resulting, perhaps, in the establishment of new WTO rules and disciplines. As any new rules and disciplines will affect the environment within which they must operate, African countries have to be fully engaged in the WTO process, carefully articulating their interests and working to advance and protect them.
3. Enhancing African Participation in the WTO
The WTO has been in operation since 1995. Currently, all but six (Cape Verde, Comoros, Congo, Eritrea, Ethiopia and Liberia) Sub-Saharan African countries are members, and 24 of the 29 least-developed country members of the WTO are from Africa. Although they are members, African countries are not participating actively and effectively in the activities of the organization. Many African countries do not have delegations at the WTO headquarters in Geneva to enable them to participate in either the negotiation process or the other regular business of the WTO. Moreover, delegations of those countries with representation in Geneva are very small and have to cover other international institutions as well.
Currently, most African countries have very limited capacity to contribute to shaping and implementing WTO decisions. They are thus in no position to fully articulate and defend their trade interests and take advantage of the rights that the WTO framework provides for them. To participate effectively, each country should be in a position to review existing agreements and assess their implications, as well as to adopt and articulate appropriate positions in follow-up negotiations.
Several components of the Uruguay Round agreements embody provisions conferring "differential and more favorable treatment" for developing and least developed countries in the form of longer transition periods for satisfying certain requirements, or exemptions from specific obligations. The WTOs Plan of Action for least developed countries also includes provision for positive measures, including duty-free access, aimed at expanding markets and enhancing the overall capacity of these countries to respond effectively to the opportunities offered by the trading system.
However, such provisions may well end up being implemented on an "autonomous" or voluntary basis, which would limit their utility. With the exception of training and the dissemination of information, much of the WTO assistance is dependent on the voluntary actions of its developed country members. Thus, even the offer to enhance the participation of the least developed countries in WTO meetings by financing the presence of their officials is to be done "strictly by voluntary contributions". A welcome exemption may be the commitment to provide legal advice and assistance for developing countries, through the WTO Secretariat, in respect of dispute settlement.
The lack of sustained and effective participation by African countries in the WTO process revolves around issues of cost and limited human and institutional capacity. One way of addressing this problem could be for African countries to pool their resources and establish, or strengthen, sub-regional or regional institutions as means of supporting their participation. The required skills could be more cost-effectively developed within such institutions than on a country-by-country basis, and the institutions could both represent their member countries in the WTO and negotiate on their behalf. A second option could be for groups of African countries to be represented by an executive directorate system, possibly staffed and financed in a manner similar to that of the international financial institutions.
C. Globalization, Regionalism and African Trade
Globalization, characterized by the rapid growth of global trade, and the even faster growth of cross-border financial flows, including foreign direct investment, has become an unavoidable and increasingly important world phenomenon. The global daily turnover in the foreign exchange markets, which includes all types of cross-border financial flows among currency areas now exceeds one trillion dollars, while annual world merchandise exports have reached five trillion dollars. Technological progress, particularly in the areas of telecommunication and transportation, has promoted virtually instantaneous world-wide transfer of information as well as cheaper, faster and more reliable movement of persons and goods. As a result, international contacts are broadening and integration of national markets is being facilitated. Similarly, the increasing deregulation of markets for services, particularly finance, is stimulating the growth of international finance and the globalization of financial markets, and is increasing competitive pressures in these markets.
The economies of countries that follow an outward-oriented strategy, and liberalize and deregulate their trade and investment regimes, will be increasingly integrated into the global economy. The benefits of integration include easier access to technology, greater possibilities for tapping cheaper sources of finance, more efficient resource allocation, enhancement of product quality and operational efficiency, and improved competitiveness. By expanding private capital flows and their movement across borders, globalization also encourages increased investment.
Globalization also presents challenges. In particular, the rapidly increasing flows of capital, together with the new technologies they embody, go to the most attractive markets. Unless the least developed countries also manage to attract these flows, there is a danger that increasing concentration of capital could help to perpetuate existing inequalities in productive capacities, productivity, employment opportunities, incomes, and standards of living. In the same way, the uneven reduction of trade restrictions skews the gains of globalization in favor of the more developed countries whose goods and services are covered by greater and more rapid trade liberalization.
Globalization also poses tough new challenges of economic management, by weakening the ability of individual states to autonomously manage their monetary and fiscal policies. The economies of developing countries may be increasingly vulnerable to "shocks" emanating from the global economy, ranging from "mood swings" in global financial markets that affect all countries, regardless of their underlying economic conditions, to the inherent volatility of primary commodity prices and exchange rate movements. Changes in the direction of capital flows that may be insignificant by international standards can generate quite large swings in the real exchange rates of African countries with undeveloped and shallow financial markets. Since sound exchange rate management is crucial to the success of a development-oriented trade policy, it is important for African policy-makers to retain some control on international capital flows.
It may be useful to make efforts to minimize the possible negative impact of certain aspects of globalization. However, the more fundamental challenge for African countries is to undertake, individually and in appropriate groupings, such policies and structural and regulatory reforms as will enhance their integration into the global economy. The more harmful outcome is for African countries to be marginalized and excluded from the opportunities that globalization provides.
2) Regional Trading Blocs
Although regional trading arrangements are not new, they have assumed greater prominence in recent years. This resurgence in popularity has been motivated by various factors. Several of the key trading nations have favored regionalism partly to by-pass the slower and more complicated negotiating process of the GATT/WTO framework, and partly as a strategic response to developments in other regions. In addition, it appears that negotiations with respect to trade and policy convergence are easier in smaller and more homogeneous groups of countries.
Increasingly, developing countries are interested in linking up with more developed partners in regional trading arrangements, in the belief that they stand to gain more by way of market access in the context of these arrangements than through multilateral arrangements. This type of north-south regional integration offers several additional advantages to the developing country partners. They can use such a trade agreement with an economically advanced country or group to underpin and solidify domestic policy reforms and place them beyond the reach of local anti-reform interests. They can also use it as a framework for anchoring reforms and for creating and strengthening the institutions, policies and regulatory regimes which will sustain a more stable growth-oriented macro-economic environment. Taken together, the resulting gains can stimulate growth in the developing country through increased direct foreign investment, faster technological transfer and diffusion, and enhanced competitiveness.
However, total economic integration by a developing country with developed economies without an appropriate transition or phase-in period or phase may result in traumatic and unforeseen shocks. Fully reciprocal integration arrangements are most likely to result in mutual benefits when countries are at roughly the same level of development. Therefore, developing countries are likely to benefit most if integration agreements with developed countries start with asymmetrical tariff concessions and gradually lead to full reciprocity.
This caution should not mean that African countries delay pursuing arrangements with the emerging trading blocs, as considerable benefits may accrue from early linkage. Such linkage may facilitate access to the world's largest and richest markets. It could also enable African countries to influence negotiations that define the rules that govern world trade and trade-related matters, as these are essentially conducted among the large and influential regional trading blocs.
3. Intra-African Regional Integration and Trade
Africa probably contains many more regional integration and cooperation schemes than any other region in the world. Unfortunately, most of them have suffered from various conceptual, design and implementation problems. The preference for formal trade and factor market integration schemes meant that rather ambitious models of regional integration were often adopted. These models, however, were particularly unsuited to African realities and difficult to implement largely because member countries produced competing primary products which meant little complementarity in their production systems.
In addition, Africa's regional integration schemes have suffered from lack of political will to carry out agreed commitments, concerns about loss of national sovereignty, absence of adequate technical and management expertise, desire to protect fiscal revenue from trade taxes, and uncertainty over the distribution of the gains and losses of integration. Other constraining factors include small size, low per capita income, limited manufacturing capacity, and poor communication and transportation infrastructure within and between most African countries.
As a result, most of Africa's regional integration schemes have not as yet succeeded in enhancing even intra-regional trade, let alone overall trade. However, there have been some recent attempts at furthering and strengthening integration through more pragmatic approaches aimed at closer harmonization of reform and trade liberalization policies. These attempts, based on the outwardly-oriented reforms currently being implemented in a number of African countries are more likely to succeed in promoting effective integration and increased intra-African trade. The key to their success will be the removal of barriers to cross-border trade and investment flows.
In spite of the problems confronting many of the existing African regional integration schemes, the need for cooperation among the many small countries in the region remains clear and strong. However, cooperation and integration modalities should reflect several key features. They should broadly stress outward-orientation in the context of a long-term development strategy that promotes export-led growth. They should also focus on coordination and harmonization of the policy reforms currently being implemented by individual countries, in order to enable the integrated sub-regions to take advantage of growth "spillovers".
Importantly, integration schemes should actively involve the private sector, which is where the decisions regarding actual cross-border trade and investment will be made. This will require development of institutional mechanisms and analytical capacity to support government-business collaboration. In addition, they should emphasize function-based cooperation between partners for joint implementation of mutually beneficial projects, particularly in such areas as transportation and communication, which could help substantially reduce Africa's high transactions costs.
In essence, new approaches should provide existing regional integration schemes with the flexibility and pragmatism to enable them to serve as effective building blocks for eventual market integration, following the elimination of the basic infrastructural constraints that currently hinder intra-regional trade, factor, and investment flows in Africa. Intra-African regional integration schemes which do this could become important mechanisms for reaping the benefits of expanded intra-regional trade as well as preparing the integrated sub-regions for further integration into the global economy.
In particular, such schemes could aggregate Africa's small individual economies into large sub-regional markets within which relatively inexperienced producers and industries could learn to compete, become more efficient, and benefit from economies of scale and the sharing of experiences. The lessons learnt in protected sub-regional markets could be useful preparation for competition in the wider global environment. In addition, more outward-oriented sub-regional integration schemes would provide larger markets that could more easily attract trade and investment from external partners, and serve as institutional links with other trading blocs, including the EU.
Strengthening and Enhancing Africa's Trade Performance
To achieve higher growth rates, African countries need to build on their recent economic reform efforts, and adopt more outward trade-oriented policies. This will require well-formulated strategies and actions to revitalize trade performance. This is especially urgent in 1997 because important decisions on world trade are being made in the context of the World Trade Organization, and major negotiations regarding the future of EU-ACP relations under the Lomé Convention are on the horizon.
A. National-Level Action to Revitalize Exports
Africas prospects for export expansion and a greater share of world trade cannot be separated from prevailing country-level conditions. These include security and political stability, soundness of macroeconomic policies, institutional strength, availability of infrastructural and other support services, and the regulatory and incentive structures. In addition, African countries have to take measures to enable their more active participation in international trade negotiations.
1. Political and Economic Stability and Outward Orientation
Political and Governance Issues: The growth of exports must begin with the establishment of a climate of confidence for the business community, investors and other economic agents. Such a climate includes basic security and political stability; a transparent and accountable government and administration; rule of law, especially the fair enforcement of contracts; rules and regulations that facilitate business investments and transactions, as opposed to complex, non-transparent, time-consuming regulations and controls; and the general absence of rent seeking and corruption in governmental transactions.
Macro-economic stability: Sound macroeconomic policies are also required to provide a solid base of support for export-oriented investors. Such policies include the maintenance of competitive exchange rates and a sound monetary policy, including market-determined interests rates, which will all help to keep inflation low and create a favorable environment for investments and business activity.
Outward-orientation: African countries have in recent years been taking significant steps to liberalize their trade regimes. In many countries, quantitative trade restrictions have largely been replaced with lower and less dispersed tariff levels. More than half of the countries now have tariff rates averaging 15-20 percent (the highest rates cluster around 35-40 percent), while the number of tariff categories have been reduced to about five. Trade liberalization efforts in some African countries have also involved the reduction of disincentives for exporters. A number of African countries have, in addition, introduced direct export incentives such as duty drawbacks or tax rebate schemes.
There has been growing consensus on the need to further minimize and remove disincentives for exporting by taking additional measures to liberalize foreign trade. The contentious issue in this regard is how far and how rapidly tariff reduction should be pursued. In principle, a rapid lowering of tariffs could in the long-run promote exports and advance competitiveness by bringing about closer alignment of domestic and international prices, while the reduction in protection could encourage and contribute to the improvement of the competitiveness and technical efficiency of producers, including the producers of export goods.
2. The Lead Role of the Private Sector
There is broad concurrence on the critical role of a well-developed and dynamic private sector in promoting economic development and export growth. Countries that successfully pursued export-led growth strategies invariably gave a lead role to their private sectors, characterized by a collaborative and facilitating relationship between government and business. In general, the more export programs are left to the initiative of private entrepreneurs who can forge international linkages, and the less they are controlled by the state or state-owned enterprises, the more likely they are to succeed.
To assume its lead role in foreign trade, the private sector in most African countries itself must develop its technical skills, entrepreneurial capacity, and managerial competence, as well as take advantage of the trade facilitating channels that are available. These include accessing export market information sources, using trading companies to export goods made by smaller producers, and forming linkages and partnerships with foreign enterprises that are already experienced in marketing particular exports. Such linkages range from agency agreements and service contracts for the acquisition of technical and/or marketing know-how to joint ventures. This type of collaboration may also lead to direct foreign investment or the establishment of African affiliates of foreign companies. These in turn would provide technological expertise, skills training, and market access, thereby creating a virtuous circle of ever expanding exports.
Government actions should also support the development of the private sector. The overall benefits of FDI commend the adoption of the same policies and incentives towards both domestic and foreign investment, especially as links between foreign and domestic firms have become the most important channels for dynamic investment and technology flows. African governments, therefore, should make every effort to facilitate linkages with foreign partners and the acquisition of foreign "off-the-shelf" technology. In addition, public-private sector collaboration could be effective in developing and delivering comprehensive training assistance packages, with the support of international donors, for both businessmen and the growing number of female entrepreneurs operating in the formal private sector.
3. Enhancing the Competitiveness of Exports
Export potential is determined by the key element of comparative advantage which governs the ability to deliver quality products at internationally competitive prices. As indicated earlier, competitiveness begins with macro-economic stability. Once stability is achieved, the main factors of competitiveness are costs of inputs and materials, costs and productivity of labor, infrastructural services including transport, energy and communications, and export-related services such as port handling, shipping, insurance and credit facilities.
Labor Costs and Productivity: If African countries are to improve their competitiveness with respect to unit labor costs they need to address the issues of limited skills and labor market rigidities, among other things. Enhanced labor productivity is essential to ensuring long-term competitive advantage, and this will require action in a number of key areas. One such area is increasing the quantity and improving the quality of the physical capital with which labor works. Greater investments will require mobilizing domestic savings and attracting increased foreign direct investment. The "trainability" of labor is also important, and can best be facilitated by a strong system of general education and adequate institutional arrangements for skills acquisition. This will require increased public investments in education and training for both men and women. Finally, implementing reforms aimed at the deregulation of labor markets to eliminate factor-market rigidities, will align employment levels and wages more with worker productivity.
Infrastructural Facilities and Services: Even within a stable and undistorted macro-economic environment, private sector supply response is unlikely to be robust and sustained in the absence of adequate, reliable and properly maintained infrastructure. Reliable infrastructure means lower costs and enhanced opportunities for investors. As indicated earlier, inadequate investments in the building and maintenance of Africas transport infrastructure since 1960 --- roads, railways, ports, airlines, and telecommunications --- has raised the costs of production and exports considerably, to the detriment of competitiveness.
Higher port charges and freight costs, arising from inefficiencies and lack of competition in these areas, result in extra costs to African exporters. Although this is often ignored or misunderstood, evidence exists that African exports face high international transport costs that are considerably in excess of those faced by their competitors. For example, net transport and insurance payments average 42 percent for ten landlocked African countries whose exports have to bear additional transit costs. In addition, the cost of passing freight through African ports is in most cases much higher than in Europe or Asia.
Potential investors in African countries often express concern about the low quality of telecommunications. Telephone coverage in Africa remains the lowest in the world at only 0.4 units per 100 inhabitants, while coverage is ten times as high in Asia and even higher in Latin America. Privatization of telecommunications, which is spreading in Africa, appears to be key to the modernization of this sector. Reliability of power and water supplies, as well as ensuring that these are competitively priced, are also areas requiring attention.
Radical changes in the policy and regulatory framework are required for increasing the efficiency and reducing the cost of Africa's transportation and communications infrastructural facilities and services. Deregulation could, for example, promote greater competition for Africa's international transport services and significantly reduce the region's freight costs. Deregulation and simplification are also important for border control operations which are notorious for delays and corruption.
Export Credit and Insurance: In keeping with the norms of international trade, exporters collect payments for their products only after the foreign buyer has acknowledged delivery of goods. Exporters thus need to be covered for the credit provided to buyers; as well as protection against abnormal delays in payment and the risk of possible non-payment. Such eventualities are normally covered by export credit, guarantee and insurance schemes set up and run by the public sector.
Other transaction costs: In addition to the transport, transit and shipping and related costs, other transaction costs occur at both the pre-export and post-export stage. Pre-export costs are associated with the time and effort it takes an exporter to find markets, or for a buyer to find a supplier, and the time and costs incurred for negotiation of contracts. Post-export costs arise where there are disputes on whether performance is in accordance with contracts, or with regard to timely payments for goods delivered. Use of export promotion agencies, business associations, large trading companies, agents and subcontractors, and other private organizations or networks as intermediaries can minimize such transaction costs.
4. Export Development Strategy
As indicated earlier, African exports suffer from two major problems -- lack of diversification and continued heavy reliance on a limited number of primary commodities. An export development strategy for Africa must address both of these problems.
Revitalizing Africa's traditional primary exports: Africa lost its export share, particularly of agricultural exports, primarily because other regions became more competitive. African countries thus need to improve their competitiveness if they are to regain their previous position. In export agriculture, the major investments required for regaining and maintaining competitiveness are in research, infrastructure and other support services. In this regard, African countries need not worry about depressing prices and reducing earnings if they increase their supply of commodities through enhanced competitiveness. With the exception of cocoa, Africa's share of the world market for many of these commodities is quite small, and hence a significant increase in their export volume would have no significant impact on world prices.
The story is broadly similar with respect to Africa's performance in the export of minerals. Due to a distorted policy environment, and the lack of proper upkeep of machinery, and problems with foreign exchange permits for inputs, the production of a number of mining products have declined. Shortcomings on the side of prospecting and development have meant that new production capacities do not come on stream in time to compensate for declining production from older mines. There are however some important exceptions to be emulated, especially gold production in Ghana and other countries, where restoration and further expansion of production and export have occurred.
Promoting Export Diversification: With a clear strategy, African exports can be diversified. Such a strategy should begin with Africas comparative advantage in primary production, but be ready to exploit subsequent opportunities in labor intensive manufacturing.
Beyond traditional primary commodities, African countries can focus on the production and export of such non-traditional items as cut flowers, fresh vegetables and cotton (which for some countries may be a traditional export), and non-traditional minerals. The other more promising means of building a dynamic and diversified export sector is through the "value added" processing of primary commodities, and the growth of labor-intensive manufactures. With respect to manufactured goods, African countries still have a long way to go, not only in eliminating or compensating for the remaining anti-export bias but also in providing explicit and effective incentives for promoting the development and growth of manufactured exports. Such support and incentive schemes could include the growth of manufactured exports, export finance and insurance, and market research and promotional support.
In this context, there are plausible arguments against rapid and complete trade liberalization. Experience shows that supply and export response, particularly in manufacturing, may occur only after a time lag, while liberalization may impact adversely on government revenues, and also allow an early surge in cheaper manufactured imports which may harm domestic producers. These realities make it clear that "industrial learning" may have to be protected.
However, the decision on and timeframe for continuation of such protection should be guided by four important criteria. (i) The tariff rate should be moderate so that the cost is minimized and inherently inefficient "infant industries" are excluded. Tariff rates of around 20-25 percent should be sufficient for this purpose. (ii) The protection offered should be temporary in order to encourage rapid learning and productivity gains. It should not be subject to extension; its limited duration may enhance the credibility of this policy to investors. (iii) This incentive needs to be performance-based and the indicators of performance should be objective. This would make the incentive allocation system more transparent. (iv) In the meantime, exports should receive compensatory incentives and support.
5. Export Promotion -- Institutions, Policies and Incentives
In most Africa countries, exports need to be explicitly promoted. While the reform and scaling down of tariff rates should be a main feature of trade liberalization, there is also need to take additional measures aimed at offsetting the anti-export bias in the economy that derives from existing policies, which are usually geared to the protection of import substitution industries.
Export promotion institutions and policies: The establishment of effective national export promotion institutions will facilitate and contribute to the success of export activities, particularly where the private firms lack both the required knowledge and capacity. An export promotion institution provides a range of services, including identification of export opportunities, planning sales missions abroad, organizing trade fair participation, arranging promotional events, training in marketing, and market research assistance.
An institutional framework for export promotion is usually helpful to the overall effort. Export promotion and incentive policies may be classified into two broad groups. In one category are the input-related incentives which attempt to promote exports by reducing the cost of or facilitating access to inputs. The other category covers output-related incentives, and includes government assistance with overseas marketing and export quality control, direct export subsidies, preferential export credits, and special tax exemptions.
Input-related incentives aim at providing exporters with access to both locally produced and imported inputs at world market prices. Policies that allow for duty-free import of capital goods and make imported inputs available at world market prices to exporters are necessary when the government wishes to combine some domestic protection (for revenue and/or infant industry purposes) with compensatory measures and incentives for the promotion of exports. The grant of free trade status should apply to both direct and indirect exporters. Indirect exporters include those who supply inputs to export producers, as well as trading companies which help producers of exports to market their products abroad..
Output-related incentives are mainly provided by making export financing available in some cases at subsidized rates, and through the arrangement of adequate export credit guarantees and insurance. Both kinds of support are particularly critical for both smaller exporters and relatively new ones.
Export processing zones: Where there are major distortions that discourage exports, and where governments lack the financial and institutional infrastructure required to implement economy-wide incentives for promoting exports, export processing zones (EPZs) offer the quickest way of providing free trade status to exporters. EPZs are usually within designated areas since they can be set up more rapidly than alternative policy measures directed at the same objective. Export producers within EPZs have access to duty and tax free imported inputs, adequate infrastructure and utilities, a favorable and simplified regulatory environment, tax holidays, and sometimes preferential financing.
However, EPZs may not necessarily always yield high net benefits. Careful planning is required to ensure that the benefits of EPZ operations are not outweighed by their costs to governments. Properly planned EPZs can bring benefits, including additional employment, increased and more diversified exports, and technology transfer. In addition, interaction through EPZs may enable foreign investors to acquire more information about the economy, while serving also as a useful mechanism for learning by the government about effective export promotion. EPZs may also generate increased demand for domestic raw materials and intermediate inputs, and as a result, further contribute to value added.
6. Government-Private Sector Consultations
An established and well-functioning mechanism for consultations between relevant government departments and private exporters facilitates promotion of exports. The usual structure of such consultative councils includes high-level government policy-makers and civil servants, relevant representatives of business particularly exporters, and sometimes representatives of labor and academia.
Such consultative forums enhance the exchange of information and analyses on external markets, competitive and regulatory situations in foreign countries, and technological developments. Based on such exchanges and evaluations, export goals and targets may be set for individual exporters, as well as for specific sectors. The private sector will have opportunities to describe the kind of support it needs from government, and also be in a position to influence regulations and policies. Among private business organizations themselves, consultative councils serve as mechanisms for coordination.
As is well known, several East Asian countries have successfully utilized such deliberation councils. Since the consultation procedures usually ensure that major export policy initiatives do not occur without properly informing and getting inputs from private sector representatives, these mechanisms have helped to achieve consensus and credibility for public policies. The mechanisms also impose a certain degree of accountability and restraint on public officials with regard to export policies, regulations, and rules.
7. More Active Participation in Trade Negotiations
African countries need to mobilize their forces and participate more aggressively and expertly in international trade negotiations. To protect their interests, they need to improve their skills and institutional capacities to deal with the varied aspects of trade negotiations, and to take advantage of the preferences, derogations and other transitional arrangements that already exist in favor of African countries. Of particular importance to Africa are the ongoing negotiations within the WTO framework, and the forthcoming critical negotiation on the future of the Lomé Convention.
Countries would thus need to recognize the importance of the international trading system, and adopt the policies which favor participation in it. They would also need to allocate adequate resources and pro-actively seek assistance to improve their skills in international negotiations, as well as to analyze data and information on trends in global markets, and to monitor, study and examine emerging issues in multilateral trade talks.
B. The International Dimension of African Exports
Clearly, African countries themselves have to assume the principal responsibility for formulating and implementing strategies and other appropriate measures to promote the development and diversification of their exports. However, such African strategies would benefit from effective, adequate and timely initial support from the international community. In the long run, of course, Africas success in becoming major exporters will hasten the day when foreign assistance will no longer be needed. Africas external partners can facilitate the process through ensuring market access, by continuing external assistance, by encouraging direct investment, by providing debt relief, and by participating in capacity building.
1. Market access
As African countries implement policies aimed at expanding and diversifying their exports, they will need continued stable and secure market access. Thus, keeping the markets of OECD countries and other regions open to African products will be critical complements to Africa's own efforts. As indicated earlier, it would be unfortunate if the Lomé preferences were to be phased out just when many African countries are successfully implementing reform programs which will position them to take advantages of available preferences.
If there is strong political will, it should be possible to obtain concurrence, including in the WTO forum, for the continuation of Lomé preferences. As the EU remains the destination for a very significant portion of the exports of most African countries, an abrupt change in existing preferences could have a marked negative effect on the overall exports of these countries. The maintenance and further improvement of GSP preferences will also support African efforts at export growth. Some non-EU countries, including Norway, have taken or are expected to take such favorable measures.
There are opportunities for new initiatives by OECD countries in this area. For example, as of April, 1997, a bill being considered by the US Congress contains several measures to encourage US trade and investment in Sub-Saharan Africa. According to the draft legislation, the US will further reduce or remove tariff and non-tariff barriers to imports from Africa. Initially, it is contemplated that quota restrictions on textile and clothing exports to the US from Africa countries would be lifted; the quota restrictions previously imposed on Kenya and Mauritius in this regard are to be eliminated. The bill also calls for negotiations towards a free trade area between the US and Africa, as well as the early establishment of a United States Sub-Saharan Economic Cooperation Forum, with an eventual idea of negotiating a free trade area. While the broad goal of support for "a transition path" from aid dependence to a partnership based on mutually-beneficial trade and investment is welcome, there needs to be caution that this does not lead to a premature significant reduction and too rapid phasing out of aid.
Would the other two members of the triad of global trading giants, the EU and Japan, take a similar posture as the Americans with respect to preferences and long-term trade relations with Sub-Saharan Africa? Would the EU relinquish its premier position with respect to preferential trade with African countries? In the case of the EU, the challenge is thus to maintain the existing favorable preferences towards African countries for a reasonable transition period, with the possibility of eventually proceeding toward a more reciprocal relationship, within the framework of a free trade area. Japan too, whose current preferences are based on GSP, might follow the same broad direction. The WTO system should accommodate and facilitate such developments.
2. Strengthening African Expertise
The past failure by the majority of Sub-Saharan African countries to utilize the favorable preference schemes provided by the OECD countries may be attributed, to a large extent, to a lack of appropriate capacity in both the public and private sectors. Thus, the improvement and strengthening of trade-related capacities require priority attention. To supplement Africas own efforts in this area, and to contribute to the improvement of African expertise, external assistance can support public sector institutions dealing with trade issues by contributing to human capital development through training, technical assistance, study-visits and twinning arrangements with well-organized and successful non-African trade-related institutions.
Even more than governments, the private sector too can benefit from external support for capacity improvement. Skill development and training to upgrade the technical capabilities of the labor force is an obvious area for assistance. Productivity, product design, and quality standards are of particular importance for improved competitiveness. At the managerial and technical levels, programs should focus on improving capacity to organize production and marketing at levels of efficiency that today's global markets demand. In the end it is the improvement of enterprise-level capacities that will have the most impact on competitiveness. External assistance should thus focus on the acquisition and transfer of managerial, technological and marketing know-how.
3. Development Assistance
Until such time as production expands, both public and private savings increase, and foreign investment begins, official development assistance will remain the main source of external finance for the necessary investments in export growth. Recent efforts by many African countries to implement serious economic reforms merit support through adequate and reliable flows of external assistance. To generate robust and sustained supply response in the form of overall production growth and expanded exports, increased investments are needed for infrastructure and the support services that stimulate production. At least at the outset, adequate investments in these and in critical social areas can only be ensured if there is strong and continuing external concessional financial support.
Unfortunately, just as more African countries embark upon serious economic reforms and export-led growth, official development assistance is on a downward trend. Also of significance, is that within the shrinking aid budgets, there has been a major shift away from development to emergency assistance. Moreover, the proportion of ODA going to infrastructure, transport, and agriculture, the very areas that need to be supported if export growth is to be achieved, has declined over the years.
4. Foreign Direct Investment
Foreign direct investment (FDI) usually results in the transfer of technological and marketing know-how that in turn enables enterprises and countries to improve their competitiveness and expand exports, and thus increase their integration into the global economy. FDI also contributes to human and institutional capacity building and labor skills improvement. To register a significant breakthrough in foreign investment flows, Africa will have to do a better job of advertising itself, especially in differentiating those countries which are making progress in economic growth with political stability, as opposed to those which are stagnating as the result of conflict or instability.
The assistance and intervention of Africa's development partners could be helpful in this regard. The first line of support will be for the international community to participate actively in providing an accurate portrayal of the improved security and economic policy environment now prevailing in many African countries. In addition, the equally accurate and wide dissemination of information about the considerable economic opportunities and vast untapped potential of these countries will be helpful for investment promotion. Based on accurate and correct information, a practical form of support from Africa's partners would be active encouragement of foreign investment in Africa. In practical terms, FDI will be encouraged if donors help the investors in securing loans and loan guarantees, if investment guarantees are expanded, and if preferential market access is ensured. The draft bill being considered by the US Congress, described earlier, has several welcome features in this regard.
5. Dealing with Debt
The development problems of Sub-Saharan African countries have been compounded by their serious debt overhang. The relatively high debt stock of these countries and the resultant high debt service obligations have dampened the prospects for investment, economic growth and trade expansion. In effect, Africa's debt overhang acts as an implicit tax on improved economic performance.
Recently there has been broad consensus with regard to the approach towards resolving the debt problems of heavily indebted poor countries (HIPCs), the majority of which are African. Worked out within the institutional framework of the World Bank and the IMF, the HIPC debt initiative will require that each candidate country establish a track record of reforms and sound policies. Multilateral, bilateral and commercial creditors are all expected to participate in taking action to reduce the debt stock of the beneficiary country to a sustainable level. Under the scheme, an indebted country may get reductions of up to 80% of its debt stock. The initiative also assumes that new external finance to such countries will be on concessional terms. While progress is being made towards implementation, there have been some recent calls "to go beyond the HIPC initiative". In all cases, the main purpose of debt relief should be to achieve sustainability in debt service, and to restore the credit-worthiness of the country concerned.
6. The Role of International Trade Organizations and African Institutions
The WTO, UNCTAD and the International Trade Center have been mandated to undertake measures to assist African countries in the implementation of the Uruguay Round agreements. They also have responsibilities to individually and jointly assist African countries to improve and strengthen their capacities in these areas. In particular, the joint WTO/UNCTAD/ITC plan of action is to emphasize human resources, and institutional and administrative capacity building, through the training of public and private sector personnel. It is important that African countries acquire full and timely information about these opportunities to take advantage of them. In general, although African countries are at different stages of development and their trade-related goals may vary, their collective determination to win a greater share of world trade will best be served if they demonstrate negotiating solidarity as a united African group.
The OAU and ECA have helped with the coordination of African positions during multilateral talks and negotiations. They need to continue and strengthen their participation in the international trade arena, and play a supportive role in both WTO-related and EU-ACP negotiations. The AfDB has in recent years taken measures to strengthen the private sector and to support production for export. All three institutions can intensify their efforts at promoting regional integration which will contribute to increased intra-African trade. The sub-regional integration institutions can also contribute to growth in trade by further facilitating increased intra-group trade, by encouraging FDI in their "integrated" and larger markets, and by contributing to the collection, analysis and dissemination of information on market opportunities and competitive requirements in the rest of the world. Finally, a joint OAU/ECA/AfDB capacity building program in this area could serve as an important means of assisting African countries by complementing the joint WTO/UNCTAD/ITC plan of action.
To meet the challenges of todays global marketplace, African countries will have to commit themselves to carry out the necessary reform measures and take decisive steps toward fuller outward-orientation and closer integration with the world economy. The reforms and policy measures that are aimed at improved competitiveness and enhanced export performance would have better chance of success if carried out in the context of overall reforms and other development programs. Effective implementation of the foregoing export development strategy would provide additional employment opportunities and also significantly contribute to overall economic growth and poverty reduction.
If properly articulated, an export-led growth strategy would get the support of key elements of civil society and the population at large. Such support can be deepened and sustained where growth is broad-based and where resources, particularly the incremental national income from growth, are equitably shared among all elements of the population. Shared growth would ensure the stable and conducive political and economic environment that will in turn encourage increased investment, enhanced economic activity, and sustained export growth.
Table 1: Growth of World Merchandise Exports 1980-95
(Annual % Change)
Source: World Trade Organization, Annual Report 1996
Table 2: Regional Shares (%) of World Merchandise Exports, 1980-95
Source: World Trade Organization, Annual Report, 1996.
Table 3: Developing countries' share of EU imports, 1976-1994 (%)
|All developing countries
Source: Eurostat data
||Exports to the EU as % of Total Exports
|Central African Republic
|Sao Tome and Principe
Source: Commission of the European Communities, Green Paper on relations between the EU and the ACP countries in the eve of the 21st century, 1996.