Africa Must Smash Regional Barriers

Monday, April 06, 2009

By Michael Cook

Michael CookWith all eyes on the G20’s broken pledges to reject protectionism, it is worth remembering that African countries have more to gain in trade from opening their borders to their neighbours, boosting trade and removing a rich source of corruption.  

The G20 leaders heard pleas this week in London to reverse growing protectionism and to open their markets unconditionally to the poorest countries and they made more promises for more money for Africa. But Africa could get bigger and faster gains by allowing regional free trade between neighbours.

The assumption is that dismantling so-called North-South trade barriers, cancelling subsidies by rich countries to their farmers and manufacturers, and an end to dumping their products on poor countries will provide a quick but enduring fix that will help the poor to trade out of poverty.

On average, sub-Saharan African countries impose a 34% tariff on agricultural products from other African countries and 21% on manufactured goods–the most protectionist region on Earth. International agencies estimate that eliminating such tariffs would generate immediate gains to sub-Saharan economies of $1.2billion.

Indeed, 70% of all trade barriers are imposed by governments in poor countries on people in other poor countries. The reason they remain poor–unlike, say, India after it improved some of its trade policies–is the deliberate obstruction that undermines people’s initiative and exchanges.

And regional trade faces more than formal barriers. Exporters and importers usually face bewildering and inert bureaucracy, infected by corruption. A South African wanting to send goods 600km from Johannesburg to Maputo in Mozambique must allow 28 days for inspections and paperwork. And the infrastructure, especially roads, is generally so poor that, for example, in East Africa, transport can add three quarters of the value of the exports carried.

These barriers continue between countries that are formally partners in regional economic groupings such as COMESA, SADCC, EAC and ECOWAS that are committed by treaty to promote common markets and economic integration.

In fact, protectionist instincts remain strong. A recent meeting of senior Ugandan businessmen, held ostensibly to discuss how the country could boost exports to its EAC partners, became a litany of complaint about competition from larger Kenyan and Tanzanian companies, with calls for protection, while ensuring their own unrestricted access to all other markets. The Tanzanians are no better: as fast as import tariffs in the EAC are removed, the government introduces new and costly barriers to trade, like compulsory pre-inspection of imports.

If the benefits of free trade are as evident as the World Bank and others maintain, why is Africa so resistant to what it demands so stridently of the developed world?

Firstly, there is a strong legacy, from the early days of independence, of state economic control which, for reasons of ideology or politics, governments are reluctant wholly to relinquish.

Secondly, a favourite argument for tariffs is as a major source of government revenue in impoverished states. However, initiatives by donors to compensate by improving the efficiency of revenue collection and eliminating corruption from the system have met internal obstruction. At one time British project officers had to leave their work in Mozambique because their lives were threatened by corrupt revenue officers seeking to protect their illegal income.

Thirdly, many governments want import restrictions and special exemptions as rewards for their supporters in business, or punishment for their opponents–even auctioning such favours for cash outside official accounts. And from the businessman’s viewpoint, why not pay a premium to secure a monopoly for your products at home, with protection against imports?

IMANI, the Ghanaian think tank asserts that Ghana plans to hike up excise rates again, after a well-coordinated campaign by importers had created some respite last year.  More worrying is the attempt to treat import of wines and spirits differently from locally manufactured ones by attempting to impose different tax regimes.  According to IMANI,  government would be contravening WTO rules(specifically, Article III of GATT) if it goes ahead to impose ad valorem tax on imported wines and spirits while maintaining the more workable specific duty on locally manufactured wines and spirits. Article III of GATT require imported products be accorded treatment no less favourable than domestic products. And that includes internal taxes and charges.

More important to Southern Africans than the G20 meeting in London is a meeting in Lusaka in April of the three east and southern African trade blocs, EAC, SADC, and COMESA. A primary objective will be to secure aid ”to remove infrastructure constraints which are hampering progress towards an expansion of regional trade, economic growth and faster poverty reduction along the North-South Corridor“ planned from the Great Lakes to South Africa.

Such a transport corridor would indeed give a great economic boost to the region. But it is disappointing that regional leaders should give priority to seeking yet more aid. Delivery from Western promises, such as 2005’s Gleneagles jamboree, has been unreliable, while recipients’ track record in using it has been less than impressive. Witness for example the mythical Trans-African Highway, supposed to be built by donors in the Seventies, today a highway to nowhere. In Uganda in 2007 the donor-funded rural road reconstruction budget was diverted to pay for the Commonwealth Heads of Government Meeting and a new banqueting hall at State House.

The Lusaka delegates should instead focus on measures that they can achieve themselves to accelerate trade freedom within Africa. It is quite right that the G20 be pressed to eliminate protectionism and open up their markets unconditionally. But African appeals would resonate more if African governments showed they were doing their best to help their own people.

Michael Cook is a former UK High Commissioner to Uganda and a frequent visitor to East Africa. He supports the UK cross-party Trade Out of Poverty campaign ( launched in March.