Without Industries Will Africa Gain from Global Trade Agreements?

There is no doubt that the world has adopted a consensus to break down barriers and construct bridges for integration as a function of development.

In today’s global experience, the role of interdependence, information sharing and value exchange cannot be undermined; as it is reflected in almost all facets of life such as trade, healthcare, technology, security and education.

This commonality and interdependence has accelerated local demand for imported goods such as are not available naturally or come in assorted foreign varieties in exchange for money or exports.

However, these exchanges are usually not in equilibrium, especially when it occurs between developed and less developed countries, leading to trade imbalances that leave the less developed countries spending more on imports and making less from exports.

This has resulted in chronic trade and current account deficits which expose the less developed countries to external shocks, unemployment and aggravated poverty.

Balance of trade deficit are due to many factors, most common of them being lack of valuable natural resources and production of non-competitive goods. While the solution to the former is immediately beyond the scope of indigenous capacity, same cannot be said of the latter.

Most of the countries in Africa that used to boast of trade surpluses are those that produce and export crude oil such as Algeria, Angola, Cameroon, Chad, Congo, Equatorial Guinea, Gabon, Libya, Nigeria and Sudan.

However these countries’ trade surplus has been declining, mainly as a result of lower oil prices and export volumes in this sector and an urgent transition is expected of them if they must maintain a good foreign reserve.

It is also noteworthy that African countries are mainly dependent on the EU, North America and China for finished goods such as machinery, vehicles and parts, food items, clothing, electronic devices and appliances.

Expectedly, policy makers are already shifting gear to provide an enabling policy environment to foster economic diversification with emphasis on value addition through industrialisation, but much of their efforts are still to yield tangible results.

The agricultural sector has been identified as one that needs the most attention, as it is capable of producing raw materials which can be found in large commercial quantities in most African countries.

Local products remain largely non-competitive and are being snuffed out of the market daily by the influx of cheaper alternative imports.

Causes of Non-Competitiveness

According to the Business Dictionary, Competitiveness is the ability of a firm or a nation to offer products and services that meet the quality standards of the local and world markets at prices that are competitive and provide adequate returns on the resources employed or consumed in producing them.

High Cost of Production

Manufacturers in most African nations incur heavy production overheads trying to provide basic infrastructure such as motor-able roads to move raw materials from source to factories and finished goods from factories to markets and ports.

In most countries basic production amenities such as electricity and water are usually provided by the manufacturer at steep costs which eventually affect ex-factory prices.

Double Taxation

Regulators and agents of governments from the national to the state and local councils oftentimes extract taxes and levies from manufacturers for duplicitous reasons all in the name of revenue drive. Many local manufacturers have cried out severally to the authorities but to no avail and have finally resorted to passing the costs to the final consumer.

Sub-standard and fake products

While some manufacturers strive to promote their brands through quality control, there abound unscrupulous people who undertake the faking of striving brands thereby flooding the markets with cheap copies which only manage to dent the reputation and sales of successful brands, the effect most times are irreversible. Standards regulators are too helpless to check the menace as their Constitutional legislative Acts do not empower them to arrest and prosecute. This menace does not only dent the brands’ reputations but also damages the image of the country and its products.

The issue of fakes and substandard products has compelled some ingenious local manufacturers to label their products as made in Italy, China, or EU just to escape the national stigma and earn patronage in the market.

Signing Trade Facilitation agreements

While most African countries have failed to pay adequate attention to the salient issues stifling the production and competitiveness of locally made products, they have been busy campaigning for and signing Regional Trade Agreements under the ECOWAS, COMESA and other trade agreements by international development organisations, like the World Trade Organisation (WTO), OECD, World Bank, African Development Bank (AfDB), World Customs Organisation (WCO), UNCTAD and the International Trade Centre (ITC); all in a bid to remove identified bottlenecks in cross border trade.

Benefits of Trade Agreements

According to the World Trade Organisation which is soon to kick-off its Trade Facilitation Agreement (TFA) to which a number of African countries have appended their signatures as partners, the TFA will contribute to the expansion of world trade and help countries to connect to an increasingly globalized production system.

If a country improves its trade procedures so that trade costs are reduced, WTO says importers benefit from a lower price, while exporters receive a higher price for the traded good. Thus, trade facilitation benefits both exporting and importing countries.

WTO further states that the TFA focuses on streamlining, harmonizing and modernizing customs procedures and has enormous potential for reducing trade costs and times, particularly in developing and least-developed countries.

It however doesn’t provide solutions to the nail-biting under-industrialisation challenges of developing and less-developed African countries, which hampers their export potentials of value-added items.

Africa without Industries

A key feature of African countries participation in international trade is that they are exporters of primary products and importers of services and manufactured goods. Such export concentration on primary commodities reflects the high dependence of African economies on natural resources and the weakness of their industrial sectors.

According to scholars, the importance of manufacturing for development is widely recognized, as very few countries have been able to grow, accumulate wealth, and increase their living standard without investing in their manufacturing industries.

Manufacturing has historically been the driver of economic growth, structural change, and catch-up. It opens opportunities for economies of scale, technological progress and learning. It acts as a catalyst to transform the economic structure of countries, from primary, slow-growing and low-value activities to more productive activities driven by technology and innovation and with higher growth prospects.

Manufacturing sector has “pull effect” on the other sectors by stimulating the demand for more and better services in banking, insurance, communications and transport and encouraging the development of human capital and the use of technological advances in the agricultural sector.

It provides – directly and indirectly – job opportunities for the skilled labor force, which boosts revenues and sets the conditions for the reduction of income inequality and poverty. Manufacturing also offers better growth prospects because it generally does not suffer from a secular deterioration of terms of trade that have frustrated the growth prospects of many commodity-dependent countries.

Such export concentration on primary commodities reflects the high dependence of African economies on natural resources and the weakness of their industrial sectors.

Experts have pointed out that in general, Africa largely exports its natural resources in raw form, and re-imports them transformed into intermediary and finished products. The domestic value added incorporated in the exported commodities is generally only a small portion of the final sales prices of the finished goods made from them, with the bulk of total value added accruing overseas.

It’s rather unfortunate that Sub-Saharan Africa for example registers surpluses in the international trade of primary items, but incurs a huge deficit in the end products of these same items.

It exports crude in large amounts and registers deficit in refined petroleum products; live animal but deficits in that of processed meats, milk and cream. The same happens with unmanufactured tobacco versus manufactured tobacco, cacao versus chocolate, natural rubber in primary form versus synthetic rubber and materials of rubber, ores and concentrates of base metals versus wire products and manufactures of base metals, and so on.

The low levels of value-added or processing further exacerbates the already low potential for employment creation typical of commodity outputs, because unlike final products, export of primary commodities has limited potential for job creation in the exporting country.

Conclusion

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