Trade Can Revitalise Growth on Continent
This Day (Lagos)
OPINION
13 November 2007
Posted to the web 14 November 2007
By Obiageli Katryn Ezekwesili
Lagos
Only last month we joined senior officials from African countries, regional organisations, and key development partners to discuss how we can work together in helping Africa become more competitive in the global economy. As experience from Asia shows, expanding exports can play a key role in sustaining and accelerating growth and thereby reducing poverty.
Africa’s recent growth performance has been encouraging in several respects. More than a third of Sub-Saharan Africa’s population live in countries that have grown at over 5.5% annually in the past decade even without natural resources. Another third are in countries that have seen even higher growth due to their mineral wealth. Many African countries are also beginning to succeed in expanding their exports – not only in traditional commodities such as minerals, coffee and tea, but also in garments, horticulture and services. Exports to Asia, particularly to China and India, are also growing. Taken together, these trends point to a promising picture in which African countries are beginning to realise their potential in a global economy.
Despite this good news, trade is still not the engine of growth it can and should be for most of Sub-Saharan Africa. Africa’s share of global exports now stands at only 2 percent, half of what it was 25 years ago. Recent work, including at the World Bank, shows that at the factory floor a majority of African firms are uncompetitive. However, in countries such as Kenya and Senegal, firms are as competitive as those in fast-growing Asian economies such as India and Vietnam. The high costs and inefficiencies in trade come mostly from regulatory and policy burdens and infrastructure gaps. Too many African countries are still cut off from global markets by inadequate roads, unreliable power supply, inefficient regulatory and legal structures, and trade barriers, all of which worsen the natural disadvantages that many suffer from due to being landlocked and small. Consequently, indirect costs in much of Africa can be as high as 30 percent of total production costs, and more than half of these are infrastructure-related. As a result, African products are often uncompetitive in the global marketplace.
If Africa is to take full advantage of the trade opportunities that already exist and will increase with a successful Doha Round, a robust aid-for-trade agenda, which is aimed at helping countries address these constraints and enhance the competitiveness of their economies, will need to be pursued. First, this will require that countries address competitiveness and trade issues as part of their development and poverty reduction strategies by pursuing the necessary policy and institutional reforms and making the required investments. While the specifics will obviously differ across countries, high-level commitment and leadership will be needed in taking steps to improve the business climate, strengthen trade policies and relieve infrastructure constraints.
Second, development partners, including the World Bank, will need to support these efforts in two ways. We will need to scale up our financial assistance, especially but not limited to helping countries fill infrastructure gaps. Aid-for-trade can also help countries ease the adjustments associated with trade policy reforms, where these entail greater competition or loss of tariff revenue. These resources will need to be truly additional, not substitutes for other aid flows. We will also need to provide this additional support in ways that are easier for recipient countries to access and use. Our assistance for improved competitiveness will need to be better aligned with national priorities, harmonized across partners and more predictable and long-term in nature.
The World Bank is already moving in these directions. Our support for the competitiveness agenda has increased with trade-related lending having risen threefold since 2003 to US$1.6 billion. We are stepping up our support for closing the infrastructure gap as well as strengthening regional integration within the continent. And, through diagnostic and analytical work at the country level, including Investment Climate Assessments, as well as benchmarking exercises such as the Doing Business indicators, we are helping countries identify and address the key regulatory and policy barriers to improving their competitiveness.
In today’s competitive global economy, success is not assured but it will come to those who are the most committed. African leaders must demonstrate the political will to build outward-looking and competitive economies while their development partners need to honor their commitments both to open up markets as well as to step up their support for Africa’s integration into the global economy.
Ezekwesili is the World Bank’s Vice President for Africa
