Africa: Trade and Markets, 1

Africa Policy E-Journal

October 13, 2003 (031013)

Africa: Trade and Markets, 1
(Reposted from sources cited below)

The annual Trade and Development Report released by the United Nations Conference on Trade and Development, just before its meeting in Geneva October 6-17, calls for a "policy rethink" on the effects of market-driven free-trade policies on developing countries. The report notes particularly disadvantageous results for Africa, with further entrenchment of dependence on primary commodities with volatile prices.

This posting contains a general press release from UNCTAD, brief excerpts from the Trade and Development Report, and the executive summary and introduction from a separate study of issues in Africa's trade performance prepared for UNCTAD. Another posting today contains additional excerpts from the Africa-specific report. Both reports and additional background information are available on the UNCTAD website [http://www.unctad.org].

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United Nations Conference on Trade and Development

Press Release October 2, 2003

UNCTAD/PRESS/PR/2003/95

DEVELOPMENT RECORD OF MARKET-DRIVEN GLOBALIZATION POINTS TO URGENT NEED FOR POLICY RETHINK, UNCTAD STUDY CONCLUDES

For more information, please contact: Press Office T: +41 22 907 5828 E: press@unctad.org

For the past two decades, the search for sound economic fundamentals in poorer countries has been all about replacing a state-driven inward-oriented growth strategy with a market-driven outward-oriented strategy. Much has been promised, but according to the Trade and Development Report 2003, released today by UNCTAD, the policies pursued to eliminate inflation and downsize the public sector have often undermined growth and hampered technological progress. As a result, "the current economic landscape in the developing world has an uncanny resemblance to conditions prevailing in the early 1980s", when many countries slipped into deep crisis, says UNCTAD Secretary-General Rubens Ricupero in his Overview to the Report.

The target level of investment for catch-up growth - estimated by the Report to be in the range of 20-to-25% of GDP -- has eluded most countries undergoing rapid market reforms. By contrast, policy continuity in East Asia after the debt crisis produced a strong investment performance, growing manufacturing value added and employment and a rising share of manufacturing exports. With productivity and technology gaps with leading industrial countries closing quickly, the region´s integration has come from a position of strength. Elsewhere, the Report finds a less encouraging record:

Industrial progress has halted in much of the developing world; only eight of 26 selected countries succeeded in raising the share of manufacturing value added in GDP between 1980 and the 1990s, together with a rising share of investment;
In economies with lagging industrialization and a declining share of investment, the share of manufactures in total exports has also been stagnant or falling, while exchange rate depreciation and wage restraint have been the basis for bolstering trade performance;
The production structure in much of Latin America and Africa has seen a notable shift away from sectors with the greatest potential for productivity growth towards those producing and processing raw materials; and
Where trade and investment have risen in the context of international production networks, the tendency has been for an apparent increase in the technology content of exports without a similar increase in domestic value added.

The Report documents a world of industrial difference across developing regions. In Asia, a handful of "mature industrializers" have shifted to a high-tech and service-heavy development pattern, leaving neighbouring countries more room to use their natural resources and labour reserves in support of rapid industrialization. By contrast, declining shares of manufacturing output and employment ("deindustrialization") have accompanied rapid liberalization in many Latin American and African countries. "Enclaves" of industrialization linked to international production chains have dotted this landscape, without in most cases translating into more broad-based investment, value added and productivity growth.

A wide range of macroeconomic, financial and trade policies were used in East Asia, the Report shows, to stimulate investment, target industrial upgrading and encourage exporting. In much of Latin America and Africa, by contrast, big-bang liberalization has led to inconsistencies among macroeconomic, trade, FDI [Foreign Direct Investment] and financial policies that have skewed structural changes and stunted technological progress. The Report also finds that some of the more successful sectors in Latin America have benefited from precisely the kind of selective policy interventions alien to the neoliberal model.

The Report is doubtful that a "second generation" of neoliberal reforms will start to put things back on track. But nor will harking back to the easy industrialization policies of the past. Rather, as Rubens Ricupero notes in his Overview to the Report, "Rethinking options requires a candid assessment of the economic record of the past two decades and of the experience of the more successful cases of industrialization and development. It also requires a move away from generalized approaches to accommodate the diversity of conditions and challenges facing the developing world".

Trade and Development Report 2003
United Nations Conference on Trade and Development

Excerpt from pages 14-15

2. Africa remains relatively insulated from global trends

Performance in Africa was largely independent of the impact of the downturn in the United States in 2001 and more closely linked to demand conditions in Europe. Like Latin America, the region benefited little from the upswing in 2002. Climatic and political factors continued to have a major impact on economic performance. Eastern and Southern Africa were adversely affected by drought, which created severe food shortages, and by depressed export prices. In these subregions, growth remained well below the African average. Conditions in Nigeria and Zimbabwe were dominated by political tension. The conflict in C“te d'Ivoire had an adverse impact on trade in the neighbouring landlocked countries, Mali, Burkina Faso and Niger, which had to rely on port facilities in other West African countries as the Nigerian facilities were no longer accessible. Trade in the subregion has been seriously disrupted with a consequent loss of income, in part because of longer transportation routes for both exports and imports. It has also had a direct impact on cocoa prices.

The strength of oil prices in 2002 underpinned a 5 per cent growth rate in Angola. Among the subregions, the highest rate (5.0 per cent) was achieved in the Horn of Africa, reflecting relatively good performance in Ethiopia and Sudan. Similarly, growth in the Great Lakes region exceeded 4 per cent (compared with 2.3 per cent 2001) following efforts to restore peace and the concomitant recovery in the Democratic Republic of the Congo, where growth reached 3.0 per cent in 2002 (compared with a fall of 2.0 per cent the previous year). Expansion continued strongly in the United Republic of Tanzania and Uganda, which grew at 6.0 per cent and 6.6 per cent, respectively. In North Africa and Central Africa, growth was close to the regional average.

Despite the relatively stable performance, with 15 countries in the region reaching growth rates of 5 per cent in 2002, only six (Angola, Chad, Equatorial Guinea, Mali, Mozambique, and Rwanda) achieved rates of 7 per cent or more, which are required every year if the goal of halving poverty by 2015 is to be reached. Indeed, there are very few countries that have been able to maintain rapid growth for long enough to have a tangible impact on reducing poverty. Only three countries (Chad, Equatorial Guinea, and Mozambique) met this target in both 2001 and 2002, and only Equatorial Guinea has done so since 2000.

The short-term prospects for Africa do not suggest any significant divergence from recent growth trends. There is now a growing consensus that, as a result, it will be impossible to meet the Millennium Development Goals for the region, particularly that of halving poverty by 2015. A durable improvement in African economic performance will depend on success in the fight against the HIV/AIDS pandemic and other diseases such as tuberculosis and malaria, and on resolving the deep-seated problems related to weak and unstable commodity prices, declining levels of aid, the continued debt overhang and political instability. Even though improvements in domestic policies, institutions and governance hold the key to sustained growth, progress on many of these fronts depends primarily on action by the international community including faster and deeper debt relief, increased and better quality aid, and improved access to the markets of the developed economies.

United Nations Conference on Trade and Development

TD/B/50/6 - 28 July 2003

ECONOMIC DEVELOPMENT IN AFRICA:
ISSUES IN AFRICA'S TRADE PERFORMANCE

Report by the UNCTAD secretariat

Executive Summary

Africa's share in world trade has been falling consistently since 1980. The continent remains heavily dependent on the export of a few primary commodities, most of which have suffered a secular decline in prices leading to large terms-of-trade losses. Unlike other developing regions, the continent has by and large not been able to diversify into manufactures or market-dynamic products and has even lost market shares for its traditional exports.

Market-oriented policies have not been able to reverse the situation. In addition to the provision of better market access and reductions in subsidies for products competing with African exports, external resources are required to compensate for losses and to fill the resource gap in order to ensure adequate investment in the development of human and physical infrastructure, institution building and diversification.

Introduction

The emphasis on trade liberalization and export orientation in the past decade has led to a phenomenal growth in world merchandise trade, which has consistently grown faster than output. Africa has also witnessed some increase in its trade relative to GDP, despite the general assertion that Africa is trade-averse. Trade (merchandise imports plus exports), as a share of GDP for Africa (excluding South Africa and Nigeria), increased from 45 to 50.4 per cent between 1980/1981 and 2000/2001. However, on the whole, Africa's share in world exports fell from about 6 per cent in 1980 to 2.0 per cent in 2002, and its share of world imports from about 4.6 per cent in 1980 to 2.1 per cent in 2002. This phenomenon has as much to do with the structure of international trade as with the composition of merchandise trade of Africa, the trade policies applied in the continent in the past 20 years, and market access and agricultural policies in industrial countries.
More than any other developing region, Africa's heavy dependence on primary commodities as a source of export earnings has meant that the continent remains vulnerable to the vagaries of the market and weather conditions. Price volatility arising mainly from supply shocks and the secular decline in real commodity prices and the attendant terms-oftrade losses have exacted heavy costs in terms of incomes, indebtedness, investment, poverty and development. Previous UNCTAD reports on economic development in Africa have discussed extensively some aspects of these issues, including capital flows and debt, overall economic performance and prospects of the region, and adjustment and poverty alleviation.

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Date distributed (ymd): 031013
Region: Continent-wide
Issue Areas: +economy/development+

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