GLOBALISATION AND AFRICA - TRADE

Professor Oliver Morrissey

School of Economics, University of Nottingham

Context

African countries have liberalised trade policies, but exports have not grown significantly.

Arguments:

A.‘Openness is good for growth’ (encourages competitive exports)

B. Free trade exposes countries to cheap imports that undermine economy.

Some issues: Declining share in World trade Declining export prices Access to World markets Structure of trade Trade policy and trade performance

What is the problem?

Declining share in World trade

Table 1: Regional Shares of World Merchandise Trade, 1990 and 2000

Region Exports (%) Imports (%) 1990 2000 1990 2000

North America 15.4 17.1 18.4 23.2 Western Europe 48.3 39.5 48.7 39.6 Asia 21.8 26.7 20.3 22.8 Latin America 4.3 5.8 3.7 6.0 Africa 3.1 2.3 2.7 2.1

Source: WTO (2001).

Rising volume of exports

Volume Index of Exports, 1990-2002 (1990=100)

1990 1994 1998 2002 World 100.0 126.5 177.6 208.2 SSA 100.0 104.8 127.0 161.9 LDCs 100.0 132.4 186.5 216.2

Calculated from UNCTAD Statistical Yearbook, 2004

But value not pace

Figure 1: UNCTAD Volume and Value Index of Exports of SSA, and Terms of Trade,

1980-2002 (1980=100)

60.0

80.0

100.0

120.0

140.0

160.0

180.0

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Volume index of exports

Value index of exports

Terms of trade

Source: UNCTAD Handbook of Statistics 2004, on cd rom.

Perhaps it is what they export

Table: Sector % Share in Regional Total Exports, 2002

Region Agriculture Minerals Manufactures North America 10.7 7.2 76.9 Western Europe 9.4 6.9 80.7 Asia 6.6 7.1 83.6 Latin America 19.3 20.3 59.5 Africa 15.8 55.1 25.2

Source: WTO (2003).

Commodity Prices

Table: Trends in Primary Commodity Export Prices (1995 = 100) Commodity 1998 2000 2001 2002 All Primary 79 116 106 106 Food and Beverages 89 77 78 79

Cereals 79 67 70 80 Sugar 73 66 67 56 Coffee 82 50 35 36 Cocoa 117 63 76 124 Tea 145 151 121 109

Agriculture Raw Materials 76 81 77 78 Cotton 67 60 49 47

Minerals 74 82 74 72 Copper 56 62 54 53 Crude Petroleum 76 164 141 145

Source: WTO (2003).

But trade is important

Table: Trade Performance in Africa

Imports/ GDP Exports/ GDP

90-92 98-00 % change

90-92 98-00 % change

Regions

North Africa (4) 34.1 32.1 -5.9 29.5 29.9 1.4

West Africa (10) 32.3 38.4 18.9 26.5 29.5 11.3

Central Africa (6) 27.3 30.8 12.8 23.6 28.4 20.3

East Africa (5) 33.4 35.5 6.3 23.0 26.1 13.5

Southern Africa (4) 30.6 37.2 21.6 26.6 30.8 15.8 Notes: Columns give average import/GDP and exports/GDP ratios averaged over 1990-92 and 1998-2000, and percentage change in ratios.

Structural features

Depend on a narrow range of primary commodities. In the late 1990s, 39 African countries depended for more than half of their export earnings on just two primary commodities.

Declining, at least relatively, export prices. Difficult to increase production quickly (export

supply response). Natural barriers to trade (transport costs)

High transport costs

Global Patterns of Transport Costs, by Region, selected years

Region cif/fob ratio

1980 1990 1994 Sub-Saharan Africa 1.112 1.115 1.157 Asia 1.093 1.086 1.086 Middle East 1.124 1.103 1.108 Latin America 1.094 1.091 1.083 Western Europe 1.056 1.053 1.047

The Gains from Trade

Trade does not guarantee net benefits, rather it provides opportunities.

exports access the global market and permit increased production.

trade encourages efficient allocation of resources.

imports increase consumption possibilities. trade contributes to economic growth by

generating long-run gains.

Are not a fee lunch

Trade also presents challenges, and producers must be enabled to respond

Exporters face competitors on a world market Competition from imports challenges local

producers. Imports may increase faster than exports,

resulting in a balance of payments deficit that imposes macroeconomic adjustment costs on the economy.

In brief

Globalisation has had a limited effect on increasing African trade because… Weak policy (especially towards agriculture) Wrong products and limited diversification High trade costs Lack of trust in Governments Low productivity

Not all bad news

There are successes: Mauritius has done well from exporting sugar

and garments to the EU (but …) Botswana has managed its diamonds well

(but the scourge of AIDS) Uganda has done quite well since the early

1990s, but with limited diversification beyond coffee.

Questions

Should Africa liberalise more? Will the WTO help? What can Africa do?

Facilitate trade Reduce trade costs The manufacturing problem The agriculture dilemma Supply raw materials to China?