UNITED NATIONS
ECONOMIC AND SOCIAL COUNCIL
GENERAL
E/ECA/TRADE/91/21 12 July 1991
UNITED NATIONS
ECONOMIC COMMISSION FOR AFRICA
Workshop on Export Mariceting Import Management and Procurement for Business Executive and Officials from Trade Promotion Centres and Ministries of Trade
Kampala, Uganda 22 July - 2 August 1991
TRADE POLICY AND AFRICA'S FUTURE
TRADE POLICY AND AFRICA'S FUTURE
by
Dr. Jonathan H. Chileshe
Trade and Developnent Finance DivisionHead
TABLE OF CONTENTS
INTRODUCTION
CHAPTER III : THE INSTRUMENTALITY OF TRADE POLICY
1 -4
CHAPTER I : THE CONCEPT OF TRADE POLICY 5 _20 CHAPTER II : TRADE POLICY : THE PROCESS OF ECONOMIC
DEVELOPMENT 21-3 7
38 -58
(a) Trade Formulation ; State Monopoly or
Prerogative? 45 _53
(b) Conclusion or the Litmus Paper Test? 54 -53
INTRODUCTION
1. Discussion of Trade Poiiny on a continental level as this brief paper intends to do, begins first and foremost by establish ing the main framework within which the analysis is to be con sidered. With that kind of background is the need to first isolate a number of related important issues. Such an exercise has as a matter of course to bear in mind those other elements that fully appreciate, from the very outset, the peculiar African situation.
Africa may have situations that at times are not easy to explain in matters of this kind. This analysis make an attempt of focusing part of its attention on the African experience itself. Somehow one must have a cut off point. Hence the analysis begins with the advent of political independence in the region.
2. Trade policy, the main theme of this paper bases itself or implies many assumptions. Some of the assumptions have tended to contradict each other. However, a majority are united as to the objectives that trade policy must attempt to achieve. First, there are arguments for and against its instrumentality in terms of
division of labour and contribution to Gross Domestic Product (GDP) as well as Gross National Product (GNP). Additionally, assumptions that are common knowledge to any student of social sciences, especially economists. The short and long of it concerns admission to trade's importance established beyond doubt through experience, both nationally and internationally. According to Meier, this importance emanates or derives partly from the "classical theory of comparative cost in conjunction with the fact that comparative differences in cost of production of industrial products and food and raw materials ... are obviously very great, in many cases, in
fact, infinite.... "1/
I/Gerald M. Meier, Leading Issufis in development economic Oxford University Press, New York, 1964, p.354~T~ '
3. In fact, even the most antagonistic opponents of trade activities find it difficult to deny its crucial role in the functioning of society. It is in the light of the above that there is now general agreement about trade as a facilitator of a variety of material means. Trade is perhaps the most important link between supply and demand, no matter the criteria used. Hence, trade related activities are indispensable to the movement of capital goods, machinery, raw materials and semi-finished items on which countries the world over, base their economic growth and develop ment processes. Experience has also shown that it is through trade that the dissemination of new technological knowledge, other skills and the importation of know-how and managerial talents has been made possible. It is through trade exchanges for instance, that technological know-how has been transmitted from the developed industrialized to the developing countries (as in the case of the newly industrializing countries of Asia or the so called "little economic dragons" and Latin America). Similarly, from the urban to the rural areas at national level as the analysis made jointly by
Hazari and Sgro also adds to this belief!/.
4. Other aspects of an international character are also quite apparent at national level in view of their significant pivotal role in society. The quality of a country's or region's tra^e policy as explained by examples in Chapter Three are a matter of great concern to all and sundry. One therefore need not repear the fact that those charged with the responsibility in this area are surely aware of their crucial role tc society. Within the framework of current organized state of affairs, it should not be difficulty to understand why governments normally initiate and govern the pace of trends in this area. But that is not the same
2/see F.R.Hazari and P.M.Sgro, "Urban - rural structural adjust ment, urban unemployment with traded and non-traded goods , journal of Development EcongMcs, Vol.35, No.l, Amsterdam,
January 1991, p.187
thing as total surrender by the governed not to be closely involved in the formulation of instruments that affect their lives. That kind of behaviour is tantamount to abrogating to themselves more than is realistically possible. It also runs counter to the principle of participatory democracy.
I. THE CONCEPT OF TRADE POLICY
5. Admittedly, it is not easy to define fully nor in precise terms ths concept of trade policy. First, Africa is not a homogenous whole. And even if it were, it is so vast that allowance may have to be made for special circumstances. The countries that constitute the African continent are very much heterogenous. This apart, they have had different colonial histories. But even if they had the same colonial background, the time since independence has seen them ruled by a different breed of leadership. A majority of whom have been more concern with political consideration and less
with the benefits that trade brings about. Added to the above, are
differences in resources endowment among them and the extent to which the international community has reacted to each one of them.6. Under this type of scenario, any one attempting to deal with
this subject would need to exercise caution about making dogmata-
statements. However, the paper will attempt as far as possible in the space available, to examine those elements on which hingeissues connected with trade policy, both at national and interna
tional levels. This is why it is important to make early reference to some of the known causes of Africa's trade performance.
Unfortunately, whenever this issue is raised - the first thing that comes to the fore tends to be confined to Africa's export failure.
Rarely is the question of improper or inappropriate handling of imports treated with the same degree of concern, except at Budget
time.
7. Available evidence would seem to indicate that problems in this area are manifold but also vary from country to country. In point of fact, indications from some of the analyses on which this paper draws confirm the author's other view points. In particular, attitudes of some African policy makers that make it difficult for trade activities to achieve the principal objectives or solutions to the problem. This is because a fairly large number of policy makers are still unaware of the importance that comes with creating a favourable environment both for exports and imports. The few that claim a little enlightenment have tended to focus most of their attention only on the export side and less with the positive and
negative impact of imports policies.
8. There are several aspects that influence or condition "trade policy" both at the micro- and macro-economic levels. It will become clear in the course of this analysis, especially by drawing on some of the conclusions of the works of other economists. For instance, W. Cline's investigation of the impact of macro-economic policies on trade policy in the United States.3/ Some of the conclusions reached on the basis of that analysis seem to uphold what can be said of the African experience also. It is the type of evidence that is likely to put to rest doubts entertained in certain quarters about the influence of macro-economics on the African economies, including reasons why the trade sector behaves
as it does.
9. The current African economic situation as that to be expected in the near future and beyond cannot claim to be immune from the influence of micro- and macro-economic approaches either individ ually and/or collectively. Needless to say, each merits further study. God forbid that the author should in any way be seen as
3/see W.Cline, "Macroeconomic Influences on Trade Policy , in
"U?S? Trade Policy : Short-term Pressures and Long-term Strat
egy", American Economic Review 79:2, May 1989.
attempting to be re-inventing the wheel. The main objective for undertaking this exercise is to allow others, yet another fresh look at this very important element in the light of recast evidence. Similarly that those faced with the problem may be assisted to begin to think of new solutions from the point of view of the impact that trade policy plays in some of the solutions that
have been tried.
10. Hence the analysis devotes some space at the very outset to restating what most people perhaps perceive or understand to be
"Trade Policy" or better still, "Trade Policies", at least, within the context of the African economies. The question that may be asked is why does any one need a trade policy or trade policies when every one has been brought up in the knowledge that societies' behaviour in matters of commerce is dictated more by common MnsP.
Granted, "common sense" is not all that common. However, most of the ups and down that confront business people in the daily work tend to be smoothed out by market forces of supply and demand to which the ability to pay makes a very significant contribution.
11. For the same reason, the analysis draws rather heavily on the African experience. The next possible logical step acknowledges that most trade policies found in the African countries are an adaptation in one form or other, of classical and neo-classical trade theoriesl/. Both have one thing in common, at least from the African point of view. Principally, they were both nurtured in a different environment. An environment that is socially, culturally, politically and economically quite difficulty for
<sr£sos-stsf™;osrssi i£& ; as Proposed in the General Agreement on Tariffs and Tra^
TlrtZtZr*5** ^-intensive production andin^n
Africa to replicate given Africa's current rigidities and self- imposed contradictions. But perhaps even more so, not all of then,
are suitable nor fit the current African situation. Adopting some
of them has been like putting the clock back which is the last thing that any one would wish to assign to a progressive trade
policy?
12. Restating other aspects is not intended that all the old arguments should be like putting "old wine in new bottles". Rather, the intention is make it easier for general appreciation of some of the original concepts that surround the formulation and implementa tion of trade policies, impact that trade policy brings to bear on
the various economies.
13 The other important aspect to be analyzed addresses issues of contrasts or contradictions that emanate as result of putting in place such trade policies. In other words, why trade policies are necessary, who should initiate, at what time and who should be responsible for their implementation? What of the distinction between the formal and informal trade sector? Should there be separate policies or how best can one dovetail in the other.
Perhaps it is answers to some of these questions that will enable the reader to gain a much better appreciation of the existence of
such great differences, not only among the African economies
themselves on the one hand, but also between Africa with the rest of the world on the other. The concluding part of the analysis is based on reviews in the preceding chapters and paragraphs. It also
includes a number of suggestions of possible changes which if
implemented, could give back to trade activities and to the sector as a whole, the capability to once more become an engine, both ofeconomic growth and development.
14 At national and especially at sectoral levels, trade policy
combines many objectives: stabilization; trade creation; and tradediversion. Governments therefore attempt to use the trade policy to facilitate vertical and horizontal as well as forward and backward linkages of all sectors of the economy. In an article written for the Country Economics Department of the World Bank entitled
"Lessons in Trade Policy Reforms", the authors redefine two main objectives: (a) to raise economic growth and employment generation by improving resource allocation and economy-wide efficiency; and (b) to help improve the balance of payments and strengthening the competitiveness of the external sector and expanding exports and efficient import substitutes"^/-
15. Perhaps this is why trade policy formulation in most African economies is presumed as a prerogative of the government. Others will therefore be excused for concluding that it mirrors the short- term and long-term vision of those Government. In fact there is no African country that has not in one way or another used its trade policy to persuade both internal and external investors to take the necessary investment risks in their respective economies? Some among this illustrative group of countries, have also used the instrumentality of trade policy as a good bargaining point in portraying their country's ability to repay contracted external debt. Surely, discussions that have taken place at the Paris Club on debt rescheduling and at the London Club in dealing with private financial flows could not have lost sight of this very important element of how the debtors deal with trade policy formulation and
the results thereof.
16. With regard to external orientation, the experience of the African countries parallels that of most other developing coun tries. Trade policy underlines a concern to increase exports and
Thomas' Kazi Matin and John Nash, Lessons m country Economics Department, 'V
fairs #10 Th l
^|^£m y Economics Department, policyV^esearc
and External Affairs, #10, The World Bank, Washington, D.C.,
ensuring that imports can be paid for from increased export earnings. Later in the analysis, it win be shown that Africa's greatest difficulty is how best and quickly they can diversify their export spectrum. This urgency has been heightened by the growing export earning shortfalls in recent years. It is an open secret that the African economies are the most open than any other region of the world. The situation for most African economies is perhaps made rather difficult by the region's own underlying structural and production rigidities. Particularly since the export commodity composition consists primarily of primary raw materials of agriculture and mineral products. And as if this was not bad enough, the destination of the bulk of Africa's exports is also
narrowly oriented.
17 in the context of providing additional information on the above and other related issues, the analysis will to the extent possible review the various scenarios that encompass the formula tion of trade policy. Emphasis will therefore be placed on linkages that appear to exist broadening Africa's export commodity composi tion, destinations and production. In other words whether a number of observed trends in some African countries' ability to export an increasing amount of low-priced manufactures, including into the markets of the highly industrialized countries that are known for their resistance to moderation of industrial protection, owe it to
trade policy reforms?
18 It has become clear even at this rather early stage of the Present analysis that there are other important aspects of trade policy that need further refinement. Particularly in terms of both trade creation and trade diversion, including their closeness with the impact that trade barriers bring about. Granted, these latter aspects call for much more cross-country comparisons, itself a very difficulty thing indeed. In analyzing this particular element, it is imperative to revert to the works of economists like Hans Singer
and P. Grays/ among many others that have carried out some important pioneering work on this score. Similarly those that have written extensively on the negative impact of non-tariff barriers
(NTBs) like S. Laird and A. Yeats7/.
19. The significance of the work of this other group derives in part from the fact that trade activities can not be confined to national borders. Albania tried this line of isolation only to discover to its dismay, that no country can be an island unto itself. In the end, Albania has had to return to the fold and will pay a higher price for the initial folly or may we call it
"brinkmanship in foolishness" than need have been the case.
Fortunately no African country took the same economic path as Albania. Nonetheless, there are aspects relating to Africa's trade
like that connected with attitude towards "unrecorded transborder
trade activities" that can not be ignored for such a long time. In flagging this latter point, it is important to recall why many of the new African generation wishes that focus be also put on developing and expanding intra-African trades/.20. The inclusion of what happens or what emanates in the developed market economies and outside Africa requires no addi tional explanation, it is the very basis on which international trade is built. The only sad side of the same coin is that Africa, unlike the other trading regions has acquired a distinction of fi/H.Singer and P.Gray, "Trade Policy and Growth of Develooina
Countries: Some New Data", World nlm^f ££, March ?9S8
2/see s.Laird and A.Yeats, "Trends in Nontariff Barriers of
WPS 137, DecimbiTTgss.
I/see Jonathan H.Chileshe, The Chalice of n^i^n. Intra
AfWan TrrniP, East African Literature Bureau, Nairobi, 1977
being the odd man out. In other words, Africa's trade activities are predominantly with the outside world. On the contrary, that of an intra-regional nature has tended to be marginal to say the least. The extent this is due to trade policy of these countries is
rather difficult to precise.
II. TRADE POLICY : THE PROCESS OF ECONOMIC DEVELOPMENT
21. D:
_ Jiscussion of trade policies as practised in most African countries from the time of colonial emancipation is inescapably a sum total of its greatly and other less publicised positive impact on the respective economies. Therefore to fully appreciate this other side requires the analysis to bring into focus those other elements without which Africa's trade would not really be able to advance the rate of economic growth and development. Put rather differently, the analysis extends beyond the question of total export and import composition. It includes the indispensable supportive sectors of production and investment in production and distribution areas. The other link has to do with raising the
purchasing power thereof.
22. What of the question of exclusion and marginalization of certain economic operators by virtue of the way trade policies have been formulated in some of these countries? Principal among the sufferers of being marginalized, are operators in the informal sector, the backbone of "Katwe", if the case of Uganda is any such example. A great number of who are the ones that oil the private sector on which the formal sector itself greatly depends.
23. While the region's total exports in value terms recorded only a relatively modest growth, its imports in 1988 grew at an estimated 8.2 per cent and reached an estimated US$69 billion.
According to statistical data compiled by the United Nations Economic Commission for Africa, total Africa's external trade in the period 1980 - 1989 was said to have decreased by about 22 per cent to approximately US$39 billion. This represented a further marginalization of the region's world export share from 2.6 per
cent in 1980 to 1.3 per cent in 1989.
24. The consequences of the above higher growth rates of imports merely added to the trade balance of the region which worsened to reach US$12.7 billion as compared with US$8.9 billion in the preceding year. in this regard it has to be recalled that Africa last recorded a surplus in 1980. Ever since, the cumulative trade deficit has grown to US$57 billion (for example in the 1981-1988 period). This was despite intensified efforts of many African countries aimed at implementing import limitation policies in the face of sagging export earnings, increasing debt service obliga tions and stagnating real resource flows. It is finding solutions to these problems that give significance not only in the way trade policies are formulated but also how they are implemented.
25. Since 1973, export volumes have remained stagnant or even declined in most African countries. Details on the performance of selected African economies (Algeria, Cote d'Ivoire, Egypt, Ethiopia, Morocco, Nigeria, Sudan and Zaire) which between them accounted for nearly 61 per cent of Africa's total annual output and add up to show some of the negative impacts. This subject was discussed at the 15th session of the ECA Conference of Ministers meeting in March 1989 and continues to on the agenda of several other conferences. The point is that the same state of affairs has not changed and therefore reason enough to recall these statistics, except for minor modifications in order to take account of the passage of time. Nonetheless, it is important to reiterate that production constraints greatly contributed to sagging export earnings to no lesser extent than falling world prices. The most
publicised examples are those that surround copper and coffee sales. According to the World Bank estimates, if Sub-Saharan Africa had maintained its 1970 market share of non-oil primary commodity exports and, provided prices remained the same, export earnings of these countries would have been about US$9-10 billion a year higher in 1986-1987. This difference is almost equal to the
region's total debt service payments during these years.
26. The fact that most African economies are so dependent upon only one or two commodities, usually agricultural goods or minerals as a main source of their export earnings may be due in part to the way their i-™Hg policies have been formulated and implemented. Take as an example of these trends what obtains in some of the countries indicated in the preceding paragraph. Thus after nearly or more than three decades of political independence, many African countries are still no different economically than they were at that time. Take for the purpose of illustration: Zambia continues to obtain about 90 per cent of her foreign exchange from the sale of copper; Mauritius and Swaziland still obtain about 94 per cent and 54 per cent respectively from the sale of sugar; The Gambia still obtains about 90 per cent from the sale of groundnuts. These trends are a contradiction to say the least, of the theory of comparative advantage. In other words, specialisation in agricul tural and mineral products in an unprocessed form has not been beneficial to African countries as a group. Indeed some of the causes for this can be blamed on crop failure and heavier losses brought to bear due to uncertainty of markets abroad, coupled with unpredictable price fluctuations. However, all said and done, inappropriate trade policy and its failure to spur diversification must accept part of the responsibility.
27. There are many ways of appreciating some of the concerns relating to Africa's external sector. One of these is to compare trends in the region with those in other parts of the world.
However, there is one distinctive feature regarding expanding
international trade. The most worrying aspect from the writer's point of view is that it has largely by-passed the African region.in other words, it has had very little stimulating effect on Africa's trade and economic development. Over and above, the
seemingly higher growth rate of GDP in 1988 and part of 1989 in thecontinent was mainly attributable to the exceptional good weather
conditions recorded in many African countries.
28. There is very little evidence of these results being due to
"good- trade policies. with Africa's export growth rates below those of the world average, the only result can be that of the shrinking share in the overall world exports. And indeed, while in
1977 African exports constituted 4.4 per cent of the world totalthis proportion continued to decline all through the 1980s'
reaching about 2.1 per cent in 1987. There was a further drop to1.9 per cent in 1988. Although the same trend is evident for other developing regions, the relative decrease in their world market shares was much smaller. The process of gradual marginalization of Africa in the world trade relations was one of the most alarming Phenomena in the 1980s. Empirical evidence indicates that it i, closely linked to the factors discussed below. However, the lack of appropriate trade policy can not be a distant issue of what is
at the root of the problem.
29. One of Africa's major weaknesses is the region's inability to
change its production and consumption patterns. There is little
evidence to suggest that trade policies have succeeded in bringingabout any alternative scenarios. Trade continues to be marginalized
in favour of other economic sectors. This is in spite of itsfacilitating role having been conclusively acknowledged that in its
absence all other social economic process find it difficult to
achieve their assigned objectives!/.
30. Perhaps most vexing of the some of the questions is whether
Africa is destined to continue to depend on a small and generally rigid production structure? Possibilities of diversifying the export commodity composition in the immediate future may be limited in the light of the present trends. Basically because there has not been any significant changes in the region's external trade structures in the past few years, apart from varying the share of minerals fuel exports, that occupy between 60 and 70 per cent of
total Africa's exports.
31. At this point in time certain observations deserve credit, especially the ones that advocate product change being linked to change in education. Somehow care should be exercised not to equate or limit the definition to academic type of education. What I believe is contemplated is change that begins to give equal
opportunity to local products in the face of imported ones whose criteria is a carry over from tne colonial past. Otherwise, changeshave tended to be a function of price fluctuatxons. Thus xn 1988,
exports of manufactures managed to record a certain measure o.success by virtue of having benefited mostly from better average
price trends, and not so much from increased export vo umes It Lid therefore be preposterous on the basis of these trends to
talK about any meaningful export diversification unless and until
trade policy formulation and its implementation are properly coordinated at the national level.
32. inability to diversify commodity-wise also obtains in the case of geographical distribution of Africa's external trade.
Delhi, 1991, Chapter 9.
question that most Africans fear to ask is how long will Western Europe and North America remain Africa's main markets and principal sources of supply? The share of the former in 1987 was respective ly 91.0 per cent and 74.3 per cent. Despite the fact that import sources are becoming increasingly more diversified than are export destinations, regional patterns of both exports and imports remain broadly the same as in the past with no significant changes occurring in the product structure of major African exporters.
Trade with other developing regions including within Africa itself continued to be small, except for a significant increase in imports from certain Asian countries, mostly the little economic dragons i.e. the newly industrializing countries (Korea, Taiwan and Singapore) that appear to play an increasing role as suppliers of manufactured goods both to the African continent and world in
general.
33. The image of Africa's trade in 1991 as that in the first half of 1992 is a sum total or better still, is a cumulative total picture of the legacy of its own history. Caution should however be exercised not to equate the term "legacy" with romanticism.
Particularly where blaming colonialism has tended to be the pastime of many African policy-makers that like to shift from themselves to others, the responsibility for Africa's failures since the advent cf political independence.
34. There are many sources from which data can be derived to analyze the African economies, especially in the context of the impact brought to bear by Trade Policy. The analysis draws on sources provided by the World BanklO/, the African Development
l_0/see The World Bank, Sub-Sahara Africa: From Crisis to Sustainable Growthr 1989
Bankll/, the United Nations Economic Commission for
Africal2/, the United Nations Conference on Trade and Develop- mentH/, and the General Agreement on Tariffs and TradeW,
to mention but a few. The performance of most African economies xn the 1980s and early 1990s is alluded to in the preceding para-
araphs. Nonetheless, it is still important to raise the fact that
a great part of what is found in these documents is of a general orglobal character. In other words, analyses of the indxvxdual countries are not easy to distinguish with the result that
consensus suffer from the law of averages.
35 Caution should be exercised in drawing conclusions from some of the generalizations, if the African Development Bank's observa tion is one such example. It speaks of Africa's "moderate acceler ation of growth in 1989 from 2.6 per cent in 1988". The analysxs
attributed this to "a strengthening of economic activity xn the
oil-exporting countries owing to increases in the volume and prxceof oil exports". In other words, the "combined GDP of net oxl
exporters rose by over 3 per cent compared with a rise of 1.8 percent in 1988". As part of the same analysis is the fact that
"Africa's manufacturing sector recorded an improvement in perform
ance... of about 4 per cent in 1989 compared to less than 3 per cent
in 1988 ... manufacturing value added (HVA) was estxmated xntropical Africa to have increased by 4.4 per cent, c°nti™ <!
steady progress recorded in X987 and 1989. Increased export
^TIr7i^T^op»ent Bank, Mrican_DeveloEment_1920, Part
II, pp.44-140.
Economic Commission for Africa,
ment, Geneva
14/seeGATT InternaMonalJrade11986^7^989a1, Geneva
Page 17
HI. THE INSTRUMENTALITY OF TRADE POLICY
tradeThlreStiOn '" **"'" «"" "* ™h * th^
trade polxcy ln view of what is stated in chant,
may not be c.u- VLS^L pT
Policy it is Th^ „„ -■ ^^^^ttad^PaUsy, but trade
Perhaps they should be advised to qet t!
™F and the Worid Bank .eltve that thL ! T °*
there are strong possibilitZ , * "^ P°liCy ref°rms'
in place
even if they can not be termed specifically
15/see ADB, ibid., pp. 10 s 16
African. But this is besides the point in as far as this analysis
Th ader should per^a.
African. But
proposes to pursue the matter. The reader should ^
reminded of the objective for putting out this
fro, others 11*. Charles Kindleberger, the value of repe th obvious has been time tested. The value of re-examxnxng classical
theories for example as is "trade policies", lx.. *°^"*^
and purposes, in the original assumptions that
of time. And as Kindleberger rightly pointed out one of the objectives must be "to see whether real effort should be not the correction of symptoms of diseguilibrium, but attacK on underlying
conditions"16/.
40. A recent head or country count by the author revealed that by African countries of the total regional membership of 50 counties d been engaged in some form of poUcy realignment "-£■»£
institutional reforms. On much closer exammatxon however, the
im rlssion gained shows a tendency of those reforms *^™«£
emphasis to the various sectors of the economy. Among the culprit not to have received a deserved weight, appears to be long term
trie policy formulation. In other words, the anti-export bias
persisted in the new economic systems that emerged. This con
tusion is buttressed by observed cuts in private investment during the 1980s from about 10 per cent to a mere 5 per cent of GDP.
milarly, public investment also remained static at 1- per o •
Over and above, overall investment intended to expand and dxvers fy production for exports was rarely encouraged to become profxtable.
41. one can not talK of problem and prospects connectec.with
trade without also talKing about the management of "P"*--^^
are important in their own right, especially sxnce they
'
an essential source of inputs for any country in general and Africa's economic development in particular. Needless to say
efficient importing of such inputs has a very significant impact on
^he cost of production and thus on the competitiveness of a
country's export products. Therefore, the imperative of rendering impcrt operations more efficient is of great strategic and economic importance. It is for this reason among others that it must be seen as an integral part of what trade policy is intended to achieve. It will be interesting to investigate further the track record of someof the parastatals in this area?
42. To a large extent, African countries have yet to realise that individually and as a region, they are the only ones among most regxons of the world, that pay more for their imports relative to otflers. This is because Africa has yet to device an appropriate import policy. An policy about its imports that would ensure that it buys only what it needs. In particular where the individual countries can not within a given time, be able to produce for themselves or obtain from others within the region. Furthermore tnat those imports are a true value of the price tag. One World Bank publication that came to the author's notice on this issue by Alexander Yeats carried a rather appropriate title and posed the
question : Do_African Country P*Y »»,- for Imnnr1-g? Vog The
analysis not only revealed but also confirmed facts which had already become common knowledge to external suppliers of so called African needs. Indeed, African countries pay premiums of between 20 and 30 per cent on foreign supplies as a result of imperfect import operations!?/, is it any wonder that even among the newly found African friends within the Third world, a tendency has imaged of
wanting to export to Africa?
^ , C-Mrican_countries_^a
es? Yes, The World BankT Washington, 1989?
.3. The analysis by Yeats is not the only one to have made this public revelation. Imports are not only confined to visible traded goods. The package is quite wide and includes importation of services, skills, technical know-how (some of which comes.with a number of projects) and therefore one can have some sympathy wxth some of the things exposed in a book by Graham Hancock, «P°«a^
the link he draws with Africa's accumulation of debtlS/• Yeats must however be credited for providing yet another angle to this subject, in particular by underlining the fact that xf Afrxcan countries were able to improve their import efficiency even by as little as 10 per cent, the region would expect to save forexgn
exchange resources no less than or equal to the GDP of a country
like Uganda or the United Republic of Tanzania.
44. As this analysis nears the end, it is worthwhile putting the
spotlight in this Chapter on two levels. Perhaps in this way xt
will be possible to appreciate some of the micro- and macro-
economic aspects of particular trade policy concern in^^
elsewhere in any economy : (a) External (trade creatxon and diversion) - impact on (i) supply side or production (structural
adjustment and diversification), exports and imports, xnvestmentdebt solution; and (b) mtiS^JJn^ml - i-P-ct on public and
private sector in terms of trade-induced developments derxvxng from trade policv. Mechanisms for inducing higher rates of plough-back into productive investment in order to foster rapid expansion in effective demand for domestically manufactured consumers' goods wnich would direct into the hands of vigorous entrepreneurs andincreasing the proportion of income flows under circumstances that in turn lead them to expand their raw materials intake. Sxmxlarly, production of semi-manufactured products and manufactured compo
nents resulting in higher GDP and employment creation, contributed
18/sce Graham Hancock Lffl^OrtiJte TTfestvle^, power, prestigp and
aid_business, Macmillan, London,
to by both the formal and informal sectors, linkages with other supportive sectors such as trade financing. As a matter of fact, the lack of specific provision in trade policy for "trade financ ing" is perhaps its weakest link in the chain.
(a) Trade Formulation : State Monopoly or Prerogative?
45. So much has been said about the international side of this issue. Nonetheless, it is still worth making further mention of other equally important positive developments. This is why the recent initiatives by such major creditors like the IMF and the World Bank make interesting reading. These two world bodies have on their own found it necessary to impress upon any developing country needing their assistance in coping with the problem of balance of payments to accept as one of the conditions that the country reform package must not only indicate but also contemplate reforms covering trade policy. In point of fact that is the origin or underlying objective of the World Bank's Structural Adjustment Loan
(SAL) programme.
46. The World Bank launched its SAL in 1980, expecting it to last a relatively short time. The programme was focused on achieving macro-economic balances. Hence, the inclusion of policies that were to enhance economic efficiency, provide growth and ensure that resources were allocated according to free policy of market forces.
In the period since the programme was launched, no less than 30 developing countries have been assisted by the programme. However by 1984, 6 African countries (Kenya and Senegal in 1980; Cote d'lvoire, Malawi and Mauritius in 1981; and Togo in 1983) had received such assistance. Another 12 African countries had been added to the list by the close of 1987. But this does not imply that these countries had made the expected headway.
47. in the light of the foregoing, the above question is more than timely. To a large extent, many of the issues that ought to form the main departure point have been alluded to in the preceding chapters. Not least of all, reference made to the country head
count of those that have undertaken structural adjustment as a way to attracting external financial assistance. However, the review m this analysis will focus on the trade component.
48. From a country point of view, the starting point is the existence of shall we say the coming into existence of ministries or departments charged with the responsibility of overseeing trade and commercial activities. In a few African countries, the tendency has been to create two ministries i.e. one responsible for domestic trade activities and the other for external or foreign trade. In some other countries however, only one ministry of commerce exists and it is made responsible for both functions. Administratively however, the ministry then creates two separate departments for
each of those functions.
49. It is an indication of the significance of this activity that in all African countries is without exception, shown by cabinet appointment of who ever heads these responsibilities. What is yet to be established is what rank he or she occupies in the cabinet hierarchy? For other cabinet ministers like those that run foreign affairs, finance and justice - it is relatively easy to perceive by the frequency the respective Heads of State and Government seem so readily accessible to the holders of those offices.
50 A casual perusal of several national development plans (NDPs) in Africa does not convince one as to how trade policies are arrived at in terms of background used and the orientation itself.
Perhaps to better understand some of the issues that seem to complicate the subject, it might be necessary to read these NDPs m tandem with each country's constitution. Nonetheless, the preceding
analysis, especially at paragraph 2 has provided the general framework and some of its main components. Not least of all, linkages with the exchange rate policy and pressures brought to bear through the activities of the exchequer. It follows from this that trade or commercial policy combines with the former to effect and influence a country's export and import regimes, and including
the domestic sector.
51. One is then tempted in the light of the above to discover how the individual African governments have gone about formulating their trade policies in order to make them capable of moving the trade regime forward. On the basis of available information, the commonest avenues have included an element of instituting liberal mechanisms. For example, through reducing controls, replacing direct restrictive controls with price mechanisms. Similarly, lowering export and import restrictions through tariff reductions and export subsidies, rather than export support intervention.
There are several reasons why resort to export subsidies is unpopular. At the national level, it has proved rather expensive particularly where inefficient and uneconomic productive sectors are unnecessarily protected from the reality of the economic
situation. On the international plane, such action often attracts retaliation (countervailing duties) whose adverse impact may not be
easily discernible.
52. one other missing element at least from the African stand point is the apparent absence of the involvement of the private sector by Africa's policy makers. This reluctance on the part of most policy makers in governments is difficult to understand but not difficult to explain. Wrongly or rightly, some policy makers in Africa seem afraid to solicit the views of such bodies as the chambers of commerce and industry. Somehow the element of secrecy has been taken to ridiculous limits and has as a result become
counter-productive.
51 This is the very opposite in other developing countries that have made significant economic progress. There is a living example of collective action and not one where only governments claxm to know the total national economic heartbeat. In Singapore for example, both the ministries of commerce and finance are in.
constant touch with the business community either individually or collectively through their various chambers of commerce and industry. The government makes its actions as transparent as possible and the latter also feel duty bound to reciprocate in equal measure. The end result is that the trade policy that xs finally put in place has much greater chance of achieving its set
objectives.
(b) ronciusion or- »"■ T.ifmns Paper Test?
54 There can be no doubt in the light of the preceding analysis that formulation of trade policy is indeed a prerogative of any national government. This is because formulation of trade policy passes through national legislature in order to have the necessary
backing of the law enforcing agents. The fact that some of the economic operators in the informal sectors flout the regulations by not registering their activities does not in the least subtract the significance that the process stands for. But that is not the same thing as preventing the contribution of other sectors of the
economy.
55. Among the many objectives of trade policy is its contribution to creating an enabling economic climate. Consequently, mechanisms like price control of certain products, licensing of business premises, categorization of commercial activities, import and export regulations are basically part of this effort. In other words, they are intended to provide for order and a sense of business security that facilitates economic growth and development.
56. it therefore follows from this that formulation of trade policy that affects both domestic and international commercial activities is discernible at several levels and in various ways: by sectors; the use of prices or quantities as variables to be manipulated; effect on that private incentives; and the freedom of choice it brings to bear in general.
57. As a matter of fact, strong cases can and have been made in support of each of the above, especially as instruments for effecting trade policy as is for general economic policy. In the latter case however, it sometimes borders of on choice between use of the pricing system or controlling the quantity. In which case, tariffs are preferred to quotas. Similarly, differential interest rates as opposed to capital rationing. Alternatively also, subsidies to private producers instead of production by the government through the parastatals. However, some of these measures have been found to differ in terms of their effectiveness, particularly on prices and consumer choices. One of the reasons for the observed differences stems from administrative convenience, let alone the great measure of unpredictability of the results
themselves.
58. it is possible in the light of the above analysis to put forward certain conclusions on this rather complex subject. One of the ways is to reiterate in a more refined manner some of elements that the analysis has focused attention. It is quite clear from what is contained in this paper that formulation of trade policy is intended to achieve certain perceived or desired goals. However for trade policy to effective and let alone to achieve its objectives, it has to be part and parcel of other supportive economic activ ities. However, perhaps the litmus paper t.<**+ might be the extent to which its activities must work towards the following:
(a) First, help towards moving the national surplus above mere mass-consumption into productive avenues. In other words, it must be capable of sterilizing tendencies in
society that are attempted to hoard, increase the ( purchase of luxury goods and services as well as low ,
productivity investment;
(b) Second, be such that it encourages the emergence of of institutions that can provide cheap and adequate capital both by the private and the public sectors. The Nigerian example of the Peoples Banks that were created to lend to the less advantaged of society that are unable to put up modern normal traditional bank collateral, instead it was decided to substitute for this with the guarantee provided by virtue of the applicant belonging to recognisable society that naturally confers identity
example;
(c) Third, while trade policy aims at giving the necessary impetus to all sectors of the economy, it should however be such that it is capable of inducing rapid growth of those other sectors that appear more capable of leading others in the process of industrialization, especially the production of tradeable goods and related service
industries;
{d) Furthermore, entrepreneurs in those rapid growing or lead sectors should be able to continue to plough-back into the economy a substantial part of the profits in further
productive investment.
