Africa Harnessing Globalization John Hancock Counsellor, World Trade Organization
Globalization has transformed the development dynamic…“Since 1950, 13 economies have grown at an average rate of 7 per cent a year or more for 25years or longer. At that pace of expansion, an economy almost doubles in size every decade….Growth of 7 per cent a year, sustained over 25 years, was unheard of before the latter half of the20th century.It is possible only because the world economy is now more open an integrated. This allows forfast-growth economies to import ideas, technologies, and know-how from the rest of theworld…. An open economy also offers developing countries a deep, elastic market for theirexports….The growth of GDP may be measured up in the macroeconomic rooftops, but all the action is inthe microeconomic undergrowth, where new limbs sprout and dead wood is cleared always” Commission on Growth and Development, 2008
From trade in goods to trade in tasks… The rise of global value chains‘Products are no longer “made in Japan” or “made in France”; they are truly “made in the world”.’ Pascal Lamy, WTO Director-General“The integrated factory floor, which had dominated manufacturing since the 19th century, hasbeen replaced with a network of individual suppliers specializing in specific services or phases orproduction. In this second great unbundling, production is “sliced and diced” into separatefragments that can be spread around the globe. … The value of the entire “global value chain”depends on the way companies are interconnected. The emergence of “Factory Asia” is onereflection this unfolding process”. Trade Patterns and Global Value Chains in East Asia, WTO, 2009
Economic growth in Africa has been robust - driven by the boom in commodityprices, which led to very high growth in export values, especially for minerals, to newfast-growing markets such as India and China.For example, EAC exports to the OECD countries were over 20 times the value ofthose to China in the first half of 2008 ($1.9 billion versus $88 million) but two yearslater were only six times higher ($1.7 billion versus $259 million). However, most ofthis new trade with China is in primary commodities, particularly precious metals,which are low value-added and/or capital intensive.Regional integration in Africa has not provided a springboard for new exports to theglobal economy, as happened in East Asia, and cross-border trade remains primarilyinformal because the costs of trading across borders in Africa remain very high.
A key objectives in Africa is to diversify the export base away fromdependence on commodities and implement policies that allowmore people to participate in trade.Regional integration and the boosting of intra-regional trade canplay a critical role in achieving these objectives in Africa. Deeperintegration of regional markets can lower trade and operatingcosts and relax the constraints faced by many firms in accessingthe essential services and skills that are needed to boostproductivity and diversify into higher value-added production andtrade.
There has been considerable success in removing tariffs on intra-regional trade,especially in Eastern and Southern Africa where, for example, the EAC hasimplemented a Customs Union and 85 per cent of intra-regional trade in SADC isduty free.Nevertheless, the importance of tariff preferences has diminished. In the modernworld economy the scope for tariff preferences to drive economic integration andeconomic development has been very much neutered. This reflects, first, that allcountries in Africa reduced their external tariffs during the final 20 years of thelast century. This has reduced the scope for significant trade preferences in all buta few sectors.Second, and more important, as tariffs have come down the need to address arange of non-tariff barriers that severely limit corss-border trade has becomeapparent. At the same time, the declines in communication costs and the splittingup of production chains to allow different tasks to be completed in differentlocations have transformed the nature of global trade. This has put a highpremium of on low transaction costs for shifting goods, services, people, andcapital across borders.
But trade priorities have moved beyond tariffs. Old regionalism focused onthe mutual exchange of tariff preferences and trade in goods. The newregionalism concerns a wide range of regulatory issues and is about the"trade-investment-services nexus".One imperative is to address the long-standing problem of overlapping tradeagreements that have different commitments. Many countries are party tomultiple agreements. This hampers trade flows by raising the costs involvedfor trades in meeting multiple sets of trade rules and gives rise toinconsistencies in the rules and procedures applied by the different tradeagreements, distorting regional markets and causing severe problems ofeffective implementation.
-There is also the potential for regional production chains. In Asia,advanced production networks have deepened regionally and underpinnedits spectacular global export growth from a poor, underdevelopedagricultural backwater to becoming the global factory over a 50-yearperiod. In the 1960s, developing Asian economies lacked natural resourcesand had high levels of poverty. There seemed to be little prospect ofeconomic advancement. However, Asian economies had ample supplies ofinexpensive, productive manpower, not unlike many African countriestoday. They were also close to an expanding high-income Japan, with firmsseeking to expand to lower cost destinations. Subsequently, intra-regionaltrade in Asia increased significantly, particularly in the production of partsand components with each process relocating to the most cost-effectivedestination in the region.
Selected intra- and inter-regional merchandise trade (excluding intra-EU), 1990 (Billion dollars and percentage in world trade) Central / Eastern Europe and former USSR Western 25 billion $ Europe 1.1 % 178 190 120 billion $ Asia billion $ billion $ % 5.1 North America excl. Mexico 7.6 % 8.1 % 342 billion $ 14.5 % North America excl. Mexico Western Europe 9 billion $ 254 billion $ 0.4 % 10.8 % 311 billion $Latin America and the Middle EastAsia Africa Western Europe 13.2 % 77 billion $Caribbean 115 billion $ 3.3 % North America excl. Mexico 4.9 %123 billion $ 6 billion $ Western Europe Asia5.2 % 0.3 % 268 billion $ 20 billion $ 11.4 % 0.9 % : regional intra-trade 12
Selected intra- and inter-regional merchandise trade (excluding intra-EU), 2000 (Billion dollars and percentage in world trade) 29 billion $ CIS Europe 0.6 % 418 482 108 billion $ Asia billion $ billion $ 2.3 % North America excl. Mexico 8.8 % 10.1 % 653 billion $ 13.7 % North America excl. Mexico Europe 23 billion $ 461 billion $ 0.5 % 9.7 % 815 billion $ Africa Europe Middle EastAsiaLatin America and the 137 billion $ 17.1 % 176 billion $Caribbean 2.9 % 3.7 % North America excl. Mexico400 billion $ 14 billion $ Europe Asia8.4 % 0.3 % 490 billion $ 61 billion $ 10.3 % 1.3 % : regional intra-trade 13
Selected intra- and inter-regional merchandise trade (excluding intra-EU), 2009 (Billion dollars and percentage in world trade) 87 billion $ CIS Europe 1.0 % 442 560 385 billion $ Asia billion $ billion $ 4.3 % North America excl. Mexico 5.0 % 6.3 % 911 billion $ 10.2 % North America excl. Mexico Europe 107 billion $ 623 billion $ 1.2 % 7.0 % 1846 billion $ Africa EuropeLatin America and the Middle EastAsia 311 billion $ 20.7 % 520 billion $Caribbean 3.5 % 5.8 % North America excl. Mexico547 billion $ 45 billion $ Europe Asia6.1 % 0.5 % 1067 billion $ 142 billion $ 12 % 1.6 % : regional intra-trade 14
Intra-regional merchandise trade, 1990 Central / Eastern North Europe and former America Western 24% USSR excluding Europe Mexico 71%* 34% Middle East 6% Africa Asia 6%Latin America andthe Caribbean 14% 42% Legend X% Intra trade share Extra trade share * 29% for Western Europe excluding intra-EU 15 trade
Intra-regional merchandise trade, 2000 North Commonwealth of America Europe 20% Independent States excluding Mexico 73%* 34% Middle East 9% Africa Asia 9%Latin America andthe Caribbean 31% 49% Legend X% Intra trade share Extra trade share * 27% for Europe excluding intra-EU trade 16
Intra-regional merchandise trade, 2009 Commonwealth of North Independent States America Europe 20% excluding Mexico 72%* 28% Middle East 16% Africa AsiaLatin America and 12%the Caribbean 31% 52% Legend X% Intra trade share Extra trade share * 29% for Europe excluding intra-EU trade 17